The judgment of the primary judge
66 The judgment of the primary judge is detailed and lengthy. Given that Flight Centre's challenge to the judgment is directed essentially at his Honour's finding concerning the existence of competition between Flight Centre and the airlines in a relevant market (or markets), it is necessary to focus only on that aspect of the primary judge's reasons.
67 The primary judge noted, (at [8] and [17]), that the relevant background facts were largely uncontroversial. His Honour made the following factual findings material to the characterisation of the relevant market and the question of competition:
There is a demand in Australia for international passenger air travel services or international air travel (at [18]).
Singapore Airlines, Malaysia Airlines and Emirates each operate aircraft to meet the demand for air travel to and from Australia (at [20]).
Flight Centre does not operate aircraft to meet the demand for international air travel. It is not an international passenger air carrier in its own right (at [20]).
Singapore Airlines, Malaysia Airlines and Emirates relied on travel agents to promote their flights and deal with members of the public in relation to the booking of air travel and the receipt and remittal of payments for that air travel by those would-be passengers (at [21]).
The relationship between the respective airlines and Flight Centre was that of principal and agent (at [21]).
Flight Centre was a party to the PSAA, a standard form agreement entered into between individual travel agents and members of the IATA. Singapore Airlines, Malaysia Airlines and Emirates were members of the IATA (at [36]).
Flight Centre performed the role of an international air travel intermediary. The air travel it provided to its customers was provided not by Flight Centre, but by others, including Singapore Airlines, Malaysia Airlines and Emirates (at [23]).
In offering a particular flight, Flight Centre did so on behalf of the airline concerned. In booking that air travel, Flight Centre did so on behalf of the customer concerned (at [23]).
There were two avenues by which a would-be international air travel passenger (customer) might book a flight. The customer could deal with an international airline directly, or the customer could book a flight via a travel agent (at [27]).
When an airline sold air travel directly to the public, it was the airline itself as a legal entity which was selling air travel, not its "Internal Sales Division" (at [88]).
International airlines made some (but not necessarily all) of their international flights available for sale by travel agents via a GDS. International airlines loaded fares (for available seats on particular flights to given destinations) onto a GDS which was able to be accessed by travel agents (at [31]-[32]).
Most of the fares loaded onto a GDS were so-called "published fares". Published fares, which were determined by an airline, included an amount of commission ("at-source commission") for a travel agent. When a travel agent sold a published fare, the agent was required to remit the nett amount (the price of the published fare less the at-source commission) to the airline, in addition to the applicable taxes and surcharges (at [33]).
An agent was not required to sell a published fare at any particular price (at [34]). The agent's margin or commission was not limited to the at-source commission component of the published fare. The agent retained any amount above the nett amount.
68 The primary judge also made a number of findings concerning the purpose and effect of the emails sent by Flight Centre to the three relevant airlines that were alleged to constitute attempts to fix, control or maintain prices for the purpose of s 45A of the Act. These findings were not challenged on appeal. It is therefore unnecessary to consider them in any detail. Nevertheless, some of the findings are relevant to the market and competition issues and shed some light on the primary judge's findings in that regard.
69 The primary judge found that each of the emails was prompted by Flight Centre's concern that at various times the three relevant airlines were offering flights directly to members of the public at fares that were less than the published fares for the flights that were loaded onto a GDS. This presented a problem for Flight Centre because of its "price beat" policy or guarantee.
70 Flight Centre led evidence from its officers who authored the emails (Messrs Burgess and Turner) to the effect that the purpose of the emails was simply to demand that Flight Centre have access to the discounted fares that the airlines were offering direct to the public. The primary judge rejected that evidence. He concluded that Flight Centre did not just want access to these fares. It wanted the airlines to stop undercutting the published fare on the GDS that was available to Flight Centre.
