The Australian Competition and Consumer Commission has today instituted legal proceedings against Qantas Airways Limited alleging that Qantas misused its market power on the Brisbane-Adelaide route after Virgin Blue Airlines Pty Ltd's entry in December 2000.
The ACCC alleges that Qantas misused its market power by substantially increasing the number of seats available on the Brisbane-Adelaide route in an anti-competitive manner and matching or undercutting airfares in response to Virgin Blue's entry in an anti-competitive manner. The ACCC alleges that Qantas engaged in 'capacity dumping', significantly increasing capacity beyond expected demand, to eliminate or substantially damage Virgin Blue, or to deter or prevent Virgin Blue from engaging in competitive conduct in the market including the expansion of its network, thereby seeking to lessen competition.
The Brisbane-Adelaide route had been served by Qantas and Ansett. In December 2000 Virgin Blue entered the route adding two return flights per day. After Virgin Blue's entry, the number of seats on the route was almost double the amount in the preceding year. The ACCC alleges that in response to Virgin Blue's substantial capacity expansion on the route, Qantas added another daily flight, increasing its own capacity by 50 per cent.
The ACCC has alleged that Qantas engaged in capacity dumping, knowing that the effect of adding substantial capacity between Adelaide and Brisbane and offering fares at or below those of Virgin Blue would be that all competitors on the route would operate at a loss on the route until one of them withdrew capacity from the route. The ACCC alleges that Qantas had the financial resources and strength to sustain the losses on the route longer than its competitors.
The ACCC alleges that it would not have been rational or profit maximising for Qantas to add substantial capacity between Adelaide and Brisbane whilst matching the prices of a low cost airline – except where it did so to eliminate or substantially damage Virgin Blue or to deter it from engaging in competitive conduct or to prevent or deter its expansion into other routes.
The ACCC alleges that the effect of Qantas' conduct was that each of Qantas, Virgin Blue and Ansett were forced into operating at losses (save for when Ansett was grounded over Easter 2001) until Ansett ceased operating on the route in September 2001.
The ACCC's investigations into these complex matters have been detailed and have culminated in the decision to take the court proceedings. The investigations were instigated after Virgin Blue made a complaint to the ACCC in early 2001. During the proceedings the ACCC will put before the court evidence and submissions in relation to its allegations.
The ACCC is seeking court orders including:
- penalties
- declarations that Qantas breached section 46 of the Trade Practices Act 1974
- injunctions restraining Qantas from misusing its market power by using capacity and fares for the purposes of unlawfully damaging a competitor or deterring competition
- an order requiring Qantas to implement a new trade practices corporate compliance program or to upgrade its current program
- costs
- findings of fact.
The maximum penalty the Federal Court can impose against the company is $10 million per breach.
A date for the first directions hearing has been set for 11 June 2002 in the Federal Court, Sydney.
The ACCC has previously referred to a number of investigations of allegations of anti-competitive behaviour in the Australian domestic aviation industry. The ACCC has also decided that it does not intend to pursue the majority of those matters. These matters included instances of increases in capacity and discounted fares by Qantas since the administration of Ansett in September 2001. After careful investigations and based on the information available, the ACCC formed the view that the allegations were not supported. A small number of matters are yet to be concluded.