ACCC v Flight Centre
Travel Group Ltd

Snapshot

High Court

Judges
Chief Justice French
Justice Kiefel
Justice Gageler
Justice Nettle
Justice Gordon

Result
Appeal allowed
14 December 2016
(by 4-1 majority)
[2016] HCA 49

Special Leave Granted
11 March 2016

Case No B15/2016
High Court case page

High Court Hearing
27 July 2016

Appellant
ACCC

Counsel for Appellant
J T Gleeson SC
M R Hodge
R C A Higgins

Solicitor for Appellant
Australian Government Solicitor

Respondent
Flight Centre

Counsel for Respondent
Mr B Walker SC
Mr M I Borsky

Solicitor for Respondent
King&Wood Mallesons

Intervener: Amicus curiae
International Airline Transport Association

Counsel for the Intervener
Mr M H O'Bryan QC
Mr N De Young

Solicitor for Intervener
Minter Ellison Lawyers

Federal Court

Penalty appeal

Year
2017

Citation
[2018] FCAFC 53

Full Federal Court

Appeal

Year
2015

Citation
[2015] FCAFC 104

Judges
Chief Justice Allsop
Justice Davies
Justice Wigney

Hearing
20-21 November 2014

Appeal lodged 17 April 2014
(ACCC cross-appeal lodged on 8 May 2014 )

Judgment
Appeal allowed

Paragraphs
185

File number and registry
QUD150/2014

Appellant
Flight Centre

Counsel for Appellant
Mr B Walker SC
Mr M I Borsky

Solicitor for Appellant
King&Wood Mallesons

Respondent
ACCC

Counsel for Respondent
Mr K N Wilson QC
Mr M R Hodge

Solicitor for Respondent
Australian Government Solicitor

Intervener
International Airline Transport Association

Counsel for the Intervener
Mr M H O'Bryan QC
Mr N De Young

Solicitor for Intervener
Minter Ellison

Federal Court

Trial

Year
2013
2014 (penalties)

Citation
[2013] FCA 1313
[2014] FCA 292

Judge
Justice Logan

Issues
Anti-competitive agreements
Price fixing

Counsel for Applicant
Mr K Wilson SC
Mr M Hodge

Solicitor for Applicant
Aust Government Solicitor

Counsel for Respondent
Mr S Doyle SC
Mr P Franco
Mr D Clarry

Solicitor for Respondent
King & Wood Mallesons

Experts
For ACCC
Dr Vincent Fizgerald

Copyright

Key issue

Were Flight Centre (agent) and the airlines 'in competition' in a relevant market?

Contravention alleged

Price fixing

Summary

The ACCC alleged that Flight Centre attempted to induce three airlines (Singapore Airlines, Malaysia Airlines and Emirates) to enter into a contract, arrangement or understanding to fix, control or maintain prices for air travel in contravention of the Act.

Background

Flight Centre provides travel agent services to customers, including booking international air travel as agents for certain airlines for which it received commissions. Customers could also purchase air travel directly from airlines. There was evidence that direct internet sales from airlines was rising during the relevant time period, but also that each of the relevant airlines sold approximately 80-85% of flight tickets through agents. The relationship between Flight Centre and the airlines was that of principal and agent (para 21 primary decision)

Airlines made published fares available to agents through an electronic reservation system - the Global Distribution System (GDS). Flight Centre would collect fares that it sold, remit the nett amount to the airline and retain the balance of the fare as commission. It was free to set the price at which it sold tickets to the consumer; it could, for example, sell at less than the published fare with the result that it would retain less commission (or even sell at a loss if it wished to do so) (para 17 appeal). Flight Centre could also derive additional ('back-end' commission) through 'preferred airline agreements' (typically incentive-based), which it entered into with each of the three relevant airlines - Singapore Airlines, Malaysia Airlines and Emirates. [para 18 appeal]

Not all seats were made available for sale by airlines, with some held back for promotions, and airlines could (and did) offer flights for sale directly at a price less than that published for agents on the GDS. The Full Court noted that it appeared this is what 'precipitated the actions of Flight Centre that were the subject of the alleged contraventions.' [para 24 appeal] In particular, as Flight Centre offered a 'price beat guarantee', pursuant to which it would better any advertised fare by $1 and give the passenger presenting evidence of the cheaper flight a $20 voucher, it would make a loss if airlines offered cheaper flights than the fares made available to agents via the GDS.

Claims

The ACCC alleged that Flight Centre attempted to induce three airlines (Singapore Airlines, Malaysia Airlines and Emirates) to enter into a contract, arrangement or understanding to fix, control or maintain prices for air travel and that this contravened s 45 with the aid of s 45A (which, at the time, deemed certain price fixing conduct between competitors to substantially lessen competition for purposes of s 45). This involved a series of emails whereby Flight Centre attempted to address problems it experienced associate with the airlines discounting their direct sales [para 28 appeal]

Flight Centre denied the claim, arguing 'that there can be no lessening or likely lessening of competition in circumstances where the provider of the air travel remains the same whether that travel is sold to a retail consumer directly by the airline or for that same airline via a travel agent such as Flight Centre' and that, 'in attempting to have the airlines concerned allow it to access international air travel fares at the same price as the airlines concerned sold such travel by direct retail sale, it was attempting to induce them not to lessen but to increase competition.' [para 7 trial judgment]

The details of the alleged attempts are set out from para 81 of the trial judgment. They essentially involved correspondence the ACCC alleged had the effect of proposing that the relevant airlines make an arrangement or understanding with Flight Centre that the airlines would make available any fare they offered online and that that fare would be no less than the nett fare plus the Commission Flight Centre would be entitled to receive if they had sold the fare [see para 87 trial judgment].

For example, in the first email considered, sent in response to a discount online promotion by Singapore Airlines, Flight Centre expressed concern at the discounting practice, noting that it resulted in significant losses because customers were requiring the discounted prices to be matched, and questioning why Singapore Airlines 'would want to undermine' Flight Centre's initiatives and asking about the Airlines' future intentions and commitment to the agency distribution network.

