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Air NZ Final Airline to Settle with Commerce Commission

Air New Zealand Final Airline to Settle with Commerce Commission In Air Cargo Case

The High Court has approved a settlement under which Air New Zealand will pay a $7.5 million penalty for price-fixing in breach of the Commerce Act. The company is the last airline to settle with the Commerce Commission in its long-running air cargo cartel case.

Today's penalty judgment brings the total penalties ordered in the case to $42.5 million. The Commission previously reached settlements with British Airways, Cargolux, Cathay Pacific, Emirates, Korean Air, MASKargo, Qantas, Japan Airlines, Singapore Airlines Cargo and Thai Airways.

Air New Zealand admitted liability for understandings relating 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 Court noted that Air New Zealand’s conduct was not as culpable as some of the other airlines pursued by the Commission and Air New Zealand has not been a participant in a cartel on a global basis. Air New Zealand also agreed to pay a contribution towards the costs of the case and the Commission’s investigation.

"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," said Commerce Commission Chairman Dr Mark Berry.

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.

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.

In April 2011 the Commission discontinued its proceedings against PT Garuda Indonesia, United Airlines Incorporated and six Air New Zealand executives. In February 2012 the Commission discontinued its proceedings against two Qantas executives.

The judgement is available on the Commerce Commission website: http://www.comcom.govt.nz/competition-enforcement-outcomes/

Background

Section 30 of the Commerce Act makes price-fixing agreements between competitors unlawful. This includes agreements with the purpose, effect or likely effect of fixing, controlling or maintaining prices, or that provide a mechanism for doing so. An agreement can be a formal document, such as a contract. An agreement can also be very informal.

A company that contravenes section 30 may be ordered to pay penalties under section 80 of the Commerce Act. The penalty must not exceed the greater of:

• $10 million

• or, if it can be readily ascertained and if the Court is satisfied that the contravention occurred in the course of producing commercial gain, three times the value of any commercial gain resulting from the contravention

• or, if the commercial gain cannot be readily ascertained, 10% of the turnover of the body corporate and all of its interconnected bodies corporate (if any).

ENDS

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