Far Eastern Air Transport Corporation, Uni Airways Corporation and TransAsia Airways Corporation applied for approval to engage in concerted action involving the use of tickets that are transferable without endorsement on the three airlines' Taipei-Tainan routes

Chinese Taipei



Case:

Far Eastern Air Transport Corporation, Uni Airways Corporation and TransAsia Airways Corporation applied for approval to engage in concerted action involving the use of tickets that are transferable without endorsement on the three airlines' Taipei-Tainan routes

Key Words:

concerted action, transferable without endorsement, air transportation

Reference:

Fair Trade Commission Decision of December 19, 2002 (the 580th Commissioners' Meeting); Decision Kung Lien Tzu No. 091005

Industry:

Civil Air Transportation (5510)

Relevant Law:

Articles 7, 14 and 15 of the Fair Trade Law

Summary:

1. Application particulars: Far Eastern Air Transport Corporation, Uni Airways Corporation and TransAsia Airways Corporation sought to implement use of tickets transferable without endorsement on the three airlines' Taipei-Tainan routes, which would allow passengers holding a ticket issued by any of the three airlines to board flights operated by either of the other two airlines on that route without the endorsement of the original issuing airline. Such a practice would have constituted a concerted action provided in Article 7 of the Fair Trade Law and required that the airlines apply for approval for the said concerted action in accordance with the provisions of subparagraph 1 of the proviso to paragraph 1 of Article 14 of the Fair Trade Law.

2. Content of the approval:
(1) Applicants' application for the concerted action through use of tickets transferable without endorsement is approved in accordance with the provisions of Article 15 and subparagraph 1 of the proviso to paragraph 1, Article14 of the Fair Trade Law, with the term valid from the day following receipt of the approval decision through 31 March 2005.
(2) The applicants may not without justifications refuse to allow any of the other applicants to withdraw from the agreement or to conclude anew the "bilateral account settlement amounts" contained in the "Agreement on the Use of Tickets Transferable Without Endorsement."
(3) In addition to selling "tickets transferable without endorsement" for the Taipei-Tainan route, the applicants shall also issue and sell competitively priced and discounted "non-endorsable" tickets for the said route.
(4) The applicants shall not without justifications refuse to permit participation in the said concerted action by other carriers under reasonable terms.
(5) The applicants shall each unilaterally determine the price and other trading terms for air transportation services on the Taipei-Tainan route and may not use this concerted action approval to jointly determine the price and other trading terms for air transportation service on the said route through a contract, agreement or other means.
(6) During the term of approval, the applicants may not reduce the number of flights on the Taipei-Tainan route by more than 20% of their approved number of flights at the time of the application for approval.
(7) Every six months the applicants shall submit trading information including total account settlement amounts under the agreement, net actual distributed account settlement amounts, number of seats provided, number of passengers carried, passenger carrying ratios, face value of tickets, average ticket sale price, total sales amounts and ratio of tickets transferable without endorsement to non-endorsable tickets for the Taipei-Tainan route to the Fair Trade Commission (FTC) for recordation.