Trial decision and penalties

Justice Logan held that Flight Centre was in competition with airlines for distribution and booking services.

In addition, Flight Centre had attempted to induce the making of a contract, arrangement or understanding which would remove 'air fare differentiation so as to eliminate or reduce competition by a substitute, an airline, for the retail or distribution margin for distribution and booking services.' [para 197] In so doing, Flight Centre 'sought at least to maintain or control that margin and that was the likely effect of its attempts. Its conduct was an attempt to induce a contravention of s 45 of the TPA, as that section is read with s 45A' [para 197]

Flight Centre was ordered to pay $11m for six incidents of attempting to induce price fixing in contravention of s 45.

Appeal (Full Federal Court)

Flight Centre filed a notice of appeal on 17 April 2014 and the ACCC cross-appealed in relation to penalty on 8 May 2014.

On 31 July 2015 the Full Federal Court delivered judgment; Flight Centre was successful in its appeal and the ACCC ordered to pay costs. The decision was unanimous.

The Full Court found that there was no separate market for 'booking and distribution services to customers', with the result that Flight Centre did not compete with the airlines in that alleged market. The Full Court did, however, leave open the possibility that parties to an agency relationship may be found to be in competition in appropriate cases.

The ACCC's cross-appeal on penalties was dismissed.

High Court

On 11 March 2016 the High Court granted special leave to appeal. The hearing took place on 27 July 2016.

Before the High Court the issue in dispute was whether or not Flight Centre, who acted as agent for the airlines, were 'in competition' with those airlines. The High Court by majority (French CJ dissenting) held that they were. The market in which both airlines and Flight Centre competed was found to be in a market for the supply of contractual rights to international air carriage via the sale of tickets.

Importantly, the Court determined that it was possible for an agent and principal to be found to be in competition with each other in appropriate circumstances.

Majority

Justices Kiefel and Gageler: observed that under the agency agreement Flight Centre had authority to determine whether to sell and also had authority to set the prices for those tickets. As a result, it was 'free in law to act in its own interests' when selling the tickets (para 90). The market was a 'market for international airline tickets' and both the airlines and Flight Centre competed in that market.

Their Honours further observed that it was not inconsistent with the Act for agent and principle to both supply contractual rights against the principal and for them to do so in competition with each other (para 82); consequently any legal agency that existed did not preclude a finding that the parties competed with each other.

Justice Nettle: agreed parties were in competition for the sale of airline tickets and that Flight Centre had attempted to fix prices in that market.

Justice Gordon: agreed parties were in competition for the sale of airline tickets. Rejected any suggestion that the existence of an agency agreement precluded a finding that parties were in competition with each other. On the facts of this case her Honour considered that describing Flight Centre as a legal 'agent' was factually wrong (para's 152-153); in any event her Honour considered the characterisation as agent irrelevant for purposes of the price fixing provision.

Although a finding of actual effect on competition was not necessary (price fixing being per se prohibited), her Honour also considered that Flight Centre's proposal to the airlines that they increase their prices was 'necessarily to propose a lessening of downward competitive pressure on prices and, consequently, a reduction in the level of competition between Flight Centre and the airlines for the sale of airline tickets.' (para 132)

Dissent

French CJ dissented, observing that Flight Centre had no proprietary right to the air tickets and couldn't modify or vary terms; it could only determine the price at which the tickets were sold. His Honour was uncomfortable with the suggestion that agents could be found to be in competition with their principals, observing that the ‘proposition that an agent and a principal, both selling the services of the principal, compete with each other in a market for the sale of those services does not command ready assent’ (para 15).

His Honour concluded that Flight Centre's act in selling air tickets ‘was properly regarded as an action of the airline itself’ and that there was no market ‘for the supply of the tickets of a particular carrier’ (para 21). It followed that Flight Centre was 'not in competition, in any relevant market, with the airlines for which it sold tickets' (para 24).

Appeal on Penalty (Full Federal Court)

In May 2017 the Full Federal Court head an appeal and cross-appeal on penalties.

The Court ordered penalties totalling $12.5m (up from the originally imposed penalty of $11m)

Relevant provisions

Trade Practices Act 1974, s 4E, s 45, s 45A
(s 45A now repealed, but principles equally applicable to new cartel laws)

Catchwords (from decision)

Trade practices – Restrictive trade practices – Substantially lessening competition – Price fixing – Where travel agent sold international airline tickets on behalf of airlines – Where travel agent attempted to induce airlines to agree not to discount price at which international airline tickets offered directly to customers – Whether travel agent acting as agent for airlines – Whether travel agent and airlines "in competition" notwithstanding travel agent supplied as agent for airlines – Trade Practices Act 1974 (Cth), ss 45(2)(a)(ii), 45(3), 45A.

Trade practices – Restrictive trade practices – Market definition – Relevance of "functional approach" to market definition.

Words and phrases – "agency agreement", "agent", "competition", "functional approach to market definition", "international air carriage", "market", "price fixing", "substantially lessening competition".

