Far Eastern Air Transport Corporation and Uni Airways Corporation applied for approval of concerted action involving ticket sharing on the Taipei-Taitung route

Taiwan

Case:

Far Eastern Air Transport Corporation and Uni Airways Corporation applied for approval of concerted action involving ticket sharing on the Taipei-Taitung route

Key Words:

concerted action, endorsement and transfer, air transportation industry

Reference:

Fair Trade Commission Decision of December 19, 2002 (the 580th Commissioners' Meeting); Decision Kung Lien Tzu No. 091006

Industry:

Civil Air Transportation (5510)

Relevant Law:

Article 7, 14 and 15 of the Fair Trade Law

Summary:

1. Far Eastern Air Transport Corporation (FEAT) and Uni Airways Corporation (Uni) drafted a ticket sharing plan for their Taipei-Taitung routes by which any passenger holding a valid ticket for either airline could elect to fly on a FEAT or a Uni flight without first having their ticket endorsed by the original issuing airline. As the ticket sharing plan fits the definition of concerted action as defined in Article 7 of the Fair Trade Law (FTL), FEAT and Uni applied for approval in accordance with the provisions of Article 14(1)(i) of the FTL.

2. Details of approval:
(1) The concerted action involving implementation of ticket sharing on the applicants' Taipei-Taitung routes is approved in accordance with the provisions of Article 14(1)(i) and Article 15 of the FTL, and the validity period for said approval shall be from the day following receipt of said approval decision until 28 February 2005.
(2) Neither of the applicants may, without valid reason, refuse a request from the other applicant to withdraw from the agreement or to conclude a new agreement regarding the "Accounting Settlement for the Two Parties" contained in the "Ticket Sharing Agreement."
(3) The two applicants, in addition to issuing and selling the "pre-endorsed and freely transferable" tickets, shall also issue and sell "non-endorsable/transferable" tickets that are subject to the mechanisms of market competition and are more favorably priced.
(4) The applicants may not, without valid reason, refuse another carrier's participation in said concerted action under reasonable terms.
(5) The applicants must individually determine their own fares and other trading terms for Taipei-Taitung air transport service and may not use this concerted action approval to jointly decide the fare and other trading terms by means of a contract, agreement or other means of reaching consensus.
(6) During the approved period for this concerted action, when and if the applicants reduce flights on the Taipei-Taitung route, the number of flights on said route may not be reduced by more than 20% of the number of flights at the time of the application.
(7) Every six months, the applicants shall submit the settlement amount under the agreement, the actual net offset of the settlement, the number of seats provided, numbers of passengers carried, booking ratios, face values of tickets, average ticket sales prices, total sales amounts, ratios of sales of pre-endorsed and freely transferable tickets to sales of non-endorsable/transferable tickets and other trading information to the Fair Trade Commission for recordation.

3. Grounds for approval

(1) The provisions of Article 14(1) of the FTL:
"Enterprises shall not act in concert, provided this shall not apply in any of the following circumstances where the action is beneficial to the economy as a whole, is in the public interest, and the Central Competent Authority has approved such concerted action: 1. Unifying the specifications or models of goods for the purpose of reducing costs, improving quality, or increasing efficiency; ..." Following implementation of ticket sharing on the Taipei-Taitung route by the applicants in this case, consumers holding a valid ticket from either of the applicant airlines for the Taipei-Taitung route need not receive endorsement from the original issuing airline to use the ticket to board a flight on the Taipei-Taitung route on either airline, thereby making airline tickets on the Taipei-Taitung route uniformly functional, increasing the usability of airline tickets and boosting convenience for airline passengers while increasing the passenger booking ratios of the airlines and helping to raise their operating efficiency, all of which is in compliance with the terms set forth in the provisions of Article 14(1)(i) of the FTL.

