Australian Court Orders Qantas to Pay Commission on Fuel Surcharges

The Australian reports that the full bench of the Australian Federal Court has found in favor of travel agents, and ruled that Qantas and other airlines were wrong when they refused to pay agents commission of fuel surcharges.

The ruling was an appeal decision involving a dispute that has brewing since Qantas first introduced fuel surcharges in May 2004.

Qantas is one of the major airlines still paying commissions to travel agents, and in 2004 the airline decided that a base commission would be paid on the fuel surcharge component of domestic fares but not on international fares.

Eventually the line dropped the surcharges on domestic routes but has continued to apply them to international flights.

Agents quickly began battling the policy contending that the fuel surcharge, regardless of whether applied to a domestic or international flight, is a part of the ticket price and therefore Qantas is obliged to pay a commission on the entire fare, with the exception of government taxes.

In 2006 Slater & Gordon, a law firm, filed a class action suit against Qantas and five other airlines (Air New Zealand, British Airways, Cathay Pacific, Singapore Airlines and Malaysian Airlines), on behalf of Leonie’s Travel Pty Ltd (representing all travel agents who sold tickets on behalf of the airlines).

In 2009, a Federal Court ruled that the airline was entitled to exclude fuel surcharges when calculating commissions paid on international tickets. Leonie’s Travel Pty Ltd appealed, and this week the country’s highest court found in favor of travel agents.

Three judges – Bruce Lander, Steven Rares and Anthony Besanko – found that Qantas is not permitted to “unilaterally alter an international agreement covering the rights and obligations of airlines and travel agents under International Air Transport Association rules.”

They said IATA rules require commissions to be based on the cost of the fare to any passenger, with only a few charges excepted such as excess baggage charges and taxes.

The court ordered that Qantas account for the money it received from the surcharge, and must pass their “underpaid commission” on to travel agents.

Although the original class action suit involved five other airlines, all parties agreed liability action would continue against Qantas only.

“It is a landmark decision,” Slater & Gordon lawyer Steven Lewis was quoted as saying in The Australian. “It’s the first time anywhere in the world a court has made a determination that airlines owe travel agents commissions on fuel surcharge.”

Furthermore, Lewis said that the reason the six airlines fought the case so fiercely was because a decision in favor of agents could be used as a precedent in other areas of the world where airlines pay commissions on base fares.

“The court has made a very clear ruling that the fuel surcharge is part of the ticket price on which commissions must be paid,” he said.

When approached by Travel Market Report, The Australian Federation of Travel Agents declined to comment on the ruling.

The court did not determine how much Qantas will be liable to pay travel agents; the case instead returns to the original judge who will calculate damages. However Slater & Gordon estimated the case could bring the Australian agency community more than $36 million.

According to The Australian report Qantas has expressed its disappointment in the ruling and is assessing its options.

New Zealand Considering Following Suit

As reported on BusinessDay.co.nz New Zealand’s travel agent organization has said it is considering taking legal action against airlines after the Australian court ordered Qantas to pay agencies commissions on fuel surcharges.

New Zealand Travel Agent Association (NZTAA) chief executive Paul Yeo said New Zealand agencies face a similar commission situation as Australian agents, but until now the industry has left it to the courts in other countries to rule on legal disputes.

“Essentially these [cases] are pretty expensive things to do, so we were leaving it to somebody like the Aussies, and if there is success [there] then we’ll pay a very close eye to see if there is a possibility of success in New Zealnd,” he was quoted as saying.

If NZTAA determines that the same ruling could apply in New Zealand, it will consider going down a similar route and filing suit against airlines.

ASTA Weighs In

Travel Market Report turned to ASTA for comment on the ruling and to see if it could set a precedent for agency/airline relations in the U.S.

Paul Ruden, senior vice president for legal and industry affairs at ASTA, said: “We can’t speak for other countries.  In the United States, the two key factors are that there are no base commissions and that DOT has a strict policy that requires all mandatory components of the fare to be stated as a single all-in price whenever price is mentioned.  Thus, in the US, fuel surcharges may not be shown separately unless there is also displayed the full price including the fuel surcharge.  In Australia, as we understand it, Qantas had separated out the surcharges.  It mattered there on the commission side because commissions were being paid on the base fare which should have included the surcharges.  It would not matter on the commission side in the US because such separation is unlawful and, in any case, there are no generally effective base commissions.”