Case links

Appeal (High Court)

• High Court case pageACCC v Flight Centre Travel Group Limited [2016] HCA 49 (14 December 2016)
  (High Court Judgment) (AustLII)

• ACCC v Flight Centre Travel Group Limited [2016] HCA 49 (14 December 2016)
  (High Court Judgment) (Jade)

• ACCC v Flight Centre Travel Group Limited [2016] HCA 49 (14 December 2016)
  (High Court Judgment) (High Court Page)

• ACCC v Flight Centre Travel Group Limited [2016] HCATrans 167 (27 July 2016)
  (transcript of HC Appeal) (AustLII)

• ACCC v Flight Centre Travel Group Limited [2016] HCATrans 167 (27 July 2016)
  (transcript of HC Appeal) (Jade)

• ACCC v Flight Centre Travel Group Limited [2016] HCATrans 59 (11 March 2016)
  (transcript of special leave application) (AustLII)

• ACCC v Flight Centre Travel Group Limited [2016] HCATrans 59 (11 March 2016)
  (transcript of special leave application) (Jade)

Appeal (Full Federal Court)

• Flight Centre Limited v ACCC [2015] FCAFC 104 (31 July 2015) (Federal Court)

• Flight Centre Limited v ACCC [2015] FCAFC 104 (31 July 2015) (AustLII)

• Flight Centre Limited v ACCC [2015] FCAFC 104 (31 July 2015) (Jade)

Decision at first instance

• ACCC v Flight Centre Limited (No 2) [2013] FCA 1313 (6 December 2013) (AustLII)

• ACCC v Flight Centre Limited (No 2) [2013] FCA 1313 (6 December 2013) (Jade)

Decision at first instance - penalty decision

• ACCC v Flight Centre Limited (No 3) [2014] FCA 292 (28 March 2014) (AustLII)

• ACCC v Flight Centre Limited (No 3) [2014] FCA 292 (28 March 2014) (Jade) 

Chief Justice Allsop
Justice Davies
Justice Wigney

The appeal

On 17 April 2014 Flight Centre lodged an appeal against the Federal Court's judgment in ACCC v Flight Centre Limited (No 2) [2013] FCA 1313 and against the penalties subsequently imposed. The grounds for appeal related to the 'the primary judge’s characterisation of the services supplied by the airlines and Flight Centre, and the finding that the airlines and Flight Centre competed in a market for the supply of distribution and booking services. In relation to penalty, Flight Centre’s sole appeal ground is that the pecuniary penalty imposed by the primary judge is manifestly excessive.' [para 6 appeal]

On 8 May 2014 the ACCC lodged a cross-appeal in relation to penalties, claiming the $11m penalty imposed on Flight Centre did not provide adequate deterrence.

On 31 July 2015 the Full Federal Court upheld Flight Centre's appeal and dismissed the ACCC's cross-appeal.

The decision

The Full Federal Court concluded:

[para 8] ... Flight Centre’s appeal should be allowed and the ACCC’s crossappeal should be dismissed. The primary judge erred in finding that Flight Centre and the airlines competed in a market for distribution and booking services. The impugned conduct in fact took place in the market for the supply of international passenger air travel, a market in which (as the primary judge found, and the ACCC does not dispute on appeal) Flight Centre acted as agent for, and not in competition with, the airlines.

Reasons

The Full Federal Court was required to consider both whether the parties competed in a relevant market (which was necessary in order to trigger the operation of the price fixing deeming provision in s 45A) and whether or not the conduct alleged amounted to price fixing (or attempted price fixing) pursuant to s 45A. At the relevant time s 45 prohibited contracts, arrangements or understandings having the purpose or effect of substantially lessening competition. Section 45A deemed certain price fixing arrangements between competitors to have the requisite purpose or effect.

Price fixing/anti-competitive conduct

The primary judge found that Flight Centre engaged in the alleged anti-competitive conduct in contravention of section 45. It was not necessary for the Full Court to consider this given their finding that the parties were not competitors in a relevant market.

Briefly, the Full Court observed that the:

ACCC’s pleaded case as to how the impugned conduct (the various proposed agreements with Singapore Airlines, Malaysia Airlines and Emirates), lessened or had the purpose or effect of lessening, competition in these alternative markets was equally [with respect to its pleadings on market] complex and convoluted [para 56]

The ACCC alleged that the agreements that Flight Centre had proposed in the email

[para 57] 'had the purpose, effect or likely effect of stopping the airlines from offering fares at a price less than the total of the nett fare (being the gross fare entered on GDS less the commission payable to an agent if the fare was sold at the gross fare) and the commission that Flight Centre would be entitled to be paid for its services if it sold the fare to a customer ... [and] that this would stop the airlines putting competitive pressure on, or enable Flight Centre to avoid having to discount, the price it charged for either its distribution and booking services or, in the alternative, the price it charged in respect of its supply or sale of international passenger air travel services. The ACCC alleged that in this way, the alleged agreements had the purpose or effect of either maintaining the price charged by Flight Centre for its distribution and booking services (in the alleged distribution and booking services market or markets) or fixing, controlling or maintaining the price charged by Flight Centre and the relevant airlines for the supply or sale of international passenger air travel services (in the alleged alternative markets).

Flight Centre admitted the emails were sent, but denied they had the purpose or effect contended (para 65).

The primary judge concluded that the emails revealed that Flight Centre wanted the airlines to stop undercutting the published fare on the GDS and that, as a result -

'the emails amounted to an attempt by Flight Centre to induct the airlines to enter into a contract, arrangement or understanding which would fix, control or maintain the fare or price for international air travel by the airlines. Because Flight Centre’s commission or margin depended on the price it was able to obtain from a customer for the flight, the purpose and effect of the proposed agreements was therefore also to fix, control or maintain Flight Centre’s retail or distribution margin ...' [para 73]

The findings of the trail judge in relation to the purpose and effect of the emails were not challenged on appeal (para 68).

The 'critical' issue - competition condition

The 'critical' issue at trial and on appeal was whether or not Flight Centre competed with airlines in a relevant market (see, eg, para 74). The primary judge found that the market was the 'market was the market for the supply of distribution and booking services in relation to available international passenger air travel' [para 5] and that Flight Centre and the airlines competed in this market.

The pleadings - ACCC

The Full Federal Court noted that the ACCC's pleading 'was complex and convoluted in the definition of the relevant market' (para 45), noting that three or four alternatives were alleged [emphasis added]:

[para 46] The first alleged market was the market for the supply of "distribution services" in Australia to international airlines by internal sales divisions of international airlines operating in Australia and travel agents ... Distribution services included the distribution of an airline’s international air transportation services, including the solicitation of customers, reservation, booking and ticketing services, and the collection of payment from customers ...

