US antitrust investigation, a blot on the industry – but who was really responsible

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“The airlines each engaged in a conspiracy to suppress and eliminate competition by fixing the cargo rates charged to customers for international air shipments”. This week the US Department of Justice announced, with some fanfare, details of the agreement it had reached with the remaining offenders in the global cargo price fixing cartel case. They received fines – which will be passed on to shareholders and taxpayers.

It is impossible that an activity on this scale and geographical breadth could endure for years, unless it formed part of an endemic culture.

It would not be unexpected to find an isolated pair of airlines in a particular market entering into a price fixing agreement. But this was a serial agreement involving hundreds of managers, across four or five years – at least. It involved not only price fixing but also a programme of enforcement, something requiring a network of activity that in some cases must have been evident, if not actively supported, at very high levels.

For a heavily regulated industry that is only now emerging from government ownership, it is hardly surprising that this culture would overhang the widespread changes that have taken place.

Sadly, it also defies belief that the US (and EU) actions will have a serious impact on that behaviour. Despite the notoriety of this matter, all in fact that has occurred is that shareholders, in some cases taxpayers, have suffered a small impact on dividends received.

To date, a sole personal criminal charge has been laid. A sacrificial lamb has been laid on the table: one Bruce McCaffrey, Qantas' former highest-ranking US based executive, on May 15, 2008 pleaded guilty to “fixing cargo rates to customers in the United States and elsewhere for international air shipments”.. “and agreed to serve eight months in jail, and to pay a criminal fine.” His main crime relative to many other more senior managers among the airlines involved was that he was in the US and could be directly fingered.

There are some very senior figures in the industry today who were well aware of what was going on. Hopefully their attitudes to this activity will change as a result of the DoJ’s action, even though they will never be brought to account personally.

It is worth reading in full the summary charge sheet against the airlines involved. It states that the airlines, Air France-KLM, Cathay Pacific Airways, Martinair and SAS, between 2001 and 2006:

  • “ Participated in meetings, conversations and communications in the United States, Europe and elsewhere to discuss the cargo rates to be
    charged on trans-Atlantic air cargo shipments to and from the United States;
  • “ Agreed during those meetings, conversations and communications on certain components of the cargo rates to charge for shipments on
    trans-Atlantic routes to and from the United States;
  • “ Levied cargo rates in the United States and elsewhere in accordance with the agreements reached; and
  • “ Engaged in meetings, conversations and communications in the United States and elsewhere for the purpose of monitoring and enforcing adherence
    to the agreed-upon cargo rates.”

Several other airlines, including British Airways, Japan Airlines, Korean Air, and Qantas Airways, have already paid fines for similar offences in this proceeding.

The DoJ statement notes that today’s announcement forms only part of an “ongoing investigation into the air transportation industry”. Hopefully it will result in more effective sanctions that address the root cause of the problem: the embedded belief that price fixing is worthwhile if criminal sanctions can be avoided.

The DoJ and EU Commission, along with other competition authorities are to be commended on pursuing these actions. But so long as the industry itself does not actively and effectively condemn price fixing – and the outcry from airlines themselves would hardly wake the dead – we can assume that the culture lives.

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