I Application for authorisation A91 083 Supplementary submission no 2 - Authorisation that is not time limited

I International Air Transport Association

Introduction IATA has requested the ACCC to grant an authorisation in relation to passenger tariff coordination for multilateral interlining purposes that is not limited as to time.'

In discussions with ACCC staff following lodgement of the application, it was pointed out to IATA that the ACCC's policy is to place time limits on authorisations. IATA acknowledged this but suggested that, for the reasons set out in the submission in support of the application, there were good reasons in this case for the ACCC to grant an authorisation that is not time limited.

IATA agreed to file a supplementary submission to provide the ACCC with further reasons in support of that proposition. In doing so IATA recognises that this submission will only be relevant it the ACCC agrees with IATA that the public benefits from multilateral passenger interlining outweigh any public detriment likely to otherwise arise and decides to grant an authorisation.

Origins and nature of authorisation powers The authorisation process was introduced in 1974 to provide certainty to the business community in relation to contracts, arrangements, understandings and conduct ('conduct') that may have had a likely anticompetitive purpose or effect, but which should be granted immunity under the Trade Practices Act ('the Act') because public benefits outweighed likely anticompetitive effects.

The legislative intent, then reflected in section 90(4) of the Act, was that authorisations would be a valuable right that could only be taken away if there had been a material change in circumstances or the original authorisation had been obtained on the basis of materially misleading information. As the Explanatory a em or and urn^ stated:

The Commission will be able to revoke an authorization ifit was granted on false or misleading information, $a condition of the authorization has not been complied with or ifthere has been a material change of circumstar2ces (clause 91(4)).

Although the Bill contained a provision, section 9 l(1 13, permitting an authorisation to be 'expressed to be in force for a period speciJied in the authorization' no mention of that provision was made in the Explanatory Memorandum or in debates on the Bill.

In its current form, the Act contains the following scheme for the granting and revocation of authorisations:

where an applicant applies for an authorisation and satisfies the statutory tests the ACCC may grant an authorisation as requested;4

the ACCC has a discretion whether or not to grant an authorisation, but it must make that decision on relevant ground^;^

I IATA supporting submission paragraph 15.9. 2 Explanatory Memorandum to the Trade Practices Bill 1974, paragraph 48.

Section 9 l ( l ) remains in its original form today. TPA section 88(1). Re Medicines Australia Inc (2007) ATPR 42-1 64

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if it decides to grant an authorisation it may impose relevant conditions, constrained by the subject matter, scope and purpose of the ~ c t ; ~

the ACCC may also express an authorisation to be in force for a specified period, but exercise of that discretion is also constrained by the subject matter, scope and purpose of the Act;

the Act includes specific provisions in relation to the revocation of authorisations, once granted. They include provision for doing so where there has been a material change in circumstances since the authorization was granted;7 and

if the ACCC proposes to revoke an authorization on those grounds there is a formal procedure that must be followed.*

2.5 While the Act contains a discretion for the ACCC to grant authorisations for a limited time period only, that discretion is, in IATA's submission, to be exercised according to standard administrative law principles. That is, the discretion may be exercised only where appropriate and justified on relevant grounds.

2.6 The Commission's original practice was consistent with that view. Authorisations granted through the period 1975 to the mid 1990s9 were generally not time limited, although there were exceptions where the particular circumstances warranted it. lo

2.7 Likewise, the practice of the Trade Practices Tribunal was to grant authorisations that were not time limited." The first instance of the Tribunal granting an authorisation for a limited time period appears to be in Re Australasian Performing Rights ~ssociation'~, but the circumstances in that case were appropriate because the Tribunal concluded that 'technological and other changes are constantly having an eflect on aspects of the relevant market.'

2.8 In the mid-1990s the Commission appears to have adopted a general practice of granting authorisations limited as to time. This appears to reflect a policy decision that has never been tested. That policy was expressed recently in Re Tarong Energy Corporation ~ t d ' ~ as follows:

'The ACCC generally considers it appropriate to grant authorisation for a limited period of time, so as to allow an authorisation to be reviewed in the light of any changed circumstances. '

Re Medicines Australia Inc (2007) ATPR 42-164 paragraph 129. ' TPA section 9 1 B(3)(c); previously section 9 l(4). TPA section 9 lB(3) - (5).