(2) The implementation of ticket sharing on the Taipei-Taitung route by the two applicants in this case will be to the overall economic and public benefit, while detrimental effects of restricted or unfair competition will be negligible and thus should be approved for the following reasons:

(i). The overall economic and public benefit: Following implementation of this concerted action, as consumers holding a valid ticket from either of the applicant airlines for the Taipei-Taitung route need not receive endorsement from the original issuing airline to use the ticket to board a flight on the Taipei-Taitung route on either airline, the time passengers must spend waiting for a flight will be shortened, increasing consumer satisfaction. Further, increasing airline passenger convenience will attract more business travelers flying between Taipei and Taitung, boosting the passenger booking ratio along the route and helping increase the operating efficiency while reducing the passenger ticket transfer costs of the two airlines. Moreover, given the excess supply of airline seats on the Taipei-Taitung route in recent years, boosting the usability of said tickets should raise the usage ratio of airline seats on the route and reduce wasted resources.

(ii) Negligible detrimental effects from restricted or unfair competition: Given that the involvement of carriers in the air transport market on the Taipei-Taitung route in this concerted-action application has raised no misgivings about unfair competition among other competitors and the fact that supply exceeds demand even while excess capacity remains at the Taitung airport, it is difficult to expect that in the future there will be sufficient incentive to attract new carriers into the market. Consequently, barriers to entry of other competitors into the air transport services market on the Taipei-Taitung route will not be significant. Additionally, the "exchange price" for tickets contained in the agreement between the two applicants was formulated on the basis of the average sale price of tickets on the Taipei-Taitung route during the latter half of 2001. These calculations took into account all types of preferential and discounted tickets on said route and considered the fact that the two applicants sell 60% of their tickets for that route over the counter at the airport. Also, the applicants' current price for tickets sold over the counter at the airport for said route was set in accordance with the maximum airfare limit approved by the Ministry of Transportation and Communications (MOTC) in December 1999, a limit which far exceeds the exchange price contained in the agreement between the two sides, thus it is difficult to find credible any qualms that the agreement will create a "sticky price" phenomenon for fares on the route. If there any questions remain that the agreement would lead to inflexible pricing, they are likely limited to worries regarding discounted tickets sold by Internet vendors, travel agencies and other sales outlets, which would affect neither the use of various discounted tickets nor rebates or the implementation of promotions designed to attract customers, and consequently, the effect of inflexible ticket fares would not be significant. Moreover, the market in question is the air transport services market; there is no upstream market. As regards the downstream ticket sales market, as the various travel agencies each conclude their own respective contracts with airlines, those sales outlets will remain unchanged and consequently the impact on the downstream market will be negligible. The implementation of this agreement will not change the number of flights currently offered by the applicants, the supply of seats or the mechanisms for fare adjustment. Additionally, although the two applicants have an agreed-upon exchange price, they will continue to each set their own terms for discounted tickets to attract passengers, such as student tickets and Internet discount tickets, therefore the rights originally enjoyed by budget travelers will not be compromised. Moreover, where the implementation content and operational details of the ticket sharing agreement involve the rights of travelers, the MOTC will charge the Civil Aviation Administration with close supervision of the applicants' pre-implementation publicity for the ticket-sharing agreement. Consequently, the impact on the rights of consumers will be insignificant.

(iii) In summary, an assessment of this case shows that it will bring the positive benefits to the overall economic and public welfare by shortening waiting times for air passengers, raising the passenger booking ratio and increasing the operational efficiency of airlines, while creating minimal negative impact in terms of restricted or unfair competition and, as such, is approved in accordance with the provisions of the proviso to Article 14(1) of the FTL. Additionally, to avert a potential negative impact from restricted or unfair competition following approval of this concerted action and to ensure that said concerted action brings positive overall economic and public benefit and that the necessary supervision of its implementation is conducted, subsequent conditions have been placed on its implementation as stated in the approval and in accordance with the provisions of Article 15 of the FTL.

Appendix:
Far Eastern Air Transport Corporation' s Uniform Invoice Number: 03522003
Uni Airways Corporation' s Uniform Invoice Number: 22958771

Summarized by Lu, Li-Na; Supervised by Hou, Vh-Hsien