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Cargo 'conspiracy' charges: Airlines face multiple, ongoing antitrust investigations

January 22, 2008--When will it end? That's the question airlines throughout the world are asking regarding the multiple investigations into alleged antitrust violations relating to air cargo transport. The probes, conducted cooperatively by the US Dept. of Justice, the European Commission and regulatory agencies in a number of countries, were launched in February 2006 with surprise raids of airline headquarters around the globe and already have led to the imposition of significant fines against several leading international carriers.

Since the alleged wrongdoing (mainly centered on airfreight rates and fuel and security surcharges) involves international carriage of cargo across numerous borders, airlines are not facing merely one, or even just two or three, investigations. British Airways, for example, already has been assessed fines by DOJ and the UK Office of Fair Trading and last month was one of at least 11 airlines officially charged by the EC. Carriers are also targets of a multitude of lawsuits brought by customers claiming to be "victims" of "cartel" activity. In addition, DOJ's probe in some instances has moved beyond airfreight to uncover improprieties in passenger charges.

Potential liability is stretched far and wide, making it impossible for airlines simply to pay a fine or settle a single lawsuit and move on. The good news is that they are not alone. Qantas CEO Geoff Dixon, whose carrier has agreed to pay a $61 million fine imposed by DOJ relating to cargo rates, says the US government is investigating as many as 30 airlines. LAN, one of the companies to receive a formal statement of objections from the EC last month, says the Commission charged 25 carriers with violations.

On the flip side, the bad news for airlines also is that they are not alone. Indeed, the primary allegation made by authorities is that carriers throughout the world repeatedly colluded with each other.

Both BA and Korean Air pled guilty last year in US federal court to criminal conduct relating to airfreight rates and cargo and passenger surcharges and each paid a $300 million fine. DOJ charged BA "with engaging in a conspiracy to suppress and eliminate competition by fixing the rates charged to customers for international air shipments of cargo" from March 2002 to February 2006. It said KE had been "fixing the rates" on international cargo shipments in coordination with other airlines "from at least January 2000 to February 2006."

BA, KE and QF all pled guilty to participating improperly in "meetings, conversations and communications" with other airlines to discuss and agree on cargo rates to be charged on key trade lanes and to "levying cargo rates ... in accordance with agreements reached" during those communications and then engaging in further meetings and communications "to monitor and enforce the agreed-upon rates." DOJ noted that during the nearly four-year period of its wrongdoing, BA's "fuel surcharge on shipments to and from the United States changed more than 20 times and increased from four cents per kg. of cargo shipped to as high as 72 cents per kg."

DOJ has said that Virgin Atlantic Airways and Lufthansa entered into its "Corporate Leniency Program" and avoided criminal charges and fines by detailing their participation in anticompetitive practices with BA (in Virgin's case) and with both BA and KE (in LH's case). Virgin and LH, though, still are liable for paying restitution "to the US victims of their conspiracies," DOJ said, and LH has settled a string of lawsuits filed in the US for a collective $85 million.

Given the wide-ranging nature of the charges against BA, KE and QF, DOJ likely is far from through with charging airlines. It says its investigation is "ongoing." The EC, meanwhile, issued charges in late December against carriers "concerning their alleged participation in a cartel in the provision of airfreight services." At least 11 have confirmed receipt; formal replies to the charges are due next month. An airline found guilty or admitting to guilt can be fined up to 10% of its annual revenue.

Additionally, the Australian Competition and Consumer Commission is considering issuing formal charges against airlines, and FedEx revealed last month that it was subpoenaed by DOJ to produce documents and appear before a grand jury in relation to an investigation into potential airfreight forwarding antitrust violations that apparently is a separate probe from the one that nabbed BA, KE and QF. "We do not believe that we have engaged in any anticompetitive activities," FedEx said.

The widespread, global nature of the investigations raises the question of whether practices that were standard, common procedure in the industry just a few years ago now are being declared illegal.

Authorities were moved to act in part by shipper complaints of repeated hikes of fuel and security surcharges that were enacted by cargo-carrying airlines in recent years to mitigate rapidly rising energy prices and the costs of complying with post 9-11 regulations. When one or two airlines announced they were raising such fees, others quickly followed. But isn't that what routinely happens regarding passenger fares? And why would airlines issue press releases detailing the hikes within days of each other if they were colluding secretly with one another? DOJ's description of repeated improper "meetings," however, does cast doubt on the argument that carriers merely were responding prudently to competitors and rising costs.

Airlines generally have not commented on the issue beyond official legal statements and expressions of their commitment to follow all applicable competition laws.--Aaron Karp

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