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The Sydney Morning Herald

Qantas to be prosecuted for trying to cripple Virgin Blue

Author: Mike Seccombe
Date: 08/05/2002
Words: 482
          Publication: Sydney Morning Herald
Section: News And Features
Page: 5
Qantas will be prosecuted under the Trade Practices Act for an alleged attempt to drive competitor Virgin Blue out of a market by undercutting prices, the Australian Competition and Consumer Commission announced yesterday.

If the ACCC allegations are proved, Qantas could face a fine of up to $10 million.

The case involves the Brisbane-to-Adelaide route, which was serviced by two Qantas and one Ansett flight a day until Virgin entered the market in late 2000, with two extra flights.

Qantas responded by introducing an extra flight which brought the total number of daily flights to six and more than doubled the total number of seats per day on the route and matching cheap Virgin fares.

The chairman of the ACCC, Professor Allan Fels, said the consumer watchdog believed Qantas's behaviour amounted to ``capacity dumping" increasing the total number of seats well beyond passenger demand, thus ensuring no carrier on the route was profitable.

Qantas had misused its market power, to ``damage and possibly eliminate Virgin Blue from that market and also to deter it from competitive conduct in that market and in other markets," he said. ``There was a signalling effect, in our allegation."

Professor Fels declined to answer questions about the size of losses incurred by Virgin, the true costs of the flights and how much of a loss Qantas was trading at, but said evidence would be given in court.

The ACCC is seeking fines against Qantas, injunctions to prevent any repetition of such behaviour, and an order requiring the airline to implement a new corporate compliance program on trade practices.

The chief executive of Qantas, Geoff Dixon, said the airline had engaged in a ``legitimate, commercially justified, competitive response" to Virgin's challenge on the route, and had benefited consumers through more services and cheaper fares.

``The commission's action is likely to have a chilling effect on legitimate competition, not only in the aviation industry but across the economy," Mr Dixon said.

Virgin Blue welcomed the ACCC action, and its chief executive, Brett Godfrey, urged the Federal Government to strengthen the Trade Practices Act to allow the ACCC to take action eliminating predatory conduct in line with aviation regulations in Canada and the United States.Ansett's regional subsidiaries, Hazelton and Kendell, look likely to be sold to the Australiawide consortium, after the group won preferred bidder status. Hazelton's administrator, Michael Humphris, said it would be at least another two weeks before a contract of sale was signed, with the consortium aiming to develop a merged airline covering four states.Qantas yesterday denied a review of operations in its regional subsidiary QantasLink would mean job losses. Mr Dixon said the changes to QantasLink this year which came in the wake of Ansett's collapse would expand regional services and mean more aircraft and jobs.

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