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$7.6 million in penalties imposed against two airlines in air cargo cartel case

5 April 2011

The High Court in Auckland has today imposed penalties against two of the international airlines charged in a major cartel proceeding brought by the Commerce Commission.

Cargolux International Airlines S.A. has been ordered to pay $6 million in penalties and $25,000 costs, while British Airways plc will pay $1.6 million and $100,000 in costs.

Last month the Commission reached settlements with Cargolux and BA as well as Qantas, in which those airlines admitted entering into and giving effect to price-fixing arrangements and agreed to the imposition of penalties. The Court is yet to impose a penalty against Qantas.

The Commission's proceedings were filed in December 2008 against 13 international airlines, alleging that the airlines colluded to raise the price of freighting cargo by imposing fuel surcharges on cargo shipments into and out of New Zealand. Cargolux and BA have admitted fixing the price of fuel surcharges, and Cargolux has also admitted agreeing security surcharges in respect of freighted cargo.

Justice Potter noted, in her Cargolux judgment, that the arrangements "were at the serious end of the spectrum" and that "the conduct would have adversely affected both price competition and the competitive dynamics in the air cargo services industry, with a corresponding reduction in efficiency incentives for members of the cartel."

"The penalties reflect discounts for both airlines, to take account of their early admissions and their cooperation with the Commission's proceeding. BA has received a greater discount, because of its commitment to further cooperation as the case progresses, but in each case the Court has acknowledged the value to this agency of receiving assistance from the parties involved," said Commission General Counsel of Enforcement, Mary-Anne Borrowdale.

In each judgment Justice Potter noted that she was making no findings in respect of the airlines that continue to defend the proceedings. The airlines defending this action are Air New Zealand Limited, Cathay Pacific Airways Limited, Emirates, Japan Airlines International Co Limited, Korean Air Lines Co Limited, Malaysian Airlines System Berhad Limited, PT Garuda Indonesia, Singapore Airlines Cargo Pte Limited and Singapore Airlines Limited, and Thai Airways International Public Company Limited.

The Commission is currently preparing for the first stage of the price-fixing case, commencing in May, at which the key issue is the meaning of a 'market in New Zealand' and whether air cargo services inbound to New Zealand are part of such a market.

The remainder of the case is scheduled to commence in July 2012 and will deal with the Commission's price-fixing allegations.

As the matter is still before the Courts the Commission can make no further comment at this time.

Today's judgments can be downloaded from the Commission's website at www.comcom.govt.nz/competition-enforcement-outcomes

 

Background

Cartels are groups of businesses or executives who, instead of competing against each other to offer the best deal, secretly agree to work together and keep prices high. Cartels harm competitors by sharing customers with other cartel members, rigging bids, agreeing to charge higher prices than they would be able to charge in a competitive market, restricting volumes and by squeezing non-cartel members out of the market.

The alleged air cargo cartel in other jurisdictions

Australia: Fifteen airlines were implicated in the cartel. Seven of these airlines have been ordered to pay penalties totalling AU$ 41m. The other eight airlines are awaiting hearing.

United States: Nineteen airlines have been fined a total US$ 1.6b. Four executives have been fined and imprisoned (6-8 month terms) and six others have been charged and are awaiting trial.

Europe: The European Commission imposed penalties against 11 airlines totalling $ 800m.

Canada: Six airlines entered guilty pleas and have been fined a total of CAN$ 17m.

South Korea: Nineteen airlines have been fined KRW 120b.