3. Reasons for granting the approval are as follows:
(1) Article 14(1) of the Fair Trade Law provides: "No enterprise shall have any concerted action; unless the concerted action that meets one of the following requirements is beneficial to the economy as a whole and in the public interest, and the application with the central competent authority for such concerted action has been approved: 1) Unifying the models or specifications of goods for the purpose of reducing costs, improving quality or increasing efficiency ..." After the applicants began using tickets transferable without endorsement on the Taipei-Tainan route, consumers holding a valid ticket for the Taipei-Tainan route issued by any one of the applicants may elect to take any flight on the said route operated by any one of the other applicants without the need to obtain the endorsement of the original issuing airline. The subsequent consolidation of the efficacy of the three carriers' tickets on said route and the increase in the exchangeability of said tickets will make flying more convenient for passengers on the route and help increase the passenger carrying ratios of the participating airlines, thus enhancing their operating efficiency. It therefore conforms with the provisions of subparagraph 1 of the proviso to Article 14, paragraph 1 of the Fair Trade Law.
(2) The applicants' implementation of the use of tickets transferable without endorsement on the Taipei-Tainan route will be, based upon the following reasons, beneficial to the overall economy and is in the public interest; while the adverse impact in the form of restricting competition or unfair competition will be negligible, thus approval should be granted:
(i) The benefit to the overall economy and the public interest: Following implementation of this concerted action, consumers holding a valid ticket for the Taipei-Tainan route issued by any one of the applicants may elect to take any flight on the said route operated by any one of the other applicants without the need to obtain the endorsement of the original issuing airline, thereby helping to reduce the time passengers must spend waiting for flights and enhancing customers' welfare. Furthermore, the added convenience for passengers flying on the route can help attract more business travelers to fly between the two cities, boosting average passenger carrying ratios, helping raise operating efficiency and reducing the processing costs associated with endorsing passenger transfers. Taking into consideration that carrying capacities on the Taipei-Tainan route have exceeded demand in recent years, the increase in the exchangeability of tickets on the route can help increase passenger occupancy and reduce wasted resources.
(ii) The adverse impact of restrictions on competition or unfair competition would be negligible: All carriers on the Taipei-Tainan route are participating in this concerted action application so there are as yet no concerns that its approval will give rise to unfair competition. Furthermore, although the Tainan airport still has excess capacity, there remains an imbalance of supply over demand so it would be difficult to expect that there will be sufficient incentive to attract new airlines into competition. Therefore, the adverse impact of impeding new competition on the Taipei-Tainan route caused by the concerted action will be negligible. Additionally, the "settlement price" under the concerted action agreement was based upon the average ticket sales price for the Taipei-Tainan route among the three applicants during the latter half of 2001 and the calculation thereof included various types of discounted tickets offered by the three airlines.
Considering that the ratio of tickets sold over the counter at the airport by the three carriers is around 80% and that the over-the-counter tickets are sold in accordance with the maximum ticket price ceiling set by the Ministry of Transportation and Communications (MOTC) in December 1999, the over-the-counter ticket price remains far higher than the applicants' agreed upon settlement price; thus it is difficult to conclude that the concerted action will have the potential effect of fixing ticket prices. Therefore, any concerns regarding price fixing derived from the concerted action agreement will be limited to the prices of discounted tickets offered through the Internet, travel agencies and other sales outlets and not have any effect on the actual usage of various types of discounted tickets or on special promotions aimed at attracting more passengers. Thus it is difficult to believe that the potential impact of price fixing will be anything but negligible. Furthermore, the market in question is the air transportation services market, which has no upstream market.
As regards the downstream ticketing services market, since travel agencies each conclude their own separate contracts with the airlines, those sales channels will remain unchanged and the impact on the downstream market will also be negligible. The implementation of the concerted action agreement will not alter the applicants' number of flights, seat provision or system of fare adjustment on the Taipei-Tainan route. Moreover, although the applicants have agreed upon a settlement price, each may still offer its own discounted tickets to attract passengers, such as student fares and Internet fares, so the original rights of discount travelers will be unaffected.
In any event, where the operational details of the implementation of the "tickets transferable without endorsement" affect the rights of passengers, the MOTC has directed the Civil Aviation Administration to supervise the applicants to ensure that consumers are fully aware of the agreement in advance and, consequently, the impact of diminished consumer rights will be negligible.
(iii) In summary, appraisal of this agreement has indicated that it will have the positive effects of reducing passengers' time spent waiting for flights, raising the airlines' passenger carrying ratio, improving operating efficiency and is beneficial to the overall economy and public interest while the negative effects resulting from restricted or unfair competition will be negligible. Consequently, approval is granted in accordance with the provisions contained in the proviso to paragraph 1, Article 14 of the Fair Trade Law. Furthermore, to ensure that approval of this concerted action does not give rise to potential restrictions on competition or unfair competition and ensure the concerted action's beneficial impacts on the overall economy and public interest as well as the application of the necessary supervision of its implementation, the FTC appended terms of the agreement as is stated in the content of the approval.

Appendix:
Far Eastern Air Transport Corporation's Uniform Invoice Number: 03522003
Uni Airways Corporation's Uniform Invoice Number: 22958771
TransAsia Airways Corporation's Uniform Invoice Number: 11719802

Summarized by Yeh, Su-Yen; Supervised Hou, Vh-Hsien