9 See for example Re NSWRoad Transport Association (1977) ATPR (Corn) 35-200, Re Comalco Ltd (1979) ATPR (Corn) 16,393; Re Bankcard Scheme (1980) ATPR (Corn) 52,169; Re Qantas Airways Ltd (1985) ATPR (Corn) 50-098; Re DuPont (Australia) Ltd (1996) ATPR (Corn) 50-23 1 .

lo For instance, in Re Qantas Wentworth Holdings Ltd (1978) TPRS 1 1 15.160 the Commission granted authorisation to six Sydney hotels in relation to a fixed price plan for accommodation that could be taken at any participating hotel for 3 months because the promotion was only of three months duration. In Re Master Locksmiths Association ofAustralia (1979) ATPR (Corn) 15,769 the Commission granted authorisation for only 15 months but stated that 'at or about that time the authorization may be extended indefinitely or for a stated period or allowed to expire depending on an assessment as to how the proposed arrangement has operated in practice.' See Re Concrete Carters Association (1977) ATPR 40-042; Re Herald & Weekly Times Ltd (1978) ATPR 40- 058.

l 2 (1999)ATPR41-701. l 3 A9 1009 20 December 2006.

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2.9 IATA submits that a general policy to granting authorisations limited as to time is inappropriate because there are specific statutory provisions regulating the ACCC's entitlements where it can establish changed circumstances, and the application of a general policy of the type stated, in effect, removes the protections those provisions provide. As such, a general policy of that type is inconsistent with the scheme of the Act.

2.10 Regardless of whether the current ACCC policy is appropriate, there are, in IATA's submission, good reasons for the ACCC to not follow that policy in this instance.

3. Authorisation not time limited - IATA's grounds 3.1 The grounds on which IATA is seeking an authorisation for the new IATA passenger

tariff coordination system that is not limited as to time are that:

IATA's passenger tariff coordination system has been authorised for over 30 years without any evidence that it has not been in the public interest;

the system has worked well and there have not been any serious competition complaints about it in that time;

over the past 30 years the market for international transportation of passengers by air on scheduled services has become increasingly competitive;

a IATA voluntarily surrendered its original authorisation at the ACCC's request and has cooperated with the ACCC in reviewing the relevant conduct;

IATA has made changes to the system to address theoretical competition agency concerns, even though it does not accept that those concerns are justified; and

the cost to IATA and its members in responding to the ACCC's review has been enormous.

Authorised for over 30 years

(a) IATA's passenger tariff coordination system has been authorised in Australia since the Trade Practices Act came into force in 1974. It was subjected to a comprehensive review by the Commission in 1983 - 1985 and a broad ranging authorisation granted. That authorisation was not limited as to time.

(b) Over the past four years the ACCC has undertaken an exhaustive examination of the system under this application and Application A90855. If, in the light of that examination the ACCC concludes, as IATA submits it should, that an authorisation should be granted, then it is appropriate to grant a new authorisation that is not limited as to time.

System has worked well

(a) The IATA passenger tariff coordination system has worked well for over 60 years, since it was first introduced. It has facilitated the development and expansion of international passenger air travel since then. It has met the expectations of governments as expressed in Air Services Agreements without which scheduled international air services would not have been possible. It has enabled the airline community to develop an efficient global multilateral interline system, with all of the benefits set out in the submission in support of this application and IATA's 24 May 2004 submission in support of application A90855 ('the IATA 2004 submission').

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(b) There have been no substantive complaints about the IATA passenger tariff coordination system in Australia since the Commission granted the 1985 authorisation.

(c) When the ACCC called for public submissions on the IATA 2004 submission and on the ACCC discussion paper A9085513 in relation to the IATA passenger tariff coordination and interlining dated 30 June 2005, the ACCC only received 18 submissions and none involved any consumer complaint.

