Air cargo cartel case opens in High Court

File photo

Airlines allegedly involved in anti-competitive price-fixing in the air cargo market would have affected a vast number of markets, companies and consumers in New Zealand, says the Commerce Commission.

During a hearing at the High Court in Auckland today, the commission outlined its case against Air New Zealand, Cathay Pacific Airways, Emirates, Japan Airlines, Korean Air Lines, Malaysian Airlines System, Singapore Airlines, and Thai Airways.

They are accused of colluding to raise the price of freighting cargo over a period of more than seven years.

The first stage of the case, which started today, determined the issue of defining the market and the rest of the case will begin in July 2012.

For the commission, Brendan Brown QC pointed out the significance of the allegations.

"The defendants are multinational airlines operating in dozens of countries and hundreds of cities throughout the world," he said.

"They provide air cargo services - essentially, the transport of goods by airplane - across their global networks, and beyond that, to the global networks of their codeshare or interline partners.

"Their revenue for providing air cargo services into and out of New Zealand during the relevant period amounted to well over a billion dollars."

The commission alleged that between 2000 and 2006, revenue was increased by the defendants making illegal arrangements to fix the price of air cargo services by agreeing on two components of that price - fuel surcharges and security surcharges.

But before the court could consider the merits of the allegations, Mr Brown said, it must first deal with the defendants' argument that - even if they did engage in price-fixing - the commission must establish that these services were supplied in a market in New Zealand.

But this would not be possible because the allegedly relevant markets for those services were not located in New Zealand.

"This argument raises some fundamental, and novel, questions about the interpretation and application of the Commerce Act 1986 (Act) and the commission's ability to enforce significant breaches of it.

"If proved, it will undoubtedly have had negative effects on a vast number of markets, companies, and consumers in New Zealand," Brown said.

"Specifically, the commission alleges that the price-fixing arrangements, both in New Zealand and overseas, generated higher prices for air cargo services provided to and from New Zealand, and consequently for downstream markets to the detriment of companies and consumers within New Zealand," Brown said.

The commission said last month it had "refined" the case ahead of the start of the first hearing today.

It filed discontinuances against PT Garuda Indonesia and six Air New Zealand executives. It has never named the executives.

On April 5, the High Court imposed penalties against British Airways and Cargolux International Airlines SA. Cargolux was ordered to pay $6 million and BA $1.6 million.

In both these judgments, the court noted that it was making no findings in respect of the airlines that continue to defend the proceedings.

The commission has also resolved the proceedings against Qantas Airways which has admitted its participation in the cartel.

At a hearing held in the Auckland High Court earlier this month, the commission and Qantas recommended that the court impose a penalty of $6.5m. The court's judgment is pending.

- NZPA