Air ambulance companies warned over price fixing
Air ambulance companies warned over price fixing
The Commerce Commission has reached administrative settlements with two companies who were competitors for air ambulance evacuations to New Zealand after an investigation into alleged price-fixing. The settlement includes a formal warning to both Maccawat Limited (formerly named South Pacific Air Ambulance (2008) Limited) and CareFlight (QLD) Limited.
South Pacific Air Ambulance, based in New Zealand, and CareFlight (QLD), based on Australia’s Gold Coast, both provided air ambulance evacuations primarily from the Pacific region to New Zealand.
As part of the settlement both companies acknowledge that they inadvertently breached the Commerce Act by agreeing the price that CareFlight (QLD) would quote for an air ambulance evacuation in 2009. The alleged price fixing was instigated by the then managing director of South Pacific Air Ambulance. The other directors of South Pacific Air Ambulance were not involved in or aware of the conduct.
“Regardless of whether it is intentional, allegations of price fixing in any context are serious. Price fixing harms the competitive process and can lead to consumers paying higher prices,” said Kate Morrison, Commerce Commission General Manager, Enforcement. “In this case, a settlement and a warning is the appropriate enforcement action as there was only one price fixing breach which may have resulted in limited detriment.”
“While both companies have fully cooperated with the Commission, the investigation found that neither company had a clear understanding of their obligations under the Commerce Act, particularly where the boundaries lie for companies who are competitors but subcontract to each other,” said Ms Morrison.
In some instances, when the New Zealand-based plane South Pacific Air Ambulance hired was unavailable, it sought sub-contract prices from CareFlight (QLD). In that situation South Pacific Air Ambulance and CareFlight (QLD) were in a subcontracting relationship but because they were both competing for the final contract they were also competitors.
“In a subcontracting relationship some pricing information will be exchanged legitimately but the parties as competitors must not disclose or agree the prices they intend to offer the final consumer,” said Ms Morrison.
Throughout 2009 the two companies had also been exploring an acquisition or buy out. CareFlight (QLD) purchased the business and assets of South Pacific Air Ambulance (2008) on January 2010.
“Until a merger and acquisition is completed, companies are still competitors and they must ensure that issues like quotes and prices are not discussed.”
“Business situations can be complex, particularly when there are other issues such as sub- contracting and a potential acquisition. However, if businesses are unsure about their legal obligations, seeking independent advice can help avoid breaches of the Commerce Act,” said Ms Morrison. “Everyone in business should take steps to ensure that they and their employees understand their obligations under the Act and have specific and robust compliance programmes in place.”
As part of the settlement, both companies will be providing Commerce Act compliance training to their relevant staff. CareFlight (QLD) Limited has also agreed to develop and implement Commerce Act compliance policies and procedures.
Background CareFlight (QLD) Limited is based in Australia and purchased the assets and business of South Pacific Air Ambulance (2008) Limited from Maccawat Limited on January 2010.
South Pacific Air Ambulance (2008) Limited was formed in 2008 and it offered air ambulance and other travel related medical services. The business operation was sold to CareFlight (QLD) Limited in January 2010 and the company was renamed Maccawat Limited.
Maccawat Limited does not offer air ambulance services and it is in the process of being wound down.
Air ambulance evacuations involve jet aircraft carrying specialised medical equipment and there is often some urgency involved due to the illness or injury involved. These actions are also called repatriations and missions by the insurance industry. Most evacuations to New Zealand are from the Pacific Islands and surrounding region and involve New Zealand citizens and residents. Missions are expensive with a typical one costing around NZ$70,000. Most air ambulance customers are insurance companies who have assistance companies as their agents. The assistance companies arrange and pay for missions on behalf of the insurers. Some assistance companies that work for New Zealand insurance companies may be located in other countries such as Australia.
Section 30 of the Commerce Act prohibits provision of contracts, arrangements or understandings that have the purpose, effect, or likely effect, of fixing, controlling or maintaining the price of goods or services supplied or acquired by parties. It deems such behaviour to substantially lessen competition in a market and to be in breach of the Commerce Act 1986. The views of the Commission do not constitute a ruling of law. Only the courts can decide if the Commerce Act has been breached and set appropriate penalties. A fact sheet about avoiding illegal agreements under the Commerce Act is available at www.comcom.govt.nz/avoiding-illegal-agreements
Enforcement options open to the Commerce Commission. The Commerce Commission uses a range of enforcement tools to resolve issues under the Commerce Act ranging from warnings and settlements through to litigation. It makes a judgement based on issues such as extent of detriment, seriousness of the conduct, and public interest in deciding the most appropriate resolution. A settlement can resolve a potential breach of the Act in a more timely and cost-effective way than a prosecution, resulting not only in deterring the behaviour but also in education of the trader(s) involved and the wider business community about the Commerce Act.