(d) All public submissions received by the ACCC on the passenger tariff coordination and interlining component of IATA's application A90855 supported passenger tariff coordination for multilateral interlining. Those submissions were from organisations in a position to know what happens in the international aviation industry and to speak authoritatively about the benefits of the IATA system and its likely impact, in practice, on competition. For instance:

The Federal Department of Transport and Regional Development stated that 'DOTRS supports LA TA 's view that fares agreed through the IATA tarzfl coordination process respond to circumstances when passengers have no choice but to travel on a number of dzflerent sectors. with dzferent airlines ... or where passengers need to change travel arrangements during their journey ... There is always likely to be a needfor a tariflfor particular sectors to be established at lA TA tarzf coordination conferences ... '

The Federal Department of Industry, Tourism and Resources stated: 'We consider that the removal of interlining and passenger tarzflcoordination could have a negative impact on the Australian tourism industry. The LATA system enables airlines to work together to provide travellers with greater flexibility in terms offlight options and ticket conditions than would otherwise be available. ... Interlining creates opportunitiesfor airlines to tap tourism markets that are not directly served andfor smaller airlines to expand their global reach which encourages competition and benefits tourism.'

The South Australian Department of Transport and Urban Planning pointed out that 'Interlining is particularly important to South Australia ... The reciprocity that the LATA system provides ... allows interlining between smaller airlines and between alliances. This spreads the benefits of interlining ... More .

consumer choice and competition results ... ' The NSW Department of Tourism, Sport and Recreation stated: 'Based on considerations of the consumer and broader tourism industry benefzts associated with the operation ofthe passenger tariflcoordination arrangements, Tourism New South Wales supports LA TA 's application.'

(e) The ACCC's discussion paper A9085513 raised two substantive issues concerning passenger tariff coordination. The main issue was that the ACCC had undertaken some very basic fare analysis, based on incorrect data, and asserted that there was evidence that IATA fares influenced market fares on some routes in some classes. IATA drew the ACCC's attention to the fact that data used was incorrect and lodged a comprehensive rebuttal of the proposition, based on economic analysis.

(f) The ACCC subsequently acknowledged that it had used incorrect data in discussion paper A9085513, but otherwise it was ultimately unnecessary to take the matter further because IATA had been working on the new Flex Fare system in order to remove any possibility that IATA fares could influence market fares.

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3.4 Market has become increasingly competitive

(a) There is no doubt that, over the past 30 years, international passenger air services have become more competitive, as more airlines have entered the market, serving more destinations with competitive service and pricing options. In addition the global regulatory environment has become more liberal, although still based on Air Services Agreements.

(b) IATA expects that the ACCC will be well aware of these developments, both from its work in relation to Application A90855 and its other extensive work in the airline industry.

(c) There is, in IATA's submission, no prospect that the trend to liberalisation in international aviation will continue. There is also no prospect of returning to the less competitive, highly regulated international aviation environment or prior decades.

3.5 lATA has made changes to the system to address theoretical competition concerns

(a) IATA has been cognizant of competition concerns relating to the IATA passenger tariff coordination system raised by the ACCC and other leading competition agencies, even if it did not accept the validity of those concerns.

(b) In a genuine attempt to address those concerns while retaining the public benefits of IATA multilateral passenger interlining, IATA and its airline members have invested significant resources in developing, testing and now implementing changes. Those changes, which IATA submits should remove all competition concerns, are explained in IATA's submission in support of this Application.

(c) The consequence, in IATA's submission, is a new system that should present no competition concerns to the ACCC, nor, looking forward, any real possibility of competition concerns in the future. Of course, given the specific construction of Australian competition laws, and in particular its per se provisions, this application was necessary.

3.6 IATA voluntarily surrendered its original authorisation

(a) IATA was established by governments and their airlines to undertake work necessary for international air services that governments could not themselves undertake. It is no ordinary industry association, having been established under an Act of the Canadian Parliament and assigned a special role under many government-to-government air services agreements.

