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Settlements in cartel case as Commerce Commission prepares for Court

18 March 2011

The Commerce Commission has reached settlements with three international airlines charged in a major cartel proceeding, ahead of the first hearing in the case scheduled for May this year.

Qantas Airways Limited, British Airways plc and Cargolux International Airlines S.A. have agreed settlements with the Commission, which involve admitting liability and paying significant penalties. The Commission cannot release further information about these settlements until they have been reviewed by the Court.

In December 2008 the Commission commenced proceedings against 13 international airlines, 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.

"Settling with parties who are prepared to acknowledge wrongdoing is consistent with the Commission's enforcement strategy. We aim to achieve the swiftest resolution of our enforcement proceedings in the most cost-effective way," said Commission General Counsel of Enforcement, Mary-Anne Borrowdale.

At the same time as reaching these settlements, the Commission has discontinued the case against United Airlines Incorporated.

"We continue to focus our case and direct our efforts towards those airlines with large turnover in New Zealand markets," said Ms Borrowdale.

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 Commission is preparing to test whether it can pursue price-fixing conduct that occurs overseas. We need to know whether deliberate collusion overseas, to affect New Zealand markets, is something that we can take enforcement action against. Our efforts to streamline and focus the case have that central issue in mind," said Ms Borrowdale.

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

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.

As the matter is due to be heard by the High Court, the Commission can make no further comment at this time.

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.