71 In relation to the email sent by Mr Turner of Flight Centre to Singapore Airlines on 6 April 2009, for example, the primary judge concluded as follows (at [101]):
… two factors were at large in Flight Centre's dealings with Singapore Airlines. Flight Centre did not just want access to the same fare as the airline sold the air travel directly to the public; it wanted that fare to be made available to the GDS as a "published fare" on which it would earn commission. In short, it wanted Singapore Airlines to stop undercutting, by the fares it offered directly via its website, the published fare on the GDS for the same flight … Flight Centre wanted Singapore Airlines to cease offering directly to the world at large via its website fares that were lower than the published fares it made available to Flight Centre via the GDS.
72 Similar findings were made in relation to the other relevant emails: see [164], [170], [177], [187]-[188], [196]-[197].
73 The primary judge found, as a result, that the emails amounted to an attempt by Flight Centre to induce 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: see [146], [151], [152], [157]-[158].
74 But the critical question remained: in what market or markets did this conduct occur? Exactly what service or services did Flight Centre and the airlines supply in competition with each other? Was Flight Centre's retail or distribution margin relevantly a price for a service that Flight Centre and the airlines supplied in competition with each other as required by s 45A?
75 The primary judge found that the answer to the critical question was that the relevant conduct occurred in the market for "distribution and booking services in respect of available international air travel" (at [137]). Flight Centre competed not only with other travel agents, but also with international airlines, including, materially, Singapore Airlines, Malaysia Airlines and Emirates "in relation to the distribution to and booking of available flights for would-be passengers" the reward for which was the "retail or distribution margin" (at [112]).
76 It is necessary to consider closely some of the primary judge's reasoning that led him to this conclusion.
77 The starting point is that the primary judge appeared to accept that there was a market for the supply of international passenger air travel services - flights - by international airlines to consumers. This was one of the alternative markets pleaded by the ACCC.
78 The difficulty for the ACCC, however, was that the primary judge found that Flight Centre did not, itself, supply international passenger air travel services to consumers. His Honour found (at [135]):
The long and the short of it is that, giving full voice to the breadth of meaning which the word "supply" carries, it is the airline, the operator of the aircraft which supplies air travel, not an agent such as Flight Centre. Flight Centre neither operates nor charters aircraft.
79 It followed that Flight Centre did not compete with the airlines in the market for the supply of international passenger air travel services.
80 Importantly, the ACCC did not appeal from the primary judge's finding that only the airlines supply international passenger air travel services and that Flight Centre accordingly did not compete in the market for the supply of those services.
81 That was not, however, the end of the inquiry as far as the primary judge was concerned. It simply raised the question what, if anything, did Flight Centre supply and in what market (at [136])? According to the primary judge, the answer to that question lay in Flight Centre's role as an intermediary between the airlines and consumers in the market for international passenger air travel services. His Honour reasoned as follows (at [138]):
The consumers in that market reflect the travel intermediary role undertaken by travel agents such as Flight Centre. Thus, at one end of the distribution chain are the airlines who supply international air travel, which seek to have the existence, availability and related fares for the flights they operate made known to consolidators such as the operators of GDS and to travel agents so that they, in turn, can advise would-be passengers on these subjects. It is the airlines who seek the services of large travel agents such as Flight Centre and the operators of GDS such as "Galileo", "Amadeus" and "Sabre" to bring the availability of flights on aircraft which they operate to the attention of would-be passengers or, as the case may be, other travel agents (via a GDS) and then, in turn, to book flights with them and to collect the fare for those flights. At the other end of the distribution chain are the would-be passengers, who seek from travel agents details of available flights or the best fare for a particular flight and the booking of that flight, whether alone or in conjunction with other services provided or made known to them by the travel agent. In this sense, both airlines and would-be passengers are consumers of the services of travel agents such as Flight Centre. The travel agent is placed, Janus-like, in the distribution chain supplying intermediary services to each group of consumers.
82 The primary judge found that, as a "travel intermediary", Flight Centre provided distribution and booking services in respect of available international air travel to the airlines and, it seems, to consumers.