(b) Even though IATA's 1985 authorisation was not time limited, when the Commission informed IATA that it wanted to re-visit the matter IATA voluntarily complied, even though IATA had concluded that there were no relevant changed circumstances that would have entitled the Commission to revoke its authorisation.

(c) IATA negotiated appropriate terms with the Commission under which it voluntarily submitted its 1985 authorisation for re-consideration through a voluntary application for revocation.

(d) The ACCC should conclude, based on this fact and the fact that IATA cooperated fully with the ACCC is its consideration of application A90855, that if the ACCC wanted in the future to re-consider any new authorisation that might be granted pursuant to this current application IATA would comply.

lATA application for authorisation A91083 - Supplementary submission no. 2 page 6

(e) Of course, even if IATA did not, the ACCC would still have the right to move for revocation utilising the changed circurnstances provisions of section 91B referred to above.

Cost to IATA and its members

(a) This application has been the most costly IATA has been required to undertake with any competition agency anywhere in the world. The ACCC's approach to authorisation applications, about which IATA makes no complaint, is both thorough and exhaustive.

(b) The same could be said for IATA's 1983-1 985 application, which ultimately required an application to the Trade Practices Tribunal.

(c) The airline industry should not be required to incur that cost again except where there is credible evidence that the balance between public benefits and anticompetitive effects has reversed. If that were to occur the ACCC has ample powers under section 9 1 B of the Trade Practices Act to undertake a new review.

Assessing public benefit

It has been suggested that the ACCC could not grant an authorisation that is not time limited because it is not possible to assess the public benefit/anticompetitive effect balance for an indefinite period.

In IATA's submission that proposition is based on a false premise. The ACCC does not have to assess the public benefitlanticompetitive effect balance for an indefinite period in order to grant an authorisation unlimited in time. The appropriate question for the ACCC is: what is the likely future with and without authorisation based on a forward-looking assessment, taking account of what has occurred up to the time the ACCC is considering the matter? If at some time in the future the public benefits were to reduce significantly or the likely anticompetitive effects increase, such that there is likely to be a change in the balance, then the ACCC can move to revoke the authorisation under section 91B(3)(c). That is precisely what the subsection is for.

Secondly, if the proposition in paragraph 4.1 were correct, that would render a vast number of authorisations granted in the past, some by the Tribunal, open to question because they were not time limited.

Other options

IATA has been advised that, even with the ACCC's current policy of placing time limits on the authorisations it grants, there is flexibility in the periods selected. As the table in Appendix 1 shows, in the past three years the ACCC has issued authorisations for a wide range of time periods with the outer period being 29 years. Others have been granted for 16,15 and 10 years.

If, contrary to this submission, the ACCC does not propose to grant an authorisation that is not limited in time, IATA submits that an authorisation period of not less than 15 years is warranted.

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Appendix 1

Authorisations granted by the ACCC in the period 2005-2007

IATA application for authorisation A91 083 - Supplementary submission no. 2

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1 7-0 1-2007

29-08-2007

06-06-2007

02-05-2007

06-06-2007

12-09-2007

1 7-01 -2007

30-08-2007

19-09-2007 27-09-2007

23-05-2007

19-1 2-2007

07-03-2007 29-08-2007

18-07-2007

31-1 0-2007

14-02-2007

18-04-2007

Capped fee structure

Standard form contracts

Model terms and conditions

IATA Passenger Agency Program Guide for smash repairs

Joint tender process

Tender and standard agreements

Manufacturers and Importers Agreement Terms and conditions Collective licensing arrangements

Medium Term Capacity Balancing System Tariff arrangements

Pre-paid funerals Casual Mall Licensing Code of Practice

Corporate Plus and Convention Plus programs Alcohol Beverages Advertising (and Packaging) Code

