20 August, 2014
On 11 April 2014, the Malaysia Competition Commission (“MyCC”) issued a decision against Malaysian Airline System Berhad (“MAS”), AirAsia Berhad (“AirAsia”) and AirAsia X Sdn. Bhd. (“AAX”) (collectively, the “Parties”) for an infringement of section 4(2)(b) of the Malaysian Competition Act 2010 (“Act”) by entering into a Comprehensive Collaboration Framework (“Collaboration Agreement”) which had as its object the sharing of markets within the air transport services sector in Malaysia.
The terms of the Collaboration Agreement mandated MAS to focus on being a full-service premium carrier, AirAsia on being a regional low-cost carrier, and AAX on a medium-to-long haul low-cost carrier. Each airline would focus on their market area and avoid the areas specifically allocated to their competitor. Subsequently, MAS withdrew Firefly, its wholly-owned subsidiary initially set up to compete with AirAsia, from four Malaysia city-pair routes, leaving AirAsia to be the sole low cost carrier in the market.
MyCC found that the Collaboration Agreement had the object of preventing, restricting or distorting competition by sharing and allocating the markets between them. In this regard, the Parties could operate freely within separate market segments and effectively restrict competition either between themselves or through their subsidiaries. More significantly, the Parties had the ability to impose higher prices to maximise profitability without any constraints imposed by competitors. This would have left consumers to face the increased likelihood of higher airfares and fewer choices.
In conjunction, MyCC found that the establishment of a joint collaboration committee, consisting of top management officials of MAS, AirAsia and AAX, to administer and manage all issues and matters pertaining to the Collaboration Agreement, was clearly anti-competitive.
In response to arguments that the Collaboration Agreement and alleged infringement occurred before the Act came into force, MyCC clarified that it was not precluded from taking into consideration any infringing conduct or circumstances arising before the Act came into force on 1 January 2012 when investigating conduct that continued after that date.
MyCC noted that some airline alliances were pro-competitive before commenting that section 5 of the Act could have been invoked as a valid defence for an infringement under section 4(2) of the Act, if the Parties could prove that the Collaboration Agreement’s net economic benefit outweighed the anti-competitive effect. However, the Parties were ultimately unsuccessful in discharging this burden.
The financial penalties imposed on MAS and AirAsia in respect of the infringement amount to MYR 10m (SGD 3.8m) each. MyCC adjusted the quantum downwards to take into account two mitigating factors. The Parties: (a) co-operated fully with MyCC in the provision of requested data and information; and (b) voluntarily took steps to remove the reference to routes and market focus in the Collaboration Agreement through a Supplemental Agreement entered into on 2 May 2012. Moreover, no aggravating factors were considered in the computation of the penalties.
The total financial penalty of MYR 20m (SGD 7.6m) is the largest fine MyCC has issued to date.
In Singapore
The Competition Commission of Singapore (“CCS”) has investigated a number of matters, and taken action against such, where conduct commenced prior to the Singapore Competition Act (Cap.50B) taking effect on 1 January 2006, where infringing conduct continued after that date.
CCS has previously examined 10 airline alliance/joint venture arrangements, and one is still under review. In each case, the arrangement was notified for a decision to CCS, on the basis that the benefits of the arrangement would outweigh any corresponding effect on competition. CCS has approved all such applications it has received to date, albeit conditions have been imposed in a few cases.
For further information, please contact:
Cavinder Bull, Director, Drew & Napier
Chong Kin Lim, Director, Drew & Napier
Scott Clements, Drew & Napier