New Zealand’s competition watchdog prosecutes 13 airlines for price-fixing

The Commerce Commission of New Zealand, the country’s competition watchdog, has launched legal action against 13 airlines and 7 individuals for alleged price-fixing and “extensive and long-term cartel activity in the air-cargo market.”

The airlines to be prosecuted are:

Air New Zealand (the national flag carrier of New Zealand)

British Airways,

Cargolux International

Cathay Pacific

Emirates

Garuda International

Japan Airlines

Korean Airlines

Malaysian Airline Systems

Qantas Airways

Singapore Airlines

Thai Airlines

United Airlines

The Commerce Commission alleges that these 13 airlines colluded to raise the price of freighting cargo by imposing fuel surcharges for seven years.

It Commission has already prosecuted 3 airlines for not co-operating with its investigation, with a court decision due in January 2009.

Airlines have faced similar investigation and, in some case, heavy fines were slapped following investigations into cartel activity conducted by regulatory authorities in the United States, Europe and Australia. Many airlines have admitted criminal guilt in the price-fixing conspiracy. A week ago, a court in Australia had ordered Qantas Airways, the national flag carrier of Australia, to pay Australian $20 million for price-fixing on cargo charges between 2002 and 2006.

Air New Zealand’s general counsel was quoted by the media as saying in a statement: “The airline has been cooperating with the regulator’s investigation, but it found no basis for the charges, and the Commerce Commission has repeatedly refused to share its evidence with the largely state-owned airline. This is clearly an approach designed to justify their existence and seems more about grandstanding than about getting to the bottom of the allegations. Air New Zealand will vigorously defend the case.”

Air New Zealand, the scheduled passenger airline based in Auckland, New Zealand, has its focus on Australasia and the South Pacific, with services to Europe, North America and Asia. Air New Zealand, in which 76% of shares is owned by the New Zealand government, is a member of the member of the Star Alliance.

Paula Rebstock, chairman of New Zealand’s Commerce Commission, remarked: “The alleged price-fixing would have caused more harm to New Zealand because of the country’s distance from its markets. It will have resulted in increased costs for exporters and importers and higher overall prices for many consumer goods.”

Describing cartels as “insidious” and “difficult to detect and extremely difficult to investigate because of their secretive and international nature,” Paula Rebstock added: “The allegations also involve a series of regional price-fixing agreements. In addition, the Commission alleges that a number of airlines conspired to price fix through imposition of a security surcharge immediately following the 9/11 terrorist attacks.”

The case potentially involved up to 60 airlines and many individuals, but the Commerce Commission decided to focus on those airlines which had the greatest impact on New Zealand, Paula Rebstock explained.

The Commerce Commission has estimated that airlines earned over NZ$400 million each year from transporting air cargo to and from New Zealand, and that during the more than seven years that the agreement was in place, the total revenue was about NZ$2.9 billion.