The Malaysia Competition Commission (MyCC) has issued a proposed decision to impose its first fines for breaches of the Malaysian Competition Act. The fines will be issued to the country’s two dominant airlines, Malaysia Airlines and AirAsia, for engaging in a market sharing arrangement which resulted in integration of some routes on which they competed.
The conduct was facilitated by a collaboration agreement entered into between the parties in August 2011, the purpose of which was to enhance core competencies and deliver better products and choice for consumers. In addition, the agreement involved a share swap which resulted in cross ownership stakes in the airlines; AirAsia effectively exchanged a 10% shareholding stake for a 20.5% stake in Malaysia Airlines.
Critically, from a competition perspective, the agreement also provided that Malaysia Airlines would operate only as a full-service premium carrier, with AirAsia operating as a regional low-cost carrier. The effect of this arrangement was to eliminate competition on the same routes, mutually benefitting both carriers.
The arrangement was short lived, lasting 8 months, following public complaints from consumer groups and pressure from Malaysia Airlines’ employee union. As a result, the MyCC initiated its investigation which resulted in the airlines each being fined RM10 million (approximately AUD3.27 million) based on turnover derived on the relevant routes.
As blogged about previously, this is not the MyCC’s first finding of anti-competitive conduct but it is the first decision proposing to impose financial penalties. In its first finding, the MyCC found the Cameron Highlands Floriculturist Association guilty of price fixing but chose to impose non-financial remedies. The MyCC’s proposed decision to fine the airlines in this case, however, appears to be firmly in line with its statement that it will take a tougher stance on enforcement.
The airlines have until 5 October 2013 to respond to the proposed decision, following which a final decision will be granted.