China Airlines, Eva Airways, and Vietnam-based Vietnam Airlines and Pacific Airlines were alleged of acting in concert to raise passenger airfares on Chinese Taipei-Vietnam routes in violation of Fair Trade Law
Case:
China Airlines, Eva Airways, and Vietnam-based Vietnam Airlines and Pacific Airlines were alleged of acting in concert to raise passenger airfares on Chinese Taipei-Vietnam routes in violation of Fair Trade Law
Key Words:
passenger airfares, Chinese Taipei-Vietnam commercial aviation routes, to monopolize
Reference:
Fair Trade Commission Decision of July 26, 2001 (the 507th Commissioners' Meeting); Letters (90) Kung Yi Tzu No. 9002348-008 and 9002348-009
Industry:
Civil Aviation Transport Industry (5510)
Relevant Laws:
Summary:
1. This case originated with a letter of complaint on 21 February 2001 stating that the Chinese Taipei-Vietnam commercial aviation routes were currently being serviced by four airlines - China Airlines, Eva Airways, Vietnam-based Vietnam Airlines and Pacific Airlines, with economy class fares climbing from NT$9,000 at the end of 2000 to NT$23,000 during the Chinese New Year holiday of 2001, and remaining as high as NT$19,000 after the holiday. The complaint claimed that the prices were unreasonably high and possibly the result of collusion by the airlines, influencing the market mechanism regulating the supply and demand for services. 2. There are three direct routes between Chinese Taipei and Vietnam: Taipei - Ho Chi Min City, Kaohsiung - Ho Chi Min City and Taipei-Hanoi. As Vietnam Airlines is the sole carrier on the Taipei - Hanoi route, there is no possibility of concerted action. Both Vietnam Airlines and Pacific Airlines fly the Kaohsiung - Ho Chi Min City route. Airfare schedule information provided by the two airlines from 1998 to the present indicates that their airfares and adjustments thereof are not uniform, nor are the dates of the adjustments. In addition, there is no direct evidence showing that the two airlines jointly monopolized the route to influence the market's supply and demand function through agreements, contracts or other means of resolution. Four airlines fly the Taipei - Ho Chi Min City route: China Airlines, Eva Airways, Vietnam Airlines and Pacific Airlines. Their respective market shares for Year 2000 were 35%, 34%, 18% and 13% (market share is calculated based on the percentage of seats filled). With respect to airfare schedules, the market price for the same class of airline ticket on Vietnam Airlines and Pacific Airlines were NT$2,000 to NT$6,000 lower than the same class of ticket on China Airlines and Eva Airways. The airfare adjustments and the dates of those adjustments by Vietnam Airlines and Pacific Airlines are inconsistent with adjustments by China Airlines and Eva Airways. There is no evidence directly showing that the two Vietnamese airlines acted in concert with China Airlines or Eva Airways to jointly monopolize the route through contracts, agreements or other means of resolution. 3. Further investigation also found that China Airlines and Eva Airways on 21 December 2000 both raised their airfares for individual travel tickets (YEE3M) on the Taipei - Ho Chi Min City route to NT$18,000. The two carriers again raised airfares to NT$19,000 for the same class of tickets on 20 January 2001 and 19 January 2001 respectively. On 28 January 2001 the two airlines reduced airfares for the same class of ticket back to NT$18,000. With regard to this type of ticket, the adjustment dates and the adjusted price of the two airlines notably consistent. Airfares adjustments during the same period for other classes of ticket on the same airlines flying the same route, however, were not consistent. The 21 December 2000 and 19, 20 January 2001 airfare hikes were an annual response to the seasonal sharp increase in demand for tickets during the Christmas and Lunar New Year holidays, respectively. Airfares were lowered on and after 28 January 2001 as is normal practice following the Lunar New Year holiday. Although the percentage of seats filled does not always increase as expected during the two holiday periods in question, airfare adjustments are made in consideration of advance booking and whether greater market demand is expected. There is a discrepancy between the demand expectations and the percentage of seats actually filled. Since 1998 the general trend on Chinese Taipei - Vietnam routes has been one of a gradual increase in airfares as demand has gradually increased. Airfares were not raised significantly, however, during the Christmas and Lunar New Year holiday periods in 1998 and 1999 because demand was still depressed following the China Airlines crash and travelers were still worried about airline safety. The 1998 Southeast Asian financial crisis and the 921 Earthquake of 1999 also contributed to a significant decrease in the number of international travelers. Rising international oil prices in 2000 also raised the operating costs for airlines. As a result, International Airline Transport Association increased its gazetted ticket price twice. Individual airlines subsequently raised airfares on the Chinese Taipei - Vietnam routes significantly in 2000 to reflect rising costs and a surplus of demand. 4. The Fair Trade Commission also found that the content of aviation agreements between two nations on a given route would affect competition on that route. Under circumstances where there is free competition on a given route, for example between Chinese Taipei and the U.S., foreign airlines may easily enter or withdraw from the market. Aviation agreements that restrict the number of airlines operating on a given route can severely limit competition. In the present case, the aviation agreement between Chinese Taipei and Vietnam restricts the number of carriers and available seats on the Chinese Taipei - Vietnam route and limits competition. The effective dates of China Airlines and Eva Airways airfare hikes (21 December 2000 and 19, 20 January 2001) and the post-adjustment airfares for individual travel tickets on the Taipei - Ho Chi Min City route are highly consistent. It is difficult to determine whether the sudden airfare hike was the result of some joint resolution between the two airlines, or whether one simply followed the other's action after the other increased airfares. In the present case, there is no concrete evidence showing that the two airlines jointly decided to increase airfares on the Taipei - Ho Chi Min City route "by means of a contract, agreement or any other form of mutual understanding." Further, it is common practice for airlines to issue advance written notice of airfare hikes to the travel agencies. China Airlines issued such a written notice of its impending airfare hike for Southeast Asian flights on 8 December 2000. The notice stated that Taipei - Ho Chi Min City airfares would be adjusted on 21 December 2000, 1 January 2001, 20 January 2001, 28 January 2001, and 11 February 2001 respectively. Eva Airways, however, issued its written notice of impending airfare adjustments on the Taipei - Ho Chi Min City route on 27 November 2000, stating adjustments would be made on 21 December 2000, 19 January 2001 and 28 January 2001 respectively. It is therefore a case of two airlines adjusting airfares concurrently based upon information about each other's proposed airfare adjustments obtained from the travel agencies, a conscious and concurrent effort resulting from access to transparent market information. Based on the evidence available in the present case, however, it is difficult to determine whether China Airlines and Eva Airways engaged in concerted action sufficient to constitute a violation of the Fair Trade Law by affecting the supply and demand mechanism of the market. Summarized by Liou, Chen-Wei; Supervised by Lee, Wen-Hsiu