[para 47] The ACCC alleged that travel agents, including Flight Centre, competed with internal sales divisions of international airlines, including Singapore Airlines, Malaysia Airlines, and Emirates, in relation of the provision of such distribution services to international airlines ...

[para 50] The second market alleged by the ACCC was a market for the supply of "booking services" to customers by internal services divisions of international airlines and travel agents ... Booking services included advice to customers in relation to various aspects of international air transportation services, such as the availability and terms upon which such services could or would be provided by various airlines to various destinations, the preparation of itineraries and, perhaps most importantly, the reservation and booking of flights and the issuing of tickets.

[para 51] The ACCC alleged that the internal sales divisions of airlines competed with travel agents, including Flight Centre, in relation to the provision to customers of such booking services

[para 53] The third alleged market, pleaded in the alternative ... was the market for international passenger air travel services: in short, the market for international flights. The ACCC alleged that travel agents, including Flight Centre, sold international passenger air travel services of international airlines to customers ... It also alleged that some international airlines, including Singapore Airlines, Malaysia Airlines and Emirates, sold such services directly to customers ... Travel agents, including Flight Centre, were alleged to compete with international airlines, including Singapore Airlines, Malaysia Airlines and Emirates, in either the market for the supply of international passenger air travel services, or the market for the sale of such services ...

[para 55] The fourth alleged market, again pleaded in the alternative, was very similar to the third. The ACCC alleged that there was a wholesale market in which international airlines supplied international passenger air travel services to travel agents ... Travel agents then supplied international passenger air travel services to customers in a retail market for travel services ... In cases where international airlines, including Singapore Airlines, Malaysia Airlines and Emirates, also supplied international passenger air travel services directly to customers in a retail travel services market, they competed with travel agents, including Flight Centre, in that market ...

The pleadings - Flight Centre

Flight Centre denied that there was any market for distribution and booking services, instead contending there was 'a market for the supply of international passenger air travel services by airlines to customers' in which Flight Centre acted as agents for the airlines and that the 'sale of international passenger air travel services included incidental tasks, such as booking flights, issuing tickets and collecting payments from customers' [para 58]. Providing those incidental services, Flight Centre contended, did not occur in a separate market for supply and distribution of booking services. Flight Centre further argued that the internal sales divisions of airlines were not separate entities from the airlines themselves and that the airlines 'did not self-supply distribution services in competition with Flight Centre' (para 60).

In addition, Flight Centre denied there was a market, in which it competed with airlines, for the supply of booking services, although 'appeared to accept that there may have been a market for the provision of travel advisory services' in which travel agents competed with each other (para 61).

In brief:

[para 64] Flight Centre’s case was that, when it (or any other travel agent) sold international passenger air travel services to a customer as agent for and on behalf of an airline, it was simply providing agency or selling services to the airline, for which it received commission and other payments from the airline. It was not, in any sense, competing with the airline in a market for the supply of international passenger air travel services to customers. Nor was it competing with airlines in relation to the provision of agency or selling services. It was providing such services to the airline, not in competition with it.

The Court summarised ten grounds of appeal put by Flight Centre (para 99)

The first three grounds relating to the issue of whether the airlines and agents competed. The Court noted that the essence of those submissions (re competition) was 'that the rivalrous conduct or competition that the primary judge found to exist between Flight Centre and the airlines could not be competition for the purposes of s 45A of the Act.' (para 101) The relevant competition, they argued, was for the sale of international passenger air travel services and any competition between the airlines and its agents for these services was not competition for purposes of s 45A, because that section 'requires that the competition be competition between the parties to a contract, arrangement or understanding in respect of the particular supply of the services the price of which is said to have been fixed, controlled or maintained' (para 102) and the primary judge had held that the airlines did not compete with their agents for the supply of these services because only the airlines supplied those services; Flight Centre supplied them only as agent for the airlines (para 102).

The second three grounds (4-6) related to the finding that there was a market for distribution and booking services in which Flight Centre and the airlines competed. Flight Centre argued that no such market existed, with booking 'simply an essential and inseparable incident of the supply of international passenger air travel services' (para 10). Even if they could be considered separate, any distribution and booking services supplied by agents 'were significantly different to such services supplied by the airlines' with the result that there was no substitutability (para 106).

The third three grounds (7-9) related to the findings of the primary judge in relation to the fixing, controlling or maintaining of price.

The final ground (10) related to penalties - arguing the total penalty of $11m was manifestly excessive.

Decision of primary judge

In relation to the first and second alleged markets, the primary judge accepted that travel agents and the relevant airlines 'provided distribution and booking services in relation to international flights', but -

'characterised the provision of these services as occurring in a single market where intermediaries, such as Flight Centre and other travel agents, competed with international airlines in relation to the provision of such distribution and booking services. His Honour did not appear to accept that competition was between travel agents and the internal sales divisions of the airlines' [para 52]

The Full Federal Court noted that the primary judge also 'appeared to accept that there was a market for the supply of international passenger air travel services – flights – by international airlines to consumers. ...' (para 77). However, the primary judge also found that Flight Centre did not, itself, supply international passenger air travel services to consumers, with the result that it did not compete with airlines in this market. (para 79)

The primary judge instead identified Flight Centre as a 'travel intermediary' and found that, as such, it 'provided distribution and booking services' in relation to availability international travel to the airlines and to customers (para 82).

The Full Court noted that the primary judge appeared heavily influenced by expert economic evidence given by Dr FitzGerald, called by the ACCC; they summarised his opinion (accepted by the primary judge) as follows [para 89]:

... Dr FitzGerald’s opinion was that when travel agents and airlines sold flights to consumers in the retail market for international travel, they also simultaneously provided distribution and booking services to both the airlines and the customers. And those services were supplied in a market separate and distinct from the market for international travel itself.

