Federal Court Dismisses Air Cargo Cartel Proceedings Against Air New Zealand And Garuda Indonesia
Wednesday 12 November 2014 @ 10.47 a.m. | Trade & Commerce
The Federal Court has dismissed proceedings brought by the Australian Competition and Consumer Commission (ACCC) against Air New Zealand Ltd (Air New Zealand) and PT Garuda Indonesia Ltd (Garuda) for alleged price fixing in the air cargo industry.
Background
The proceedings against Air New Zealand and Garuda concerned alleged arrangements or understandings with other international air cargo carriers in the period between 2001 and 2006, to fix fuel, security and insurance surcharges on air cargo services.
Whilst Justice Perram concluded that a number of collusive arrangements were made out, he found that the conduct did not take place in a “market in Australia” as required by the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)) at that time.
Comments by the Judge
The judgment said:
“…Because the commission’s case was limited (in all but one minor case) to flights from airports outside Australia into airports inside Australia I have concluded that no market in Australia was involved … Prices may well have been affected in Australia by the conduct but that does not mean the market in which the airlines were competing was located here."
Justice Nye Perram said many of the airlines' defences were technical, which he rejected, and were:
"... in the main, of little merit and occupied much of a trial which spanned over six months."
The judge said the commission didn't demonstrate Air New Zealand was involved in collusive practices over fuel surcharges calculated with reference to cargo weight in Singapore. However the judge found the company did engage in fixing prices on an insurance and security surcharge put in place in response to the September 2001 terror attack in New York.
PT Garuda was claimed to have engaged in fixing fuel surcharges in Indonesia, which the judge accepted was the case.
What is a Cartel?
As stated by the ACCC, the Competition and Consumer Act 2010 (Cth) (the Act) requires businesses to compete fairly. Most Australian businesses increase their customer base and their profits honestly through:
- continual innovation to improve products or services;
- sales and marketing showing the genuine benefits of their products or services; and
- keeping costs down so they can offer competitive prices.
Businesses struggling to compete fairly and maintain profits may be tempted to deliberately and secretly set up or join a cartel with their competitors. Under the Act (ss 44ZZRA, 44ZZRF, 44ZZRG, 44ZZRJ and 44ZZRK) a cartel exists when businesses agree to act together instead of competing with each other. This agreement is designed to drive up the profits of cartel members while maintaining the illusion of competition.
There are certain forms of anti-competitive conduct that are known as cartel conduct. They can include:
- price fixing, when competitors agree on a pricing structure rather than competing against each other;
- sharing markets, when competitors agree to divide a market so participants are sheltered from competition;
- rigging bids, when suppliers communicate before lodging their bids and agree among themselves who will win and at what price; and
- controlling the output or limiting the amount of goods and services available to buyers.
Reaction by the ACCC
ACCC Chairman Rod Sims said “… this is a long and complex judgment which the ACCC will carefully consider.”
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Sources:
Court dismisses air cargo cartel proceedings against Air New Zealand and Garuda Indonesia – ACCC Release MR 271/14
