The Hindu Business Line : Breaking up price-fixing cartels

Reports have it that six freight employees, two present and four former, of Qantas, the Australian airline, could individually face possible prosecution in the US in connection with a global price-fixing cartel involving a large number of airlines worldwide.

The names of the six employees are contained in last year’s plea bargain between Qantas and the US Justice Department whereby the Australian carrier agreed to plead guilty to engaging in a six-year conspiracy between January 2000 and February 2006 to eliminate competition by fixing the rates for US-Australia air shipments.

In return to Qantas’s pleading guilty and agreeing to cooperate with the investigation, the US Justice Department said in the plea agreement that it would not bring criminal charges against any current or former directors, officers or employees.

Meanwhile, the Australian airline has been ordered to pay a $61-million fine for its role in the price-fixing cartel. The fine amount, it is felt, is not enough compared to civil damages claims arising from at least three separate civil class-action lawsuits filed in Australia and the US.

On-going investigation

The global investigation into alleged price fixing in the air cargo market has been going for almost two years with little prospect of a wrap-up anytime soon.

Anti-trust authorities started raiding the offices of airlines on both sides of the Atlantic in February 2006 and 18 months later, US Antitrust authorities slapped fines of $300 million each on British Airways and Korean airlines after the airlines pleaded guilty to conspiring to overcharge on passenger and cargo traffic to offset the impact of rising fuel prices. Two other airlines, Lufthansa and Virgin Atlantic, also disclosed their involvement in the price-fixing cartel. However, all the four airlines agreed to cooperate with the investigation authorities.

In August 2007, the UK Office of Fair Trading, working closely with US Justice Department, slapped British Airways with a £121.5 million penalty for its price-fixing activities.

This was the highest ever fine imposed by the OFT for infringement of competition law. Investigations reveal that a large number of freight forwarders such as UPS, FedEx, Expeditors International, Panalpina, EGL, Kuhne-Nagel, Schenker are also involved in the scam.

A global scenario

As the investigation is a global one, airlines could be in hot water in more than one country. For example, Qantas is also under investigation by European, Australian and New Zealand competition authorities. As reported in Eyefortransport, last year Lufthansa