Flight Centre hit with $11 million fine for attempted price fixing

[whatmeworry]

Wow no wonder Flight Centre could offer a best price guarantee!

Flight Centre has been ordered to pay $11 million for trying to prevent Singapore Airlines, Emirates and Malaysia Airlines from offering cheaper flights than its own airfares between 2005 and 2009.
Flight Centre says it complies with the law and changed its business practices after the Australian Competition and Consumer Commission (ACCC) launched an investigation into the price fixing attempts in 2009.
ACCC chairman Rod Sims says the penalty would have been higher if Flight Centre had successfully convinced the airlines to fix their prices.
"Flight Centre was found to have made the attempt, the airlines didn't agree so because it was an attempt it therefore gets a lower penalty than otherwise and so we think the penalty is a reasonable one," he said.

http://www.abc.net.au/news/2014-03-28/flight-centre-fined-for-attempted-price-fixing/5352720

 

[Mal]

Lowest prices, price-fixed guaranteed

 

[cove]

Thanks Mal for summarizing this case so nicely.
I think it will be hard for all the consumers who lost out to get some $100 notes back so often price rigging works and the fine can be modest compared with the profits made.

 

[UP4014]

The only way to hit a corporation is through the hip pocket, I noticed they are going to try and get out of it but they should cop it on the chin. They tried to do bad so accept it, pay the fine and move on.

About time some large fines are imposed on companies.

Matt

 

[Simo]

The fine should be divided between every other TA.

 

[cove]

I have always liked the idea that fines in Australia are not tax deductible. I think it was based around the concept that a reasonable person would not break a law.
The only ones we received a compensation payment from was the cardboard companies. All the others have pretty much escaped. I think we should have received ten times our losses but currently the law does not allow that to happen.

 

[DalyWaters]

Thanks Mal for summarizing this case so nicely.
I think it will be hard for all the consumers who lost out to get some $100 notes back so often price rigging works and the fine can be modest compared with the profits made.

So, how did the consumer lose out?

From my quick read of the situation, Flight Centre put pressure on the airlines to guarantee them equal or better than what the airline had on sale. In other words, wanting to match the online price that could be found at Emirates website.

I think that is quite reasonable. The case that has been found seems to indicate they were not successful. No doubt FCL would have reminded these airlines of their selling power and ability to direct their selling towards those that play ball. That is normal business.

If FCL had been successful, they could not have stopped the airlines giving the same guarantees to all travel agents. It would have benefited all bricks and mortar agencies. Instead, we now have bookings being done in Dubai with no part of the transaction generating revenue in Australia.

I may be reading it all wrong and I welcome being shot down here but it looks to me like an own goal for Australian industry.

Disclaimer: I hold shares in FCL, if that helps explain my bias.

 

[serfty]

So, how did the consumer lose out?

From my quick read of the situation, Flight Centre put pressure on the airlines to guarantee them equal or better than what the airline had on sale. ...

It wasn't "equal or better", Fight Centre did not want the lower fares offered ... if successful the consumer would have paid more.

As a result they must have been in breach of law as FCL had to change their "business practices":

Flight Centre has been ordered to pay $11 million for trying to prevent Singapore Airlines, Emirates and Malaysia Airlines from offering cheaper flights than its own airfares between 2005 and 2009.

Flight Centre says it complies with the law and changed its business practices after the Australian Competition and Consumer Commission (ACCC) launched an investigation ... ...

 

[cove]

Thanks serfty. We don't have shares in FCL nor WTF.

 

[DalyWaters]

It wasn't "equal or better", Fight Centre did not want the lower fares offered ... if successful the consumer would have paid more.

:

From what I have read, FCL wanted access to the lower fares, not a raising of fares.

I still see this as being a nail in the coffin of bricks and mortar agencies.

they must have been in breach of law as FCL had to change their "business practices":

They changed business practices back in 2009 to comply with the ACCC's interpretation of the law as they obviously aim to be law abiding company.

 

[Hvr]

This type of corrupt behaviour is indicative of a failure of management to set and abide by basic ethical practices.

