Thursday, June 13, 2013

Air Freight Cartel Affair Finally Settled as Last Cargo Carrier Fined Millions

Eleventh Airline Has Financial Penalty Approved by High Court
Shipping News Feature

NEW ZEALAND – WORLDWIDE - The New Zealand High Court has approved a settlement under which Air New Zealand will pay a NZ$7.5 million penalty for their role in the price-fixing offences which scandalised the air freight community and breached the country’s Commerce Act. The company is the last airline to settle with the Commerce Commission in its long-running air cargo cartel case, bringing the total penalties ordered in the case to NZ$42.5 million. Commerce Commission Chairman Mark Berry said:

"The Commission is very pleased to have resolved this significant case in its entirety. Price fixing is unlawful and the penalties imposed in the air cargo case should be a deterrent to others who might breach the Commerce Act. The penalties are also a reminder to companies that it is important to have effective compliance programmes in place to prevent anti-competitive behaviour."

Air New Zealand was among the 13 airlines the Commission filed proceedings against in December 2008, alleging that the airlines colluded to impose fuel and security surcharges for air cargo shipments to and from New Zealand.  

Air New Zealand admitted liability for colluding with others in relation to fuel surcharges in Japan (September 2002 to February 2006) and Malaysia (October 2002 to February 2006), and security surcharges in Japan and Malaysia (September 2001 to February 2006), for cargo flown inbound to New Zealand. Air New Zealand did not contest allegations concerning fuel surcharges in Australia (from January 2000 to September 2000), for cargo flown inbound to New Zealand.

The penalty, which was recommended to the Court by both the Commerce Commission and Air New Zealand as part of a pre-trial settlement, included a 20% discount for Air New Zealand’s admissions and reflected Air New Zealand’s high volume of cargo business in New Zealand. The penalty also recognised that the surcharges in Japan were approved by the local regulator and agreed with local regulators in Malaysia.

The first-stage of the hearing was held in August 2011. At that hearing the Commerce Commission succeeded on the issue of whether there was a ‘market in New Zealand’ for air cargo services from overseas countries to New Zealand. The airlines had argued that these were markets in the overseas countries and were therefore subject to the relevant overseas laws and not to the New Zealand Commerce Act. The Court’s finding confirmed the High Court's jurisdiction to hear the Commission's case in full. That judgment was subject to appeals to the Court of Appeal by Air New Zealand and the Commission. As a consequence of this settlement, those appeals will no longer proceed. 

The Commission has previously imposed penalties on ten other airlines (all in millions): In 2011 - British Airways PLC (NZ$1.6), Cargolux Airlines International (NZ$4.6), Qantas Airways Limited (NZ$6.5). In 2012 - Emirates (NZ$1.5), Japan Airlines International (NZ$2.275), Korean Air Lines (NZ$3.5), Singapore Airlines Cargo (NZ$4.1) and this year Cathay Pacific Airways Ltd (NZ$4.3), MASkargo System Berhad Ltd (as a replacement for Malaysian Airlines (NZ$2.6) and Thai Airways International (NZ$2.7).

All of the air cargo carriers received discounted respective penalties in recognition for early admissions, and the extent of co-operation each company provided to the Commission in its investigation. Cathay (20%), Singapore Airlines Cargo (20%), Thai (20%), Emirates (25%), MASkargo (25%), Cargolux (33%), Korean Air (33%), Japan Airlines (35%), and an astounding 50% discount for Qantas due to its ‘full co-operation’ presumably as the first whistle blower.

In April 2011 the Commission discontinued its proceedings against PT Garuda Indonesia, United Airlines Incorporated and six Air New Zealand executives and latterly in February 2012 against two Qantas executives. Whilst there are still ongoing cases against various air freight carriers in other parts of the world all the companies involved in this particular set of offences will wish to put the entire affair behind them.