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Air NZ fined $600,000 for misleading customers

Media Release


Issued 16 June 2006/139

Air New Zealand fined $600,000 for misleading customers, agrees move to all-inclusive advertising

Air New Zealand has been ordered to pay $600,000 in fines and nearly $65,000 in costs after the Commerce Commission prosecuted the airline for misleading customers about the real price of its airfares.

The $600,000 penalty is one of the highest ever imposed under the Fair Trading Act for misleading advertising and follows Air New Zealand’s conviction on a total of 112 charges brought by the Commission.

In an agreement with the Commission, the airline has also undertaken to move to using all-inclusive prices for both its international and domestic airfares.

It is vital that consumers understand the total price they are being asked to pay for a service,” says Commerce Commission General Manager Geoff Thorn. “Without this knowledge, they can not be expected to exercise real choice and competition within the industry becomes less likely.

“The Commission’s decision to challenge the airline industry in this case goes a long way to restoring that competitive balance. Competition is driven by consumers armed with adequate information, forcing competitors to deliver innovation, better prices and superior services.

“Consumers have achieved a significant victory today, not only through the record fine but also with Air New Zealand agreeing to change the way it advertises its airfares,” says Mr Thorn. “The size of the penalty clearly signals the serious consequences to all businesses that mislead through their advertising.”

Other airlines had been watching the case carefully and most have already changed their advertisements so that they now provide the consumer with a single, all-inclusive price, Mr Thorn says.

Airlines should ensure their websites showed all-inclusive prices as well as their advertising, Mr Thorn says. Travel agents should also give all-inclusive prices for airfares.

“We are pleased that consumers will soon be able to look at an advertisement and understand the total cost, allowing them to compare options and exercise real choice,” says Mr Thorn.

“That is what enables people to shop around, and allows competition to drive prices down.”

Background

The Commerce Commission laid over 300 charges against Air New Zealand for misleading advertising under the Fair Trading Act. 20 of these charges were then selected as sample charges and were the subject of a trial spanning more than two weeks in 2005.

In November 2005 the Auckland District Court found that 14 of the 20 sample charges had been proven. The Commission is seeking the right to appeal the six sample charges that were dismissed. These proceedings are ongoing.

Today’s District Court ruling follows joint sentencing submissions agreed between the Commission and Air New Zealand and relates to convictions on a total of 112 charges. The Commission withdrew the remaining charges.

The decision today fines Air New Zealand $600,000 and awards the Commission costs of $50,000. It has also ordered Air New Zealand to pay costs of $14,560, being made up of $130 for each of the 112 charges.

The majority of charges relate to Air New Zealand’s advertising of airfares in the New Zealand Herald, Dominion, Evening Post and The Press from October 2001 to November 2003. An additional charge related to fuel surcharge advertising during June 2004.

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Commission media releases can be viewed on its web site www.comcom.govt.nz


ENDS

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