Recently the Federal Court handed down a decision relating to an attempt by a business to eliminate differences in prices and which was effectively intended to offer consumers the lowest price. It was held that the conduct lessened competition in the market for the distribution and booking, and retail sale of international air fares from Australia.

Beat up

Flight Centre sought to implement a ‘Price Beat’ Guarantee, where Flight Centre would beat a cheaper airfare offered by its competitors by $1 plus a $20 voucher. The initiative was simple – to develop a reputation amongst consumers that Flight Centre offers the lowest prices on airfares. At the same time, and in order to carry out this initiative, Flight Centre sought to ensure that it was receiving the lowest (wholesale) price from the airlines and that Flight Centre was itself “buying” at the cheapest possible price. On six occasions between 2005 and 2009 Flight Centre attempted to enter into arrangements with three airlines being Emirates, Singapore Airlines and Malaysian Airlines. These arrangements sought to eliminate differences in airfares so as to fix, control or maintain Flight Centre’s retail or distribution margin.

Come fly with me

The complicating factor was that whilst Flight Centre was seeking to match the fares of competing travel agents and websites, on occasions Flight Centre was also competing directly with the airlines, who offered flights for sale through their own respective websites. On sales direct from the airlines, it was possible that Flight Centre, in order to “price beat”, would have to reduce their sale price to the respective airline’s wholesale price and eliminate any margin or commission for Flight Centre. Flight Centre approached the airlines seeking to reach an agreement about these wholesale prices.

A new low

Justice Logan found that Flight Centre’s approaches to the airlines were attempts to induce a contravention of section 45 of the Trade Practices Act (now the Competition and Consumer Act). Whilst there was an attempt to offer consumers the lowest price for airfares, the Court found that there was an attempt to eliminate differences in the price of international airfares offered to consumers.

Pre-flight checks

Considering the decision from a broader perspective, it is an important decision for retailers to be aware of if the retailer is selling products to consumers in circumstances where it is also competing with the manufacturer/ wholesaler (who also is selling directly to consumers). Retailers need to be careful regarding:

  • any approach they make towards a manufacturer/ wholesaler to agree on fixed or minimum pricing,
  • any representations they make to consumers regarding selling the goods at the cheapest price.

If you are a manufacturer or retailer selling goods in circumstances where you are competing with a retailer you supply or a manufacturer you receive goods from, you should seek advice as to the content of any agreements.