83 The primary judge's finding in this respect appeared to have been heavily influenced by the opinion evidence given by Dr Vincent FitzGerald, an expert economist called by the ACCC. In answer to the question whether "travel agents, including Flight Centre Limited, compete[d] with international airlines, including Singapore Airlines, Malaysia Airlines and Emirates, for the supply of any services to consumers" (emphasis added), Dr FitzGerald provided the following response at [17]-[18] of his report of 17 August 2012 (extracted at [110] of the judgment):
Thus my answer to Question 1 is that travel agents do compete - horizontally - with international airlines at the retail level of the international travel market. This is very clearly so, since if one makes the sale, the other does not. What they are competing for at this level, of course, is the retail or distribution margin - since whichever does make the sale, an airline provides the flight (i.e. the actual core travel service) and the airline receives either:
(a) if a travel agent makes the sale, the nett fare - i.e. the gross fare inclusive of all taxes, surcharges and fees less the commission and fees that are retained by the agent. The nett fare is in the nature of a wholesale price, although the travel agent is indeed an agent in a narrow sense - that is, does not actually purchase the flight and re-sell it, but rather, sells it on the airline's behalf; or
(b) if the airline makes the sale through one of its own channels, the gross fare, inclusive of all taxes, surcharges and any fees of its own (e.g. credit card fees and any other service fees), i.e. in this case it retains the full retail or distribution margin itself.
Thus, in my opinion, by competing at the retail level of the international travel market, travel agents are competing not only with each other but with airlines' ISDs [internal sales divisions] to provide the distribution services that airlines require in order to sell their travel products (as well as competing with those ISDs to provide travel arrangement services to customers).
(Footnotes omitted.)
(Emphasis in original.)
84 There is, it must be said, a certain lack of clarity, if not ambiguity, in this answer. The first paragraph of the answer seems to simply involve the assertion that airlines compete with travel agents in relation to the "sale" of flights. The competition in that regard was said to be in respect of who was to receive or retain the retail or distribution margin arising from the sale. If the agent made the sale, it remitted the nett fare (which was said to be akin to a wholesale price) to the airline and kept the balance of the price for which it sold the flight. If the airline made the sale, on the other hand, the airline was said to receive the gross fare and therefore retained the full retail or distribution margin itself.
85 Even if that be so, this part of Dr FitzGerald's answer said nothing about any service provided to consumers by travel agents and airlines. That was the question that Dr FitzGerald was asked to address.
86 The second paragraph of Dr FitzGerald's answer then introduced, without any apparent explanation, the notion that travel agents and "airlines' ISDs" provided "distribution services" to the airlines.
87 Exactly what distribution services were provided by internal sales divisions was left largely unexplained in Dr FitzGerald's answer. In any event, this again did not appear to answer the question posed, which concerned the provision of services to customers. The apparent answer to that question, which was provided parenthetically in the last sentence of Dr FitzGerald's answer, was "travel arrangement services". Exactly what was included in or encompassed by "travel arrangement services" was left unclear by Dr FitzGerald.
88 Dr FitzGerald also characterised the relevant market in the following terms at [23]-[24] of his 17 August 2012 report (extracted at [113] of the judgment):
The Market
In my opinion it is best to identify only a single market in which travel agents compete for the supply of both of the services specified at (i) and (ii) in para 21 of sub-section 3.2.1 above [booking services and distribution services]. That market is the downstream or distribution functional level of the overarching market for international travel and ancillary products and is distinct from, but obviously intimately linked to, the market for the supply of those products themselves, which is essentially the upstream or wholesale level of the overarching market for international travel and ancillary products.
I note that the ASoC (paras 26 and 28) states both that there is a market in Australia for the supply of distribution services in Australia to international airlines and a market in Australia for the supply of booking services in Australia, to customers. In my opinion, while these are distinct services provided 'upwards' to airlines and 'downwards' to customers, respectively, they are best regarded as being inherently provided simultaneously in a single market.
(Emphasis in original.)
89 Put simply, 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.
90 The primary judge accepted this characterisation (see [137]-[139] and [142]).
91 The primary judge also found that the services provided to the airlines by travel agents, including Flight Centre, were substitutable for the services the airlines provided to themselves. Because an airline could, if it chose to do so, "make the knowledge of the availability of its flights known directly to would-be passengers and undertake directly with them the booking of those flights" (at [142]), the primary judge concluded that those services were substitutable for those provided by travel agents such as Flight Centre. It followed that travel agents competed with the airlines in relation to the supply of those services.
