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Commerce Commission narrows focus of air cargo cartel case before trial

20 April 2011

The Commerce Commission today filed discontinuances against PT Garuda Indonesia and six Air New Zealand executives as it continues to refine its air cargo cartel case leading up to the first hearing next month.

"Discontinuing against these parties is part of the Commission's overall strategy to streamline and focus the case on those airlines with large turnover in New Zealand markets," said Commission General Counsel of Enforcement, Mary-Anne Borrowdale.

The Commission's case alleging airlines colluded to raise the price of freighting cargo continues against the following companies: Air New Zealand Limited, Cathay Pacific Airways Limited, Emirates, Japan Airlines International Co Limited, Korean Air Lines Co Limited, Malaysian Airlines System Berhad Limited, Singapore Airlines Cargo Pte Limited and Singapore Airlines Limited, and Thai Airways International Public Company Limited.

In December 2008 the Commission commenced proceedings against 13 international airlines and eight airline executives, alleging the airlines colluded to raise the price of freighting cargo by imposing fuel surcharges on cargo shipments into and out of New Zealand. The conduct is alleged to have occurred over a period of more than seven years.

On 5 April 2011, the High Court imposed penalties against British Airways plc and Cargolux International Airlines S.A. Cargolux was ordered to pay penalties of $6 million and BA was ordered to pay penalties of $1.6 million. In both these judgments, the Court noted that it was making no findings in respect of the airlines that continue to defend the proceedings.

The Commission has also resolved the proceedings against Qantas Airways Limited, which admits its participation in the cartel. At a hearing held in the Auckland High Court earlier this month, the Commission and Qantas recommended that the Court impose a penalty of $6.5million. The Court's judgment is pending.

The first stage of the cartel case starts on 11 May 2011 in the Auckland High Court and concerns whether air cargo services inbound to New Zealand are part of a 'market in New Zealand' such that the Commission can take action against them. The remainder of the case is scheduled to begin in July 2012 and will deal with the Commission's allegations of price fixing.

 

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. Eight of these airlines have been ordered to pay penalties totalling AU$46.5m. 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.

European Union - 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 KRW120b.