Air Cargo Price Fixing Uproar

     British Airways got slapped twice during the past 24 hours with fines for price-fixing passenger and cargo fuel surcharges.
     In United Kingdom BA admitted that between August 2004 and January 2006, it colluded with Virgin Atlantic over surcharges that were added to ticket prices.
     The UK penalty of $290 million is the highest ever imposed for infringement of competition law.
     In U.S., both British Airways and Korean Air pleaded guilty to U.S. Department of Justice criminal charges and will pay $300 million apiece for conspiring to fix prices on cargo and passenger flights.
     During the air cargo conspiracy, BA's fuel surcharge on shipments to and from the United States changed more than 20 times and increased from $.05 per kilogram of cargo shipped to as high as $0.85 per kilogram.
     U.S. DOJ charged Korean Air with fixing prices with air cargo competitors on rates to customers in the United States and elsewhere and for international air cargo shipments.
     In the case of BA and Korean, DOJ said that the conspirators agreed to increase the fuel surcharge over time from $US $0.12 per kilogram to as high as $US $0.71 per kilo.
     In addition, DOJ charged that Korean Air reached agreement to fix certain passenger fares for flights from the United States to South Korea.
     Worth noting is that Virgin Atlantic and Lufthansa AG—have a deal to cooperate in the ongoing USA/UK investigations and have been conditionally accepted into the USA Antitrust Division's Corporate Leniency Program.
     The Division's Corporate Leniency Program allows a qualifying company that is the first to voluntarily disclose its participation in an antitrust crime and which fully cooperates in the subsequent investigation, to avoid criminal conviction and a heavy fine.
     Virgin Atlantic entered the program after reporting its participation with British Airways in the passenger fuel surcharge conspiracy.
      Lufthansa was conditionally accepted after it disclosed its role in the international cargo conspiracy in which British Airways and Korean Air were participants.
     Under that agreement Virgin Atlantic and Lufthansa are obligated to pay restitution to the U.S.
     This story breaks at the height of the summer when people are away and is brought in part by the American Attorney General Alberto Gonzalez, himself in some manner of difficulty under the kind of investigation that might cost him his job very soon.
     Some might reasonably wonder if the timing and announced fines are really just a whitewash given these circumstances, or will the investigations go further?
     The fines and some associated guilt are put on airlines with tens of thousands of perfectly straight law-abiding employees because of questionable activities by just a few of their numbers.
     You can only conjecture where these air cargo people gathered and decided to fix prices?
     Was a plot to fix surcharges agreed upon at some off airport diner like The Owl at JFK from the movie Goodfellows, or a tradeshow somewhere, or at some top-level airline association type gathering?
     We’ve always found it hard to believe that air cargo executives could get together and fix anything when in some cases they seemingly can’t figure out how to make money by structuring decent rates for services provided.
     The headlines may only be the tip of the iceberg with some real ugliness yet to be revealed, not the least of which is an atmosphere of trust in air cargo that may be gone forever.
     While nobody really expects airline executives to do a perp walk, (although in CEO of BA Willie Walsh’s case, his claim that customers were not impacted may be grounds for somebody getting a punch in the mouth) the long-term fallout from all of this on the airline transportation business is yet to be measured.
     Safe to say at this juncture “The World’s Favourite Airline” and Sky Team’s biggest air cargo carrier out there admitting that they didn’t play by the rules with business partners and also the general public has everyone wondering what comes next.
     Also, during a time when airplanes are full and cash registers are singing, this news is a sour note start for the airline industry in August.
     The industry will be holding its collective breath waiting for what happens next.
Geoffrey