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Cathay Pacific, Singapore Airlines latest fined for cartel-like activity

ACCC writes latest costly chapter in freight and fuel surcharge fixing rorts, with $23 million in penalties imposed on Cathay Pacific and Singapore Airlines

“Orderly marketing” is one of the weasel terms used in the past by airline publicists and apologists for ‘conspiring to rob your customers’ and it is an activity that has cost Singapore Airlines and Cathay Pacific a total of $23 million in penalties, and no doubt a pile of legal fees, in the Federal Court.

On its website this morning the ACCC says:

The Australian Competition and Consumer Commission’s actions against the two airlines formed part of larger cartel conduct proceedings taken against a number of international airlines. Cathay Pacific and Singapore Airlines Cargo are the eleventh and twelfth airlines to settle and their respective penalties of $11.25 million and $11.75 million (plus costs) are the second and third largest ordered.

“The penalties against Cathay Pacific and Singapore Airlines Cargo bring the total penalties ordered in Australia to $91 million. These are the highest total penalties resulting from a single ACCC investigation,” ACCC Chairman Rod Sims said.

“The conduct, which we consider to constitute a serious breach of the law, included an attempt by Singapore Airlines Cargo to fix rates for meat exports going to US and Australian troops stationed in the Middle East. ”

“The sheer scale of these penalties will act as a strong deterrent to any business considering engaging in cartel conduct, regardless of size or country of origin. The ACCC is fiercely committed to stopping cartel conduct, which is illegal, harms competition and often increases prices for consumers,” Mr Sims said.

The comments by the ACCC by the actions of Singapore Airlines in seeking to illegally profit from a service sold to support of Australia’s defence efforts are particularly sharp, and ought to shame the Singapore carrier, as well as cost it a painful sum.

Singapore Airlines Cargo admitted to contravening s45 of the Trade Practices Act by:

  • Arriving at, and giving effect to, price understandings relating to a fuel surcharge, security surcharge, and customs fee for airfreight services from Indonesia to Australia;
  • Arriving at price understandings relating to rates for airfreight services between Jakarta and various destinations including Australia; and
  • Attempting to make a price fixing arrangement with Malaysia Airlines regarding rates for airfreight services for transporting meat from Australia to the Middle East. This occurred in January 2003, following an announcement that the US would be deploying some 35,000 troops in the Middle East. At this time, the Australian Government had also announced that it would be sending additional Australian Defence Force personnel to assist in Iraq. It was anticipated by Singapore Airlines Cargo’s Regional Vice-President for South West Pacific, its most senior representative in Australia, that the build up of US troops would lead to increased demand for the carriage by air of Australian meat to the Middle East.

The emphasis in bold is added.

The questions arising from this case are whether Singapore Airlines doesn’t actually understand Australian law, or whether it held it in total contempt. The standards of corporate governance in Singapore are notably and commendably high, and in some areas, have been argued as higher than those of Australian corporate law, which makes the behavior of its flag carrier even more astonishing and disappointing.

In relation to Cathay Pacific the ACCC says:

Cathay Pacific admitted to:

  • Arriving at, and giving effect to, price understandings relating to a fuel and security surcharge for airfreight services between Singapore and Australia; and
  • Attempting to make a price fixing arrangement with Qantas regarding rates for airfreight services between Hong Kong and Australia. In September 2004 Cathay Pacific was operating a weekly 747 freighter between Hong Kong and Sydney and a new

Qantas service was having a significant competitive impact.  Cathay Pacific proposed that Qantas increase its price by 25 per cent to the level that Cathay Pacific was charging.  Had this attempt been successful, the price increase by Qantas on a fully laden freighter would have been more than $80,000 per week.

The ACCC prosecution of Air New Zealand and Garuda for alleged offences arising from the same cartel like behavior are part heard in the Federal Court.

In a separate matter, the media was briefed earlier in these proceedings that the resolution of these charges against various airlines, including those that admitted guilt and agreed to penalties imposed before they could go to trial, did not preclude civil actions for damages by those parties who were ripped off by the airlines.

This is not only an expensive lesson for those airlines that have arrived at settlements with the ACCC, but one that could become even more costly as their customers come after them for compensation or damages.

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  • 1
    Kapo
    Posted December 8, 2012 at 3:12 am | Permalink

    The ACCC really needs to be commended on their handing of the freight cartel and recovering some value for customers.

    The standards of corporate governance in Singapore are notably and commendably high, and in some areas, have been argued as higher than those of Australian corporate law, which makes the behavior of its flag carrier even more astonishing and disappointing.

    Ben, my sceptical point of view on this is that when planning these cartel agreements, that being caught is factored into all the sums. Even though the size of the fine may seem large, in most cases the amount recovered is a small fraction of the profit(slap on the wrist) gained from these actions.

    There are other aspects such as poor PR, though in this case pretty much all airlines were in on it so no differentiation between good guy or bad guy airlines. Also the chance of future civil cases from customers is nullified as many dont have the legal clout, and would settle on credit for future carriage.

    It would be great if Competition authorities could recover all monies, though the only real deterrent is jail-time for the responsible people. This is the case in the US where Department Of Justice(DOJ) has authority to jail perpetrators unlike in Australia, to date 6 executives have been jailed by DOJ including the biggest fish former Cargolux CEO Ulrich Ogiermann, notable amongst the others former QF VP Freight North America Bruce McCaffrey. In the QF case there were also another 5 QF employees charged by DOJ but being based outside the US could not be be extradited as this is not a jail offense in Australia.

    That CX and SQ have been fined is not surprising considering the size of their operations in Australia, they have also been charged in other jurisdictions including the European Union.

    SQ €75m
    CX €57m
    QF €8.9m

    Nice summary is presented here by clicking on the tabs list of the DOJ fines including official plea agreements , DOJ criminal prosecutions including official plea agreements and fines in other jurisdictions can be accessed.

  • 2
    DrStoat
    Posted December 11, 2012 at 12:40 pm | Permalink

    It should be remembered that in 2002 and 2003, Singapore had no domestic competition law. It was only introduced in 2004 and took about 18 months to ramp up. At the time these offences were committed, this was the way things had been done in South East Asia for many years and the executives involved had little understanding of or interest in Australian trade practices law.

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