Creating an even plane field

Published On 05/06/2014 | By Susan Zhuang | Authorisations, Consumer protection, Enforcement, Reform

On 4 June 2014, ACCC Commissioner Dr Jill Walker spoke at the Swinburne Aviation Industry Conference on competition issues in the Australian aviation sector. Dr Walker’s speech is a timely reminder of the numerous competition and consumer issues affecting the Australian aviation market, which remains concentrated but is undergoing significant industry change.

Cartel investigations and hefty fines

Airlines have felt the sting of enforcement action across the world in the long-running international air cargo cartel investigation relating to alleged collusion on fuel and security surcharges. In Australia, the ACCC pursued enforcement action against 15 airlines and reached settlement agreements with 13 of them. As we previously blogged, the agreed penalties against the 13 airlines total $98.5 million. The Federal Court of Australia heard the ACCC’s application against the two remaining airlines, Garuda Indonesia and Air New Zealand, from late 2012 to mid-2013 and judgment is currently reserved.

Across the Tasman, the New Zealand Commerce Commission took action against 13 airlines for their alleged involvement in the air cargo cartel. All 13 airlines eventually settled with the Commerce Commission, with NZD 42.5 million in penalties ordered.

The Commerce Commission also took action against six international air freight forwarders that it alleged were involved in a secret cartel to impose surcharges on freight forwarding services. All six companies settled, resulting in NZD 11.95 million of penalties.

Looking forward, Dr Walker reminded the industry conference that “while the industry is confronting many changes, competitive challenges are no excuse for cartels”.

Airline alliances

Airlines have also kept the ACCC busy with various authorisation applications related to international alliances and code-sharing. In September 2013, the ACCC re-authorised the Virgin Australia / Air New Zealand alliance (see our post here). In March 2013, the ACCC granted conditional authorisation for the Qantas / Emirates alliance (see our post here). In authorising these alliances, the ACCC weighed the public benefits they were likely to bring (including enhanced products and service offerings or increased operational efficiency) against the competitive detriments (such incentives to reduce or restrict capacity on particular routes).

Price signalling extension?

Earlier this year, public comments by two airline executives regarding future capacity prompted ACCC Chairman Rod Sims to publicly call for Australia’s price signalling laws to be extended beyond the banking industry. The price signalling laws and their scope are likely receive some attention in the current “root and branch” Competition Policy Review (see our posts on the Review here and here, and on the Review panel here).

Enforcement on “drip pricing”

Dr Walker also identified “drip pricing” as an important enforcement priority for the ACCC. Drip pricing involves advertising a “headline price” to a consumer at the start of the booking process and then incrementally revealing additional fees and charges throughout the booking process so that final price is not disclosed until the end of the booking process. Rod Sims similarly described drip pricing as an “emerging concern” in the online marketplace and named it as one of the ACCC’s 2014 priorities (see our alert on the 2014 priorities here). Drip pricing is said to be prevalent in online sales of airfares, event tickets and car rentals. Mr Sims has signalled that enforcement action is imminent.

Airports

On the airport side, the ACCC monitors prices, costs, profits and the quality of aeronautical and car parking services at Sydney, Melbourne, Brisbane and Perth airport. None of Australia’s airports are currently subject to the access regime in Part IIIA of the Competition and Consumer Act 2010, although they have been subject to access declarations in the past.

Pressure to remove foreign ownership restrictions to allow airline mergers in the future?

At the recent IATA annual meeting, executives of multiple airlines have pushed for governments to lift foreign ownership restrictions and pave the way for full airline mergers and consolidations (see the SMH report here). The chief executive of IAG, which owns British Airways and Iberia, described joint ventures (such as the Qantas/Emirates and Virgin/Air New Zealand alliances) as “poor substitutes” for airline mergers.

In Australia,  the Qantas Sale Act 1992 currently restricts total foreign ownership of Qantas to 49%, total ownership by foreign airlines to 35% and ownership by any single foreign investor to 25%.   In March, the Coalition introduced the Qantas Sale Amendment Bill to remove these foreign ownership restrictions so that Qantas would be subject to the same foreign ownership rules that apply to other Australian airlines.  The Air Navigation Act 1920 limits total foreign ownership of any other Australian international airline to 49%, and the Bill makes clear that this 49% cap would then apply to Qantas also.  The Senate Economics Legislation committee recommended that the Bill be passed, with Labor, the Greens and Senator Nick Xenophon dissenting.  The Bill is unlikely to pass the Senate as Labor, the Greens and the Palmer United Party have all indicated they oppose the Bill.

Stay tuned to the blog for updates on the Review and future ACCC activity affecting the aviation industry, such as potential future enforcement action on drip pricing.

Photo creditKevin Dooley / Flickr / Creative Commons Attribution 2.0 Generic (CC BY 2.0) (cropped and remixed to black and white)

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About The Author

is a solicitor in the Competition and Regulatory team of King & Wood Mallesons, based in the Sydney office. As an avid online shopper, she takes a keen interest in consumer protection issues.

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