Far Eastern Air Transport and TransAsia Airways violated Article 14 of the Fair Trade Law by agreeing to engage in concerted acts of unconditionally endorsing and transferring ticket vouchers
Chinese Taipei
Case:
Far Eastern Air Transport and TransAsia Airways violated Article 14 of the Fair Trade Law by agreeing to engage in concerted acts of unconditionally endorsing and transferring ticket vouchers
Key Words:
concerted action, airline industry, endorsement and transfer of ticket vouchers
Reference:
Fair Trade Commission Decision of February 29, 2000 (th
e 434th Commissioners' Meeting); Disposition (89) Kung Ch'u Tzu No. 033
Industry:
Airline industry(6141)
Relevant Laws:
Article 14 of the Fair Trade Law
Summary:
- 1. On 30 July 1998 a newspaper reported that "six airlines to resume joint operations in effort to raise prices on the Taipei-Kaohsiung route. Beginning in August, ticketed passengers can take flights on any airline without any extra processing fees." The Fair Trade Commission(the "Commission") initiated its investigation on the facts this news revealed because such practices, if proved are violations of the Fair Trade Law. The Commission found that beginning on 1 August 1999, Far Eastern Air Transport ("Far Eastern") and TransAsia Airways ("TransAsia") instituted a program of
"unconditional ticket voucher endorsements and transfers on the Taipei-Kaohsiung, Taipei-Tainan, and Taipei-Chiayi routes." Under this program, passengers with tickets from either airline could take flights on the other airline if the ticket-issuing airline's ground crew endorsed the ticket. When the ticketing airline endorsed the ticket, it did not ask for any reasons, nor did it restrict the flight taken by the passenger. As long as the ticket did not limit the airline, the issuing airline would endorse the ticket.
- 2. By instituting the "unconditional ticket voucher endorsements and transfers" program on the Taipei-Kaohsiung,Taipei-Tainan, and Taipei-Chiayi routes, Far Eastern and TransAsia effectively committed themselves to allowing passengers from the other airline to take their flights unconditionally and thereby jointly decided how they would restrict the endorsement and transfer of airline tickets. The two airlines theref
ore restrained one another's business practices because this arrangement allowed a ticketed passenger take either Far Eastern or TransAsia flights.
This arrangement also joined the two airlines together operationally. If the two airlines were to have then concluded a revenue sharing agreement, they would have been able to set a lower price limit easily. By doing so, prices would have been frozen, allowing inefficient operators to remain in the industry and making inefficient operators even more profitable. Thus, the arrangement between Far Eastern and TransAsia threatened to compromise the market mechanism.
The Commission also considered the fact that Far Eastern and TransAsia offered unconditional voucher endorsements on only three routes. These three routes, the Commission notes, are the three busiest and competitive domestic routes in terms of airlines, flights, and competition. On routes to offshore islands with fewer flights, however, the tw
o airlines did not introduce unconditional ticket voucher endorsements and transfers. This series of facts demonstrates that providing greater convenience to passengers was not in effect the airlines' foremost consideration when they introduced this program.
Other airlines on the three busiest and competitive routes did not institute unconditional ticket voucher endorsements and transfers. However, because Far Eastern and TransAsia had market shares of 30.5% and 24.1% respectively, passengers were more likely to buy ticket vouchers from these two airlines due to the greater availability of flights offered by these two carriers. Far Eastern and TransAsia thus became more competitive than the other airlines after instituting the unconditional ticket endorsements program and began to squeeze the other airlines. Without regulatory intervention, the remaining airlines would have been forced to participate in the joint operations scheme or found themse
lves driven out of the market tending toward excessive market concentration. These concerns were corroborated when the Commission discovered that as many as 10% of Far Eastern and TransAsia passengers were transferring between the two airlines - a percentage clearly high enough to effect supply and demand in the domestic airline industry in violation of the prohibition against concerted action in Article 14 of the Fair Trade Law. The Commission therefore fined Far Eastern and TransAsia NT$2 million and NT$1.5 million respectively in accordance with the Law after considering the circumstances of the above offense and their respective size.
Appendix:
Far Eastern Air Transport Co., Ltd.'s Uniform Invoice Number: 849563339
Transasia Airways Co, Ltd.'s Uniform Invoice Number: 97162515
Summarized by Ch'en Yi-ch'eng
Supervised by Hu Kuang-yu
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