Compass Calls for TPC Investigation

It is thus very difficult to distinguish pricing practices which are a normal part of competition from those which are collusive. Consequently the TPC will not investigate this issue raised by Mr Coats unless Compass can provide more detailed and highly specific information to substantiate its allegation of collusion.

The second matter Compass has brought to the TPCs attention relates to the practices of airline controlled travel agencies. On this matter Compass is concerned travel agencies which are vertically integrated (that is, are either owned or associated) with either Ansett or Australian are biasing consumer’s airline travel decisions – in particular away from Compass ticket purchases.

In its investigation of the failure of Compass I, the TPC noted approximately 50% of domestic airline ticket reservations are made through travel agencies. In early market research Compass II found 80% of their business came from only 6% of travel agencies. This raises the question of whether airline travel agency linkages have biased ticket reservations.

Currently both Ansett and Australian have extensive retail travel agency networks. Between Australian and Qantas (its parent airline) the two control Westpac Travel, QH Tours, Jetabout Holidays and Viva Holidays. In addition Qantas holds a 49% stake in Thomas Cook Travel. Through British Airways (now a 25% owner of Qantas) Australian is associated with Concorde International Travel (of which BA owns 50%) and also with British holiday marketer Hogg Robinson (of which BA owns 12. 4%).

Ansett meanwhile controls Traveland, Coles Myer Ansett Travel and ANZ Travel. This gives Ansett a total of 350 retail travel agency outlets.

In an interesting twist to travel agency linkages, both Ansett and Australian deal with Jetset, one of Australia’s largest wholesale and retail travel agency chains. Jetset, however, is currently negotiating terms with Ansett which will strengthen their association, and possibly weaken Jetset’s association with Australian Airlines. In addition to these ‘independent’ retail chains both airlines also operate their own retail network therefore provides no grounds for the TPC to take action against Ansett and Australian. The only aspect of industry conduct which would breach the TPA is if consumers have been deliberately misled or deceived in their airline ticket purchase decision. For instance, false or deceptive information about seat availability on a particular airline’s flight or the fares available would breach Section 46 (5. 46) of the TPA- Misuse of Market Power.

Under 5. 46 a business which has a substantial degree of market power is prohibited from taking advantage of that power for the purpose of:

⚫ eliminating or substantially damaging a competitor,

⚫ preventing the entry of a person into any market; or

⚫ deterring or preventing a person from engaging in competitive conduct in any market.

The mere acquisition of market power, such as airlines controlling retail travel agencies, does not constitute a breach of 5. 46. Only if that market poweris used for the anticompetitive practices proscribed by 5. 46 would the section be breached. Thus, for the TPC to investigate Compass’ allegation of airline-controlled travel agencies biasing consumer choices away from Compass products, the Commission must have evidence of cases in which consumers have been deliberately misled or deceived.

Despite Compass’ claims of its unfair promotion, or lack there of, by airline controlled agencies, there are even substantial reasons for independently owned travel agencies to favour Ansett & Australian ticket sales over Compass sales. First, some travel agencies were burned by the collapse of Compass L. For example, Harvey World Travel management has been quoted as saying it is not willing to sell Compass II tickets for fear of a repeat performance by Compass II and their losing money on tickets purchased by credit cards, which ultimately the travel agency is held liable for.

The second, and better founded, reason independent travel agencies may favour Ansett and Australian ticket sales relates to agent commissions. Over ride arrangements (a sliding scale of commission levels, such as a 6% commission on total sales if 60% of the agency’s sales are to the one airline, a 7% commis- sion on total sales if 70% of total sales are to the one airline and so forth) or alternative incentive schemes may be too lucrative for an agency to ignore.

It is understood Australian offered such a commission scheme in the days of Compass I Independent travel agency sales can be directed to Australian in the following manner. For each additional Ansett or Compass ticket sale the agency reduces its proportion of Australian Airlines sales to total sales. Thus the agency may attempt to persuade the traveller to purchase an Australian Airlines ticket and so avoid jeopardising a higher commission rate on total Australian Airlines sales.

In its report on Compass I’s collapse, the TPC observed all three airlines (Ansett, Australian and Compass) offered various incentive schemes to attract sales. Apart from the basic percentage commissions and commission overrides, free travel bonuses to travel agents and increased basic commission rates were also offered. Given these commercial incentives the TPC concluded there was no indication of a systematic bias in ticket sales stemming from airline and travel agency linkages.

Presently, Compass II has a junior preferred system in place as an incentive scheme with some travel agencies. This system puts Compass as the second preferred carrier, after Australian Airlines, with travel agents. The monitoring of such a system to ensure Compass remains favoured over Ansett, however, is a difficult task for Compass management.

As with the fares collusion issue, the TPC is awaiting further specific information from Compass II before it will reinvestigate the airline controlled travel agency issue.

It is apparent both issues raised by Mr Coats will continually be referred to industry watchdogs such as the TPC. The main problem faced by such competition policy adjudicators is establishing whether such practices are within the realm of normal competitive practices, which themselves aim to lesser the power of competitors, or are beyond ‘fair and reasonable” competition.