Tender process

Articles, Members Code of Practice, Auction Code of

A91 01 1

A91 047

A9 1 023

A9 1 020- A91 022 A91 025

A91051- A91 053

A91012 & A91014 A90539- A90540 A91 058 A91041- A9 1 042

A91 033- A9 1 035 A91 059

A91 01 5 A91 049 A91 050

A91 036- A9 1 040 A9 1 054- A91 055

A30244- A30245 A91 026

1.5

5

5

0.83

5

7.25

2.5

8.33

6 3.5

0.58

10

5 5

5

4.67

10.42

5

Canberra After Hours Locum Medical Service Ltd (CALMS) Construction Material Producers Association Inc Federal Chamber of Automotive Industries International Air Transport Association Motor Trades Association of Australia Limited Australian Co- operative Foods Limited and National Foods Milk Limited National Library of Australia

Nestle Australia Ltd

Office Choice Limited Phonographic Performance Company of Australia Ltd Port Waratah Coal Services Limited Qantas Airways Limited Retirees WA (Inc) Shopping Centre Council of Australia Limited Singapore Airlines Limited Australian Associated Brewers Inc, Australian Hotels Association & others The Municipal Association of Victoria The Real Estate Institute of Western

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A91 024

A91 057

A91 01 9

A9 1 064

A91 048 '

A91 031- A9 1 032

A30243

A90944- A90945

A9091 8- A90920; A90922; A90924- A90925 A90993

A90966

A90876

A90987

A40 1 06

A90981- A90983 A91 007

The Royal Australian College of General Practitioners The South East Potato Growers Association Hurstville City Council, Kogarah Municipal Council, Rockdale City Council The Victorian Farmers Federation Sunraysia Branch The Victorian Potato Growers Council Sky Channel Pty Ltd, Tabcorp Holdings Limited & ThoroughVisioN Pty Ltd Association of Australian Bookmaking Companies Australasian Performing Rights Association Ltd Australasian Performing Rights Association Ltd

Australian Brick and Blocklaying Training Foundation Limited Australian Dairy Farmers Limited Australian Direct Marketing Association Australian Hotels Association (NT, SA, Tas, Vic & WA) Australian Swimmers Association l ncorporated BHP Billiton Iron Ore Ply Ltd & others Australian Rugby Union Ltd, Cricket Australia, Football Federation of Australia Ltd, Lawn Tennis Association of Australia Ltd, National

tandard Exclusive Agency

Allow GPs to agree on patient fees

Collective bargaining on behalf of its members Joint tender and contract

Collective bargaining on behalf of its members

Collective bargaining on behalf of its members Memorandum of Understanding setting out broad terms for sharing content

Collective bargaining and participation in dispute resolution involving members Re-authorisation for acquisition and licensing of performing rights Re-authorisation for acquisition and licensing of performing rights

Charge a bricklayer training levy

Extension of collective bargaining arrangements Code of Practice

Collective negotiations

Collective bargaining arrangement

Joint venture contracts

Collective negotiation of product fee

23-05-2007

29-08-2007

21 -03-2007

12-1 2-2007

27-06-2007

04-07-2007

19-07-2006

08-03-2006

08-03-2006

36-08-2006

26-04-2006

29-06-2006

01 -03-2006

22-03-2006

01 -02-2006

13-1 2-2006

4

5

11.25

5

5

4.5

5

4

4

3

5.17

3.25

5

5

15

2.17

Rugby League Ltd & PGA Tour of Australasia Ltd Allianz Australia lnsurance Limited, Community Care Underwriting Agency, lnsurance Australia Ltd & QBE lnsurance (Australia) Ltd

Joint venture agreement for the collective supply of insurance to not-for-profit organisations

CS Energy Ltd & Callide Power Manaaement Ptv Ltd

Joint negotiation for price review

A90984- Federation of Levy on all wool sold at 1 1-01 -2006 2 A90985 Australian Wool auction or by private treaty

Organisations International Air Transport Association

Cargo Agency System, 09-1 1-2006 Scheduling System, Prorate System, Clearing House, Services System (passenger and cargo) and Tariff System (passenger and cargo) Genetic Testing Policy that 08-03-2006 members will not require life insurance applicants to undergo genetic testing. Joint marketing of gas from 03-05-2006 PNG to Australia Co-operation agreement with 13-09-2006 an associated company and

Investment and Financial Services Association

A40081 AGL, ExxonMobil A401077 1 Group & others , .

