Under UK and EU competition law, agreements that have the effect of preventing, restricting or distorting competition are prohibited.
This prohibition can apply to agreements, known as vertical agreements, between parties who operate at different levels of a supply chain (e.g. between suppliers and tour operators, tour operators and resellers, etc.) and so is of particular relevance to the travel industry, where vertical agreements are common.
However, while there is a broad prohibition of agreements (and restrictions within agreements) that prevent, restrict or distort competition, until recently the UK followed the EU’s Vertical Agreement Block Exemption (EU VABE) which sought to exempt vertical agreements from this prohibition, provided that those agreements did not contain certain hardcore restrictions and provided the parties to the agreement did not have a large share of the relevant market.
The EU VABE was therefore of some practical use to the travel industry, as it provided a mechanism whereby supply and other vertical agreements could fall outside the scope of the prohibition.
Developments in the UK legal landscape
However, the existing EU VABE expired on 31st May 2022 and so the UK government has taken this opportunity to introduce its own, revised version of the exemption in the form of the Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022 (UK VABE).
The UK VABE largely follows the existing approach, although there are some key changes. The most notable of which, from a travel industry perspective, relates to ‘parity’ obligations and states that wide retail parity obligations (i.e. those that state a product or service can not be offered at a better price / on better terms elsewhere) are now a hardcore restriction.
This means that any agreement that contains a wide retail parity obligation will not be able to benefit from the UK VABE and so will fall foul of the prohibition described above.
Impact on the travel industry
While the above development is likely to come as no surprise to companies operating in the travel industry, given the approach taken towards price parity clauses by the CMA and other European Regulators over the past few years; it is nevertheless an important reminder that care needs to be taken to ensure that any supply, agency and reseller agreements entered into by travel companies do not fall foul of UK competition law.