Air NZ cartel penalty sets record

After fighting charges in the multi-airline cargo price-fixing scandal for the longest, Air New Zealand has now agreed to pay the largest penalty of all airlines involved.

Agreeing to a  $7.5 million settlement with the Commerce Commission yesterday will see the national carrier also receive the largest cartel penalty handed out against a single company under the Commerce Act.

Air New Zealand is the last of 11 airlines to the settlement table in the cartel case, brought by the Commerce Commission in 2008.

Breaches of the Commerce  Act, between 2001 and 2006, relate to what the commission alleges is collusion on fixing the prices of fuel and security surcharges for air cargo.

Yesterday’s penalty hearing at Auckland High Court came days after Air New Zealand’s dropped an 11th hour bid to challenge the settlement deal.

Justice Geoff Venning reserved his decision on how big the penalty will be and is expected to release his decision in 10 days.

The judge is not expected to alter the $7.5 million settlement agreed between the parties, except perhaps to add something on for Air NZ not pleading guilty earlier.

While Air New Zealand fought the charges, ten other airlines charged with the same breaches of the Commerce Act, settled with the commission – paying a total of $35 million in penalties.

Air New Zealand’s penalty would bring total penalties in the air cargo cartel dispute to $42.5 million.

The penalty is also the second largest cartel penalty handed out under the Commerce Act overall, behind the $12 million penalty imposed against Telecom in April 2011, relating to its pricing of “data tails “ – essentially what Telecom charges its downstream competitors for wholesale access to its network.

The Court of Appeal upheld that penalty after Telecom’s unsuccessful appeal in August 2012.

All penalties in settlements with the Commerce Commission are paid to the government.

Penalties imposed under the Commerce Act must not exceed the greater of $10 million or, three times the value of any commercial gain resulting from the contravention.

If the commercial gain cannot be readily ascertained, the penalty must not exceed 10% of the turnover of the company and all of its interconnected companies.

Commerce Commission chairman Dr Mark Berry says the penalties are a reminder to local and overseas-based companies that colluding on prices is illegal and may result in substantial penalties under the Commerce Act.

“The commission is committed to pursuing cartels that affect New Zealand markets,” Dr Berry says.

Cargo penalties handed out in price-fixing scandal

Emirates $1.5 million
British Airways PLC $1.6 million.
Japan Airlines Co Limited (JAL) $2.275 million
MASkargo System Berhad Ltd ($2.6 million)
Thai Airways International PLC ($2.7 million
Korean Air Lines Co. Limited (Korean Air) $3.5 million
Singapore Airlines Cargo PTE (SIA Cargo) $4.1 million;
Cathay Pacific Airways Ltd ($4.3 million)
Cargolux International Airlines S.A. $6 million,
Qantas $6.5 million

gbond@nbr.co.nz