Qantas Airways Ltd A40 1 09 . -

subsidiaries Unincorporated joint venture 28-06-2006 A90999- Brisbane Turf Club Ltd

A91 000 & Queensland Turf

Australia Ltd Increase to existing levy on 01-1 1-2006 5 refrigerant gas imported and sold

Royal Australasian College of Surgeons

Accreditation of hospitals and assessment of overseas- trained doctors

Southern Sydney Regional Organisation of Councils

Collective tendering process

A91 009- Tarong Energy I Coal supply agreement 1 20-12-2006 I 29 A91010 Cor~oration Ltd A30242 The Container

A9 1 006 Independent Market O~erator

Collective bargaining 1 05-07-2006 1 Market rules to govern 22-1 2-2006 15 wholesale electricity in WA

Benaris International Pty Ltd & others

Contracts, arrangements and understandings relating to common terms and conditions [includina mice)

A90963 Agsafe Ltd Industry Waste Reduction 24-8-2005 3,75 Scheme

lATA application for authorisation ~91083 - Supplementary submission no. 2 page 10

- IATA application for authorisation A91 083 - Supplementary submission no. 2 page I 1

Locum Medical n of after hours

A90964, A90965

A30239- A3024 1 A90937

A30233- A30235

A90975- A90978

A90947

A90927

A40 1 00- A40 1 02 A90958- A90960 A40097- A40099

A90938- A90940

A90955-

CSR Building Products Ltd

Dalrymple Bay Coal Terminal Pty Ltd Federal Chamber of Automotive Industries

AWB Ltd, Export Grain Logistics Pty Ltd and GrainCorp Operations Ltd Homeworkers Code of Practice Committee I nc Little Company of Mary Health Care Ltd

Milk Vendors Association (SA) Inc NECA

NECA

NECA

N ECA

NECA

Collective bargaining relating to contracts with lorry owner drivers as well as negotiations between CSR and owner-operators involved in the cartage of raw materials to CSR plants Queue management system

Negotiations with area hire service providers in ports around Australia with respect to the terms and conditions for the supply of area hire services Joint Venture Shareholders Agreements

Homeworkers Code of Practice

Proposed acquisition

Collective bargaining

Extension of derogations

Amendments to the National Electricity Code Amendments to the National Electricity Code - Tumut nodes trial Amendments to the National Electricity Code - interim arrangements Amendments to the National

31-08-2005

15-12-2005

20-04-2005

15-04-2005

12-12-2005

1 1-03-2005

27-04-2005

22-06-2005

22-06-2005

15-06-2005

09-02-2005

27-04-2005

5.83

3

5

4.67

5

No time limit (no ongoing conduct)

5

1.5

5.5

2.08

5.83

1.25

Electricity Code - South Australia Metering

Ltd and Perkins use of facilities Shipping Pty Ltd

A30236- Port Waratah Coal Capacity Distribution System 15-04-2005 2.75 A30238 Services Ltd A90972 Premium Milk Supply Collective negotiations 09-1 1-2005 5

Limited A30226- British Airways PIC and Joint Services Agreement 08-02-2005 5 A30227 Qantas Airways Ltd A90946 Royal Australian Code of Conduct, regulations 27-1 0-2005 6

Institute of Architects and guidelines A60024- South Australian Imposition of a levy 03-08-2005 5 A60025 Oyster Growers

Association Inc A90926 Southern Sydney Joint tender and contract 13-04-2005 7

Organisation of Councils

A9094 1 - Tobacco Co-operative Exclusive dealing 03-08-2005 5 A90943 of Victoria Ltd arrangements, collective

negotiations and control of supply quantity

A90952 WA TAB Agents' Collective bargaining 30-06-2005 6 Association Inc

I

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