News & Insights

It’s been one hit after the next for Australia’s largest airline, Qantas. On 8 October 2024, Qantas was ordered by the Federal Court to pay $100 million in penalties for misleading consumers by offering and selling tickets to ‘ghost flights’ it had already decided to cancel, and by failing to tell existing ticketholders of their flight cancellation.

In addition, Qantas undertook to pay $20 million of compensation to affected consumers in reaching settlement of the case brought by the Australian Competition and Consumer Commission (ACCC). And this week, it was reported that Qantas may have to pay over $100 million in compensation to illegally sacked baggage handlers. That’s a huge hit over a relatively short period of time for the country’s once beloved national airline service.

While the scale and circumstances are extreme, the sale of “ghost flights” in particular provides relevant lessons for businesses big and small – and that’s what this article will discuss today.

Qantas admits to misleading consumers following ACCC filing

The ACCC filed the Federal Court suit against Qantas in August 2023. In May 2024, Qantas admitted to misleading consumers in regard to tens of thousands of flights scheduled to depart between May 2022 and May 2024, and in doing so breached sections 18(1), 29(1)(b), 29(1)(g) and 34 of the Australian Consumer Law (Competition and Consumer Act 2010 – Schedule 2) (ACL).

Qantas contravened the ACL in two ways.

1. Qantas continued to offer and sell flight tickets for two or more days after it had decided to cancel those flights. This affected 70,543 flights and 86,597 consumers who had made bookings on, or were re-accommodated to, a flight that had already been cancelled. On average these cancelled flights were still offered for sale about 11 days after cancellation, and in some cases, for up to 62 days after.
2. Qantas continued to display flight details on the ‘Manage Booking’ webpage of existing ticketholders for two or more days after it had decided to cancel the relevant flight, with no indication of cancellation. This affected 60,297 flights and 883,977 consumers. On average it took 11 days for ticketholders to be notified of the cancellation, and in some cases, it took 67 days.

Impact on consumers

Affected consumers were relying on Qantas to ensure their flight departed as advertised, and if not, to notify them promptly of its cancellation. Obviously, many consumers had made plans and spent money on related purchases. Qantas’ deception and misleading of consumers left people in precarious and stressful positions that may have resulted in costly alternative arrangements being made, or in them missing important events, resulting in economic or emotional damage.

Qantas knowingly benefitted from deception

Qantas admitted to the broad array of benefits it knowingly received from its misleading conduct. Qantas benefited by obtaining revenue from consumers who may have chosen a cheaper Qantas flight, or a flight with another carrier, had they been aware their proposed flight was already cancelled. Once booked, Qantas further benefitted by retaining revenue from consumers who were less likely to change carrier once they were eventually alerted that their flight had been cancelled. Further, by delaying fixing its systems, Qantas saved the costs of doing so at an earlier point in time.

Key takeaways for all businesses

Whilst this case relates to one of Australia’s largest companies, the key takeaways are still relevant to all businesses offering goods or services to consumers.

Corporate Knowledge and Accountability

Qantas admitted in the statement of agreed facts filed by the ACCC in the Federal Court that ‘senior managers responsible for different aspects of Qantas’ systems and operations knew’ that:

• cancelled flights had not been immediately removed from sale and had been purchased; and that
• Qantas had failed to notify consumers that had a pre-existing flight booking cancelled.

While no single Qantas manager knew of all matters in respect to the misleading conduct, they admitted that, between them, they were aware of the conduct.

Although the impact and volume of consumers affected is more severe when dealing with an airline the size of Qantas, all businesses should be aware of the pitfalls a lack of visibility and communication between teams and managers can precipitate. Businesses of any size should seek to have strong managerial structures and governance systems that allow for coordination and accountability between departments to ensure business-wide compliance with their ACL obligations.

Common miscommunication mistakes

Some simple examples of misleading conduct commonly arise out of knowledge or communication disconnect.

This might be, for example, where product development teams and marketing teams don’t talk. A product’s use may have certain limitations, but marketing materials could be broadly stated, thus they don’t include those important limitations.

Another example may arise if product orders (especially when made online) are accepted, but stock is not available or delivery times don’t reflect the “standard” published promises on the website.

Short term gain, long term pain – the necessity of being proactive

The ACCC, in their submissions to the Federal Court, acknowledged that Qantas has made headway in providing improvements to its faulty processes. The airline now automated its cancellation processes, including removing cancelled flights from sale and notifying ticket holders as soon as their flight is cancelled via the Manage Booking page of their app/web account.

Whilst Qantas initially received a benefit in the costs saved by delaying fixing or updating their systems after COVID-19, this benefit was dwarfed by the $100 million in court-ordered penalties. Qantas has now retrospectively automated the processes that led to misleading consumers, to avoid the risks of human error and to prevent the conduct and the associated reputational damage from re-occurring.

Businesses need to be proactive and adaptable in times of change, especially where unlawful conduct may be the result. While the issues and consequences arose in different areas of the business, red flags should have alerted Qantas to consider the impact of cancelled flights more broadly. Sure, there would have been a cost to fix its systems, but that cost was always going to have been incurred. Additionally, Qantas may have been able to proactively implement interim measures to minimise impacts on customers, or at least some of them.

Compensation in addition to already hefty penalties

In addition to the $100m fine, on 5 May 2024, Qantas gave an undertaking to the ACCC that it would pay $20 million of compensation to consumers who had purchased tickets on a flight that Qantas had already decided to cancel, or in some cases if they were re-accommodated to an already cancelled flight.

While breaches of the ACL will sometimes result in ACCC action and court ordered penalty, businesses almost always face compensation claims from affected consumers. Under the ACL, compensation claims often cover a broad range of impacts and can be brought by consumers individually or, increasingly, through a class action.

Early admissions and offer to compensate

If a business realises it has mislead consumers, owning up early, seeking advice and proposing a remedy or compensation will go a long way to avoid ACCC prosecution or customer backlash. Even if it is the ACCC investigation that alerts the business to the potential breach, early cooperation by a business that is likely to have breached the ACL is often the strategic recommendation. Cooperation may (possibly) avoid court proceedings (by providing an enforceable undertaking). Even if in court, cooperation and offers to compensate likely involve a reduction in the total penalty the ACCC will seek from the Court.

Qantas’ misconduct a warning for businesses large and small

Qantas’ conduct in misleading consumers and their subsequent financial penalties should serve as a warning to businesses, both large and small, of the substantial financial risks and reputational damage that businesses can be exposed to by breaching their obligations under ACL.

Just because one person did not know of contravention, the business, as a whole, will be deemed to have known. So, businesses need to communicate across teams and assess how the impact of an issue in one team may play out on its consumers.

If a potential non-contravention is discovered, it is not the end of the world but should not be ignored. It is what you do next that is critically important to any ultimate outcome.

So, if your business needs assistance or advice in regard to their obligations under the ACL, Macpherson Kelley’s Trade team would happy to assist.