92 The primary judge characterised or described this substitutability as amounting to "disintermediation" or "cutting out the middle man" (at [142]). His Honour considered that it mattered not that the services that were substitutable for those provided by the travel agents were provided "in-house" (at [143], [144]). His Honour provided the following analogy to illustrate the point (at [145]):
A like source of competition arises in an example which I put to Dr Fitzgerald in the course of his oral evidence, which he accepted was another way of illustrating this same economic reality. If a propagator of nursery stock chooses to sell some of its product directly to retail customers, instead of placing that stock with garden centres for sale to that same class of customer, that propagator and those garden centres are in competition one with the other. And that would remain true even if those garden centres sold plants only as agent for the propagator, taking as their profit a retail or distribution margin. This type of competition as between members at different stages in a distribution chain is hardly novel. It is present whenever a manufacturer of goods or the supplier of a service chooses to deal directly by retail with a consumer instead of its goods or services being made available to consumers via a third party distribution chain.
93 What is not entirely clear from the garden centre analogy used by the primary judge is whether the primary judge considered that the competition between the propagator and the garden centre was in the market for the supply of nursery stock, or in the market for sales or distribution services in respect of nursery stock. If the former, this would appear to be somewhat inconsistent with his Honour's conclusion that Flight Centre and the airlines did not compete in the market for the supply of international passenger air travel services because Flight Centre only supplied such services as agent for the airlines. More will be said about this analogy later.
94 The primary judge concluded that the price that Flight Centre received for its provision of the distribution and booking services was the retail or distribution margin Flight Centre retained after remitting the nett fare to the airlines. His Honour did not expressly deal with the "price" that the airlines paid when they performed these services "in-house". It would seem, however, that his Honour accepted the opinion of Dr FitzGerald that, because the airlines retained the gross fare if they sold a flight directly, they effectively retained the margin they would otherwise have ceded to the travel agent. This was presumably the "price" for providing the distribution and booking services in-house.
95 It should perhaps also be noted in this context that the primary judge did not accept the ACCC's case (and Dr FitzGerald's apparent opinion) that it was internal sales divisions of the airlines that supplied distribution and booking services in competition with travel agents. His Honour concluded (at [88]) that the reference to internal sales divisions was a "distraction" because the airlines were the only legal entities that supplied air travel.
96 It is perhaps not surprising that the primary judge appeared to reject this aspect of the ACCC's pleaded markets. It is not readily apparent that there was any evidence that any of the relevant airlines arranged or organised themselves in such a way that they had economically discrete or independent internal sales divisions. Nor is it apparent that there was any direct evidence that any internal divisions of the relevant airlines provided services, distribution or otherwise, to the airlines themselves. The evidence appeared to be limited to the fact that the airlines were increasingly using the internet to sell their flights direct to the public. There also does not appear to have been any evidence that the airlines accounted for direct sales in such a way as to indicate that commission otherwise payable to travel agents was accounted for as the price for the in-house provision of those services.
97 Finally, the primary judge rejected Flight Centre's characterisation of the relevant supply when a customer purchased an airline ticket. Flight Centre contended that there was only one supply involved when a customer purchased a flight, whether or not the flight was purchased directly from the airline or from the airline's agents. That supply was the supply of air travel by the airline. It was artificial, in Flight Centre's submission, to break that supply down into the provision of distribution and booking services, as well as the flight itself, when the former services were no more than essential and inseparable concomitants of the supply of the flight itself.
98 The primary judge rejected that contention, it seems, on the basis that Flight Centre made the availability of the air travel known to the consumer. His Honour concluded (at [141]):
Here, though there is a supply of international air travel by the airlines, that conclusion says nothing about how the existence of the availability of that supply is made known to the consumer, the would-be passenger. To recognise that is to appreciate that, in the different circumstances and context of this case, there is no artificial splitting from what is truly to be characterised only as the supply of a service namely, the air travel (the flight), by separately identifying booking and distribution services. Those are services which a travel agent such as Flight Centre does supply.
(Emphasis in original.)