CN11 - ICC fines Garuda Airlines IDR 1 billion for discriminatory conduct
13 October 2021
The Indonesia Competition Commission ("ICC") has imposed a penalty of IDR 1 billion (approx. USD 70,000) on Garuda Indonesia Airlines ("Garuda") for engaging in conduct in violation of Article 19 of the Indonesian Competition Law. The ICC held that Garuda engaged in discriminatory conduct for giving preferential treatment to certain travel agencies for the sale of its airline tickets to the Middle East.
Key takeaways
- Article 19 of the Indonesian Competition Law prohibits business actors from engaging in one or more activities (either individually or jointly with other business actors), which may result in monopolistic practices or unfair business competition, including discriminatory practices towards certain business actors.
- This penalty comes after a long-standing investigation which commenced in 2019 by the ICC regarding Garuda's discriminatory practices towards certain travel agencies. While six travel agencies benefitted from the preferential treatment, there were some 300 other travel agencies who were not presented with the same treatment.
- ICC regulation Number 1/2019 offered the airline the opportunity to self-report and change their conduct following an initial hearing through the use of an "Integrity Pact". In principle, the pact was a signed document that stated the behaviour that Garuda was alleged to have committed and that it would not continue to violate competition law in the future.
The ICC has imposed a penalty of IDR 1 billion (approx. USD 70,000) on Garuda Indonesia Airlines ("Garuda") for engaging in conduct in violation of Article 19 of the Indonesian Competition Law. The ICC held that Garuda engaged in discriminatory conduct in the selection of a limited number of travel agent partners for the sale of its airline tickets to and from Jeddah and Medina in the Kingdom of Saudi Arabia.
Background
In March 2019, a local travel agent association filed a complaint after it was unable to purchase tickets from Garuda’s branches for pilgrims looking to travel to Jeddah and Medina. The association could only purchase tickets from six major travel agencies in Jakarta at the time, and as a consequence, ticket prices increased by 15%.
In September 2020, the ICC held hearings in the case and found that the arrangements between Garuda and the six agencies hindered business for some 300 other travel agencies nationwide and the conduct led to increased airfares to the Middle East for Indonesians travelling for pilgrimage. The ICC proposed behavioural remedies for the airline, which Garuda agreed it would comply with ("Integrity Pact").
Continuation of discriminatory conduct
In July 2021, the ICC held that Garuda had continued to engage in the discriminatory conduct, in violation of the Integrity Pact.
The ICC noted that the airline’s policy harmed the ability of other providers to compete and Garuda’s process for appointing the travel agencies was not open or transparent, nor was it based on any objective requirements and considerations. The ICC further noted that inconsistencies in the rationale for appointing wholesalers proved the existence of discriminatory conduct. Accordingly, the ICC imposed a penalty against Garuda for engaging in conduct in breach of Article 19 of the Indonesian Competition Law.
Penalty
In determining the penalty, the ICC noted that it took into account the airline's ability to pay and had regard to Garuda's financial statements from 2018, 2019 and 2020. The ICC said that had it imposed a large fine, this would potentially threaten Garuda's ability to continue to operate.
Concluding remarks
This case highlights the importance of compliance with the ICC's regulations, including its reliance to remedy violations through its Integrity Pact process. However, the more lenient approach of an Integrity Pact should not be underestimated, as the ICC will continue to monitor conduct and proceed to penalise parties who do not correct their behaviour.
With thanks to Isabella Hunt for her contribution.