The primary judge did not, however, accept the ACCC's contention the airlines' internal sales division supplied the distribution and booking services in competition with the travel agents; rather the airlines (as the only legal entities) supplied those services (para 95)

The primary judge also did not accept Flight Centre's contention that the relevant supply, when a customer purchased a ticket, involved only the air travel, with distribution and booking being merely incidental to the supply of the flight (para 97)

Full Court

The Full Court noted that:

[para 112] The resolution of the main issues raised in this appeal hinges on the proper characterisation of the service or services supplied by airlines and travel agents when an international “flight” (international passenger air travel service) is sold or supplied to a customer, either directly by the airline or through the airline’s agent. It is only when the relevant service or services are properly identified that it is possible to determine or define the relevant market or markets in which the airlines and travel agents operate. It is necessary to identify the relevant market in order to determine whether a provision of a proposed contract, arrangement or understanding between Flight Centre and the airlines had the purpose or effect of substantially lessening competition for the purposes of s 45 of the Act. And it is necessary to identify the relevant services, and the relevant market, to determine whether the deeming provision in s 45A of the Act is engaged, giving s 45 a per se operation.

The Court made reference to the decision in ACCC v ANZ [2015] FCAFC 103, summarising 'critical points' from that matter - which involved 'not dissimilar facts and considerations' - as follows:

[para 116] First, the parameters or boundaries of a market are generally described by reference to product (the nature and characteristics of the relevant goods or services), function (wholesale, retail or both) and geography (for example, national, state or local): Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317 at [378]. Section 4E of the Act makes it plain that in relation to the product dimension, substitutability is critical. In simple terms, substitutability means that buyers and sellers will substitute one product for another in response to changes in prices. If the products are not substitutes in this respect, they are not in the same market.

[para 117] Second, market identification is not an exact science. It is rooted in the analysis of commerce as an aspect of human behaviour: ACCC v ANZ at [135]. It “involves value judgments about which there is some room for legitimate differences of opinion”: Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Company Ltd (1989) 167 CLR 177 at 195-196.

[para 118] Third, a market is “not a feature of the real world” but rather “an analytical tool devised by economists”: Seven Network Ltd v News Ltd (2009) 182 FCR 160 at [827]. It is an instrumental concept which, in the context of Part IV of the Act, is adapted to analyse the asserted anticompetitive conduct in the commercial context the subject of analysis: Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2006) ATPR 42-123; FCA 826 at [429]. It follows that the identification of a market in any given case is generally therefore purposive and directed to the problem or issue at hand: ACCC v ANZ at [136].

[para 119] In the present context, the process of identifying or defining the relevant market or markets is undertaken in order to analyse and determine whether the asserted anti-competitive conduct (the proposed agreements between Flight Centre and the airlines) had the purpose or effect of fixing or controlling the price of any services that both Flight Centre and the airlines supplied in competition with each other in a market.

[para 120] Fourth, whilst a market is an economic analytical tool, it must nonetheless have economic and commercial reality. It must therefore be based on findings of fact: Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 174. It must accurately and realistically describe and reflect the interactions between, and perceptions and actions of, the relevant commercial community: ACCC v ANZ at [138]. This was recognised by the primary judge, who said the following concerning the identification of a market (at [108]):

Thus, a market is not an artificial economic construct but rather a place, actual or nominal but recognisable not just by economists but also by its participants, be they suppliers or consumers, in which forces of supply and demand interact in the conduct of trade, a profession or commerce.

This statement is correct insofar as it recognises that a market cannot be defined in artificial terms. A market serves little purpose as an economic analytical tool if it is contrived and does not reflect commercial reality. It is, however, an overstatement to suggest, at least in the present context, that a market must be an actual “place” or is something more than an economic concept.

[para 122] Fifth, it is not always useful to describe the relationships and arrangements in a market by reference to economic jargon that is not reflected in the language of the Act. That includes descriptions of arrangements or relationships as “horizontal” or “vertical”: Visy Paper Pty Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 1 at [23]-[26]. It might equally include expressions such as “upstream” and “downstream”. ... The primary judge accepted that the use of such terminology must be approached with caution (at [111]). It may obscure, rather than illuminate.

Did Flight Centre and the airlines compete in a market for the supply of distribution and booking services?

The Full Court had regard to the principles set out above to consider this key question. After noting that the primary judge classified the market as

• the 'market for distribution and booking services in respect of available international air travel' and

• the 'downstream or distribution functional level of the overarching market for international travel and ancillary products (para 124, citing para's 137 and 139 of the primary judgment respectively)

the Court made two observations:

• The market definition adopted did not correspond with any pleased market - the pleading alleged separate markets for distribution and booking services (para 126)

• Second, the definition 'lacks precision and clarity' (para 127) necessary for determining whether the relevant services provided by Flight Centre were substitutable for the services provided by the airlines (and vice-versa)

The Court noted that affixing labels like 'intermediary services' or 'booking and distribution services' obscures 'proper consideration and characterisation of the relevant supplies and the relevant market or markets'. Instead, it was 'necessary to consider closely and separately exactly what was said to have been supplied to the airlines and what was said to have been supplied to consumers' (para 129).

