Taipei High Administrative Court finds TransAsia Airways in violation of the Fair Trade Law

Taiwan

Case:

Taipei High Administrative Court finds TransAsia Airways in violation of the Fair Trade Law

Key Words:

airline companies, unconditional ticket endorsement and transfer, allied transportation

Reference:

Taipei High Administrative Court Judgment (89) Su Tzu No. 1226

Industry:

Civil Air Transportation (5510)

Relevant Law:

Article 14 of the Fair Trade Law

Summary:

1. The case arose from a 30 July 1999 newspaper article stating that: "Six Airlines Resume Allied Transportation System, Raise Ticket Prices on Taipei-Kaohsiung Route; Beginning in August, Ticketed Passengers Can Board Flight of Any Airline [in the Alliance] without Paying Extra Fee." On 5 August, the Fair Trade Commission (the defendant in this administrative litigation case) had telephoned the Taipei, Kaohsiung, and Tainan branches of Far Eastern Air Transport, as well as the Taipei and Kaohsiung branches of the complainant, and learned that the said companies had begun in August to endorse and transfer each other's tickets for travelers flying on the Taipei-Kaohsiung and Taipei-Tainan routes. As a result of the new policy, any traveler holding a ticket issued by either Far Eastern Air Transport or the complainant TransAsia Airways could go to the ticket counter of either airline, have the ticket endorsed, and board a flight provided by the other airline.

The defendant ruled that this arrangement constituted a violation of Article 14 of the Fair Trade Law, which prohibits concerted actions, and on 21 March 2000 issued Disposition (89) Kung Ch'u Tzu No. 032, which ordered the complainant TransAsia Airways and Far Eastern Air Transport to cease (on the day following delivery of the Disposition) the aforementioned mutual understanding to grant unconditional endorsement and transfer of each other's passenger tickets. The complainant filed an administrative appeal, which was dismissed, and then filed an administrative suit with the Taipei High Administrative Court.

2. Article 7 of the Fair Trade law states: "the term 'concerted action' as used in this Law means acts where competing enterprises, by means of contract, agreement or other form of consent, jointly decide the price of goods or services, or limit quantity, technology, goods, facilities, trading counterparts, or trading territory with respect to such goods and services, thereby restraining each other's activities." The first part of Article 14 of the same law further states: "Enterprises shall not act in concert." Both the complainant and Far Eastern Air Transport fly Taipei-Kaohsiung, Taipei-Tainan, and Taipei-Chiayi routes. The times of departure and arrival for each route are not identical, but different flights on the same route are highly substitutable, thus the language of Article 7 ("competing enterprises") accurately describes the relationship between the two companies in question. As such, they qualify as entities engaged in a concerted action.

The domestic airlines market shares of the complainant and Far Eastern Air Transport in 1998 were 24.1% and 30.5%, respectively. As a result, the combined market share of the alliance is extremely high. In principle, the complainant ought to compete for business on the basis of price and service quality; yet, it arranged for unconditional endorsement and transfer of tickets between itself and Far Eastern Air Transport. Under this arrangement, each party is required to unconditionally endorse and transfer the tickets held by their passengers. That is, passengers of one airline can board flights provided by the other airline. The decision by the enterprises to require unconditional endorsement and transfer of each other's tickets in this manner constitutes "an act to mutually restrict the activities of enterprises." Under this mutual understanding, a passenger with a ticket from one of the two airlines can board a flight provided by either the complainant or Far Eastern Air Transport, thus enabling the two parties to reap the benefit of joint operations. And via the revenue settlement agreement contained in the joint operations contract, the arrangement affects market prices and causes the two parties to restrict each other's by setting a minimum level. This makes prices less likely to change.

For consumers, having a single ticket that affords unrestricted ability to board flights operated by either of two airlines is a welcome benefit, and they are unlikely to object even if the ticket prices would be slightly higher as a result. This enables the airline that is performing relatively poorly to remain in the market, and enables the airline that is performing better to earn higher profits. Cooperation between the stronger and weaker airlines results in a greater degree of market concentration, thereby weakening the mechanism of market competition. Civil aviation business is a high-tech service industry. Competition between enterprises in this industry involve not only on price, but even more importantly also on service quality. Consumers place great stress on overall service quality and the level of safety provided. Consumers do not regard unconditional endorsement and transfer of tickets as a permanent feature or base their judgment of service quality solely on this single factor. It is true that domestic airlines fly the same routes on different schedules, but their transportation function is the same, flights are short, and departures are fairly frequent. For business travelers in a rush, it is neither expensive nor difficult to obtain information regarding the flights in question.

The defendant, in preparing its initial disposition, asked the complainant as well as related businesses and the competent authorities to express their views on the matter. The investigation process took the views of the parties concerned fully into consideration. The purpose of the Fair Trade Law is to protect the interests of consumers, which it does by ensuring that the overall market competition mechanism is not weakened. The described action of the complainant and Far East Air Transport violates Article 14 of the Fair Trade Law, which prohibits concerted actions. The arguments put forward by the complainant in support of its request to overturn the appeal ruling and the original disposition, and to have the defendant issue a new disposition that would be consistent with the law, are unfounded. For this reason, the court dismissed the complainant's request.

Appendix: TransAsia Airways's Uniform Invoice Number: 11719802

Summarized by Lai, Chia-Ching;

Supervised by Wang, Rong-Ging