All of the people at FCL who were involved in approaching companies and determining that this strategy was appropriate should also be convicted and heavily fined. Then their names would be on the public record and if any other company ever hired them we would know that it is probable that their new company would also engage in dishonest behaviour.

Corporate crime is treated as a joke in this country, look at the aforementioned cardboard company, they made consumers look like prats and essentially got away with more profits than the fine. They acted dishonestly and profited.

 

[DalyWaters]

Federal Court extends the notion of competition between principals and agents | Clayton Utz

If FCL is not successful in appeal, the old "Recommended Retail Price" is going to get a lot of distributors and retailers in court.

 

[whatmeworry]

If this fine is upheld, will this mean consumers who purchased products from FCL during the 2005-2009 period will be able to sue because they were assuming they were getting the lowest price?

 

[tuapekastar]

This type of corrupt behaviour is indicative of a failure of management to set and abide by basic ethical practices.

All of the people at FCL who were involved in approaching companies and determining that this strategy was appropriate should also be convicted and heavily fined. Then their names would be on the public record and if any other company ever hired them we would know that it is probable that their new company would also engage in dishonest behaviour.

Corporate crime is treated as a joke in this country, look at the aforementioned cardboard company, they made consumers look like prats and essentially got away with more profits than the fine. They acted dishonestly and profited.

Pun intended?

 

[Hvr]

Pun intended?

Always intended.

 

[DalyWaters]

If this fine is upheld, will this mean consumers who purchased products from FCL during the 2005-2009 period will be able to sue because they were assuming they were getting the lowest price?

What difference would 2005-2009 make? Remember, FCL ATTEMPTED to get the airlines to offer them the same prices as their websites. They did not succeed.

If your argument were valid, you should have been suing FCL now and before 2005. At least between 2005 to 2009 they attempted to make their lower price deal stick.

 

[Mal]

Aah but remember in 2009 fc had a tizzy fit because SQ would not bow down to their price fixing attempt and black banned them.
http://mobile.news.com.au/national/...ngapore-airlines/story-e6frfku9-1226492098752

So they played a nasty game, some could iterate from that that they were basically blackmailing sq into conceding.

And consumers booking flights at that time were affected, because FC refused to offer SQ flights unless asked specifically. Thus some customers who asked for the cheapest option likely were not offered it (if it was SQ)

 

[cove]

I always like to see bullies get caught. Do you think FCL tried bullying SQ in 2009 ?

 

[serfty]

Aah but remember in 2009 fc had a tizzy fit because SQ would not bow down to their price fixing attempt and black banned them.
Flight Centre boycotted Singapore Airlines | News.com.au

So they played a nasty game, some could iterate from that that they were basically blackmailing sq into conceding.

And consumers booking flights at that time were affected, because FC refused to offer SQ flights unless asked specifically. Thus some customers who asked for the cheapest option likely were not offered it (if it was SQ)

Very interesting* thread on this from 5 years ago:

http://www.australianfrequentflyer....ore-airlines-flight-centre-falling-17683.html

* (on re-reading - there's a stack of in information with an unexpected ending)

 

[harvyk]

so often price rigging works and the fine can be modest compared with the profits made.

Agreed... This fine is but a blip on the balance sheets. If you really want to hurt a company of this size, the fine should be made to be a percentage of the pre-tax income across all companies / business associated with FC. That way there are no shell companies holding onto profits for the period this punishment is in effect, and by making it pre-tax, there is no way to "make a loss" over the period of the punishment.
Of course, no gov't in the world would dare bring in such laws.

So, how did the consumer lose out?

The consumer loses out whenever companies collude on price. A truly free market says that company A and company B will battle it out by dropping prices or by giving better service. They are both vying for your $. Now if company A comes to an agreement with company B over pricing, both company A and company B can increase the price, and give ordinary service safe in the knowledge that the consumer has no choice. This means that instead of company A saying "our product is $1,000" and then company B saying "well our product is now only $900". Both company A and company B come to an agreement and sell the same products for $2,500, knowing that neither of them will undercut the other. Yes it does mean that company A is giving a free hand to company B and vice versa, but since they are now both selling the product at 2.5 times what they would have otherwise been able to, that extra profit more than makes up for it.