Supply of services to airlines

The Full Court observed that much of the reasoning of the primary judge concerned services agents supplied to airlines, described as 'bringing the availability of the airlines’ flights to the attention of the consumers, and booking and collecting the fares on the airlines’ behalf' (para 130), for which agents were remunerated in the form of a commission and other payments. The critical question was, then, whether 'airlines provided the same or similar (that is substitutable) services in competition with Flight Centre', the primary judge finding that they did, because airlines could choose to make 'availability of their flights directly known to would-be passengers and undertake directly with the passengers the booking of those flights' (cutting out the middle man) (para 132)

The Full Court had several problems with this conclusion and reasoning:

• First, they considered it 'artificial to characterise the activities of an airline in selling a flight directly to a consumer (including ancillary activities such as making the flight known to the consumer, via its website or otherwise, and booking the flight) as the provision, by the airline, of a service to itself. ... First, it is artificial to disaggregate or split the direct supply of a flight by an airline into two supplies: the supply of the flight to the consumer and the supply to the airline, by the airline, of a selling or distribution service. Second, the very notion of self-supply in these particular circumstances is artificial and lacks commercial reality. That is particularly so given the absence of any finding that the airlines had separate or discrete internal divisions that supplied such services. And third, it is artificial to regard the offer, or provision, by an airline to itself, of any services as being rivalrous or competitive with the agency services that the airlines had retained its agents, such as Flight Centre, to provide.' (para 135)

The Court noted that there may 'be some circumstances or contexts where it is open and relevant to view a single legal entity as comprising separate economic units that are responsible for different stages in the production process.... The in-house producer might be included in the relevant market for that particular product, even though it only supplies to a separate unit of the same firm: ... But this was not such a case. The internal sales divisions contrived by the ACCC were artificial constructs that did not accurately reflect the commercial reality' (para 137)

• Second, 'characterisation of distribution services relates to the finding that the airlines competed with their agents, including Flight Centre, in supplying distribution services to themselves. This involved a finding that the distribution services supplied "in-house" were substitutable for the agency services supplied by Flight Centre and the other agents. The primary judge based his finding of substitutability entirely on the fact that the airlines could, if they chose to do so, supply flights direct to the consumer rather than through its agents. Yet the mere fact that the airlines could choose to sell their flights directly rather than through agents says nothing about whether any "in-house" distribution services were similar to, or close substitutes for, the services provided by agents. A decision by an airline to sell flights directly to the public may have nothing whatsoever to do with the similarity or substitutability of Flight Centre’s agency services.' [para 138]

[para 139] 'The substitutability of different products is usually analysed by reference to the actions of consumers in response to price movements. Yet the primary judge did not approach the question of substitutability by reference to price. His Honour based his findings concerning substitutability on the fact that airlines could choose to "cut out the middle man", but gave no consideration to whether that choice was in any way driven or motivated by considerations relating to the “price" charged by the agents as opposed to the actual or notional price of the self-supply of distribution services. The primary judge found that the price for the agents’ supply of distribution services was the margin or commission retained by the agents after remitting the nett fare to the airlines. There was, however, no evidence that the airlines chose to self-supply (sell their flights directly) because of movements in the margin or commission earned by agents, such as Flight Centre. Nor was there any evidence or analysis of the price, if any, attributed by the airlines to their self-supply of distribution services. It seems simply to have been assumed by the primary judge that airlines chose to sell directly because they would then be able to retain the gross fare. It is at best unclear whether that assumption had any evidentiary foundation.

• Third, the Full Court queried in 'what market or markets did the airlines offer and supply' the relevant distribution services? [para 140]. The primary judge identified a single market in which the airlines and travel agents competed for supply of distribution services; the Full Court concluded 'no such single market could exist' [para 141].

'The fundamental difficulty with this broad market definition is that, whereas Flight Centre, by reason of its agency agreements with the different airlines, could and did sell or supply flights offered by multiple airlines, the airlines could only, and did only, supply (self-supply) distribution services in respect of their own flights. Thus, the airlines could not sensibly be considered to compete with each other in relation to the supply of distribution services generally. For example, Singapore Airlines could not be considered to compete with Malaysia Airlines in relation to the supply of distribution services to Malaysia Airlines. Nor, for that matter, could Singapore Airlines, for example, sensibly be considered to compete with Flight Centre in relation to distribution services relating to Malaysia Airlines flights. If there was any competition between Flight Centre and Singapore Airlines in relation to distribution services, it could only have been in a market for distribution services relating to Singapore Airlines flights.' [para 142]

'It follows that even if travel agents such as Flight Centre and the airlines supplied distribution services, they did so in a number of separate and distinct markets. In this scenario, there would be separate markets for the supply of Singapore Airlines’ flight distribution services, Malaysia Airlines’ flight distribution services, Emirates’ flight distribution services and so on. There could be no single market for distribution services to airlines.' [para 143]

'This again reveals the artificiality and inherent lack of commercial reality in the market analysis by the primary judge. To use or adapt the words of the primary judge (at [108]), the existence of a series of such distribution services markets could be no more than an "artificial economic construct". Such markets would not be "place[s], actual or nominal … recognisable not just by economists but also by [their] participants, be they suppliers or consumers, in which forces of supply and demand interact in the conduct of trade, a profession or commerce" (at [108]). There is no evidence that Flight Centre or the airlines recognised the existence of separate markets for the distribution of each airline’s flights.' [para 144]

'There was some evidence that Flight Centre recognised the existence of some competitive or rivalrous aspects to their relationship with the airlines. But such rivalry or competitiveness that did exist was not rivalry in relation to any market for the supply of distribution services supplied by airlines and travel agents. Rather, it was rivalry in the context of the market for the supply of international passenger air travel services.' [para 145]

Supply of services to consumers

The Full Court next considered 'what services were supplied to consumers and by whom?' In particular, did Flight Centre and the airlines supply any services that could be properly characterised as booking services: 'There is no question that consumers were supplied with international passenger air travel services, but were they separately supplied with booking services?' [para 146]

The primary judge concluded agents and airlines competed for the supply of booking services to consumers - a service distinct from international air travel, and included providing information about available flights and best fare and then booking the desired flight. Their Honours considered that there were several problems with the 'analysis and conclusions of the primary judge in this respect' (para 148):

• First, artificiality. 'The services described as booking services were in reality no more than essential and inseparable incidents or actions involved in selling international passenger air travel services. Before a ticket on a flight is sold, the price and availability of the flight would almost of necessity be provided to the would-be purchaser. Equally, when a ticket is sold, the next necessary step is the issue of a ticket and the reservation or booking of the relevant flight, either immediately or in due course. It is entirely artificial to conceive of the airline separately providing a booking and ticketing service in these circumstances. The so-called booking services are simply part and parcel of the supply of the international air travel itself. Exactly the same applies when the flight is sold on the airlines behalf by an agent, such as Flight Centre. There is no separate supply of a booking service.' [para 149]

• Second, 'the services which were described by the primary judge as "booking services" clearly fell within the terms of the standard form of agency agreement, the PSAA, to which Flight Centre and the airlines were parties. Clause 3 of that agreement, extracted earlier, clearly provided that the sale of air passenger transport by the agent (Flight Centre) on behalf of the principal (the airline) included issuing a valid document (ticket) and the collection of money. The agent was also authorised to supply "ancillary services" on behalf of the airline as part of the agency agreement. The booking of a flight that had been purchased could accurately be characterised as an ancillary service.' [para 152]

The Full Court considered there were two implications flowing from this:

• 'First, booking and ticketing were plainly included in and were inseparable from the sale of the international passenger air travel services itself.' [para 153]

• 'Second, those services, and any ancillary services, were supplied by agents, such as Flight Centre, for and on behalf of the airline. That means that when Flight Centre supplied booking, ticketing and other ancillary services to consumers, it did so on behalf of the airlines. It did not supply the services itself.' [para 153]

The Full Court noted:

'... the primary judge concluded that Flight Centre did not supply international passenger air travel services to consumers ... because, when it sold a flight, Flight Centre did so on behalf of the airlines. ... Flight Centre supplied such services on behalf of the airlines. It did not supply the services itself. It follows that there could be no relevant competition between Flight Centre and the airlines in relation to any booking services' [para 154]

Their Honours referred to Castlemaine Tooheys, relied upon by Flight Centre, to support his argument. The primary judge had distinguished this case. The Full Court, however, considered that the points of distinction identified by the primary judge did not answer the relevant question of whether Flight Centre supplied relevant services to consumers:

'Flight Centre provided all such services that may have constituted booking services to the airlines. Any such services provided to the consumers by Flight Centre were provided on behalf of the airlines. Therefore, there could be no market for the supply of booking services to consumers in which Flight Centre competed with the airlines. There was therefore no booking services market and no competition between Flight Centre and the airlines in relation to the supply of such services to consumers for the purposes of ss 45 and 45A of the Act.' [para 160]

Their Honours identified a further difficulty with defining a single 'booking services market':

'... It is similar to the problem identified in relation to the so-called distribution services market. Whilst Flight Centre could, by reason of its agency agreements with the airlines, supply booking services in respect of international passenger air travel services offered by numerous airlines, the airlines could only supply booking services in relation to their own flights. It follows, for example, that Singapore Airlines could not provide booking services for Malaysia Airlines or Emirates flights or vice versa. It follows that the airlines did not compete with each other in any single market for the supply of booking services in relation to available flights. Equally, when Flight Centre supplied booking services in respect of, for example, Singapore Airlines flights, it was not in any relevant sense competing with Malaysia Airlines in relation to the supply of booking services' [para 164]

'It follows that if there was any competition between Flight Centre and the airlines in relation to the supply of booking services, that competition occurred in a series of separate markets. There was no single booking services market in which all the airlines and all the travel agents relevantly competed.' [para 165]

Their Honours also also identified problems of substitutability associated with the primary judge's conclusions as to a booking services market:

'The primary judge gave no consideration to whether any booking services supplied by Flight Centre to consumers were similar to and close substitutes for booking services supplied by the airlines. The primary judge only considered substitutability in relation to the supply of distribution services to the airlines. Flight Centre was able to provide advice concerning the availability of flights from a broad range of airlines. The individual airlines could not. Likewise, Flight Centre could provide booking and ticketing services in relation to the flights offered by many airlines. Individual airlines could not. In these circumstances it is difficult to see how any booking services supplied by Flight Centre were close substitutes for booking services supplied by the airlines.' [para 166]

'The question of substitutability of any booking services supplied to consumers by Flight Centre with the booking services supplied by the airlines is also complicated by the fact that there was no analysis of whether changes in the price of booking services supplied by Flight Centre would cause consumers to purchase from the airlines. That is not surprising given that neither Flight Centre nor the airlines exacted any price from consumers in respect of so-called booking services. There was no basis for any finding of substitutability and therefore no basis for any finding that Flight Centre competed with the airlines in a market for the supply of booking services.' [para 167]

Agency relationships generally

The Full Court did note, however, that the mere fact an agency relationship exists does not mean those parties cannot be in competition with each other - each case will turn on its own facts:

'It is necessary to emphasise, however, that the existence of an agency relationship between two parties does not always mean that those two parties cannot be in competition with each other for the purposes of Part IV of the Act. Each case must be considered on its own facts. The precise nature of the agency relationship will no doubt be important, particularly given the broad range of commercial relationships that are sometimes referred to as involving agency.... If the so-called agent was in fact no more than a distributor or re-seller of the other party’s product, there may well be competition between parties to such an agreement in relation to the supply of the product. But the position is likely to be different where, as here, the agent has the power and authority (and accompanying legal and equitable duties) to contract – sell the product – for and on behalf of the principal. It is less likely that an agent, in that strict or core sense, can relevantly be considered to compete with its principal in relation to the supply of products within the scope of the agency agreement'. [para 164]

Conclusion

The Full Federal Court concluded that Flight Centre and the airlines did not compete in a market for booking and distribution services and the 'primary judge was wrong to conclude otherwise' (para 168). As a result, Flight Centre succeeded in relation to grounds 4, 5 and 6 of their appeal and this was determinative of the appeal. The Court did, however, give some consideration to the other grounds of appeal raised.

Was there relevant competition between Flight Centre and the Airlines for purposes of the provisions?

'The primary judge found that Flight Centre was competitive or rivalrous with the airlines' based, in part, on Flight Centre's own understanding reflected in various documents. (para 171)

The Court noted that there was no doubt that 'the views and practices of the relevant commercial community may be relevant to the analysis of competition and market definition' (para 172) but, in this case, it was necessary to consider 'whether any such rivalrous or competitive sentiment or action existed in a market in which both Flight Centre and the airlines supplied services' (para 172)

'Upon close consideration of the relevant primary facts, it is readily apparent that any rivalry that existed as between Flight Centre and the airlines was in respect of the market for the supply of international passenger air travel services. In that market, travel agents, such as Flight Centre, plainly wanted to sell as many flights as they could on behalf of the airlines. The more flights they sold, the more commission (and other incentive-based payments under preferred airline agreements) they earned.' [para 173]

'In this context, disintermediation, or cutting out the middle man, was no doubt a commercial concern, if not a threat, for Flight Centre. The more flights the airlines reserved for direct sale to the public at prices not made available to their agents via a GDS, the fewer agency sales Flight Centre was able to make and the less commission it was able to earn.' [para 174]

'It is not difficult to see how such commercial concerns or considerations could be construed as giving rise to rivalrous or competitive sentiment or action on the part of Flight Centre. But that rivalry or competition concerned the supply of international passenger air travel services to consumers, not the supply of distribution services to the airlines or booking services to consumers. The rivalry or competition that existed was not in a market in which both Flight Centre and the airlines supplied goods or services in competition with each other. That was because, as the primary judge found, only the airlines supplied international passenger air travel services. Flight Centre operated in the market for such services, but only as an agent for the airlines. [para 175]

'The primary judge erred because he transferred or transplanted the rivalry or competition that he found existed, in a broad sense, in the market for the supply of international passenger air travel services, into a non-existent market: a market for distribution and booking services. That supposed market was in fact an artificial construct that did not truly reflect the commercial reality of the relevant commercial relationship and dealings.' [para 176]

'The impugned conduct, the agreements proposed in Flight Centre’s emails to the airlines, did not occur in a market in which Flight Centre and the airlines both supplied services in competition with each other. It occurred in the market for the supply of international passenger air travel services: a market in which the primary judge correctly found (and the ACCC does not now dispute) Flight Centre was agent for, and did not relevantly compete with, the airlines. To the extent that the conduct involved the fixing of prices, it was not caught by the deeming provision in s 45A because it did not occur in a market in which Flight Centre and the airlines competed in respect of the supply of services, as required by s 45A of the Act. The primary judge erred in concluding otherwise.' [para 182]

Other grounds of appeal

The Full Court did not consider it necessary to consider appeal grounds 7, 8 or 9; nor did it consider ground 10, concerning penalties.

Conclusion

• Flight Centre succeeded on grounds 1-6 of appeal

• Appeal allowed with costs

• Cross-appeal dismissed with costs.

Justice Kiefel

On 11 March 2016 the High Court granted special leave to appeal. See

• special leave outcome

• Australian Competition & Consumer Commission v Flight Centre Travel Group Limited [2016] HCATrans 59 (11 March 2016) (transcript of special leave application).

Mr Gleeson, for the ACCC, argued that the application

raises a very significant question about the application of market definition under the Trade Practices Act and now the Australian consumer and competition law and it arises from the conundrum which is posed by the Full Court’s judgment that there are concurrent findings of two independent, economic actors, Flight Centre on the one hand, airlines on the other hand, who are in rivalry and competition - that is established - and where one of those actors, Flight Centre, seeks to shut down that competition by attempting to induce the airlines to price fix and yet the Court says there is no market in which those economic actors are in competition.

Now, that conundrum is nowhere explained by the – or resolved by the Court or even addressed and the respondent does not address it. That is at the heart of our application, your Honour, that very important question of whether this can be a proper approach to market definition. That is the essence of it.

and in relation to Ground 3:

Ground 2 ... arises as a question of law. If one accepts the Full Court’s premise which we reject on ground 2 that the only market here is what I will call the “big market”, the market for the supply of international air passenger travel services, so if one takes that premise which we reject, there is an error of law seen most particularly in the last two sentences at paragraph 175 where the Court says:

That was because, as the primary judge found, only the airlines supplied international passenger air travel services. Flight Centre operated in the market for such services, but only as an agent for the airlines.

So, what has happened is the very same legal point which is whether the agency disqualifies competition in a market is the lynchpin of the court’s ruling. So, not only is a matter of law but the question that would be erased by it is the same legal question, namely, can you see there is rivalry and competition, can you find what you think is the relevant market and can you then say because of agency I ignore that rivalry and competition and instead I find that there are no competing supply of services. So, it is the very same legal error.

Mr Walker, for the respondents, argued (in part):

... it cannot be said that the Full Court was in error in proceeding upon the assertion by the regulator that Flight Centre and the airlines did not compete with each other, to adapt the language of the statutory definition, in a relevant market.

and

... The statutory provisions require there to be competition with each other in a specified market. As your Honours know, there has been toing-and-froing by the regulator as to where they would take their stand in this litigation as to what the market was. There is nothing wrong with alternative arguments. At least you can say about alternative arguments they are both presented but there was no presentation in the Full Court of an argument of a kind that they now seek special leave to run.

They did not argue that the parties were in competition with each other for the supply of international air travel services. They avowedly withdrew that contention by the way they ran the appeal. There was no notice of contention to challenge the trial judge’s correct rejection of that proposition as well. It is for those reasons, in our submission, that it cannot realistically be said that error is committed by the Full Court of a kind which includes that as a critical step.

The whole argument against us, at least as it is adumbrated in writing at this stage, has as a critical step that there was an error in failing to find that these parties were in competition with each other in the market for the supply of international air travel services. ...

... Well, the question of course is what did the Full Court find and the Full Court did not find that there was competition with each other in a market in which they were both engaged because the sales by my client were sales on behalf of the airlines. Every sale by my client was a sale by the airlines. That is the whole point.

Justice Kiefel responded:

'There will be a grant of special leave on all grounds. ...'

The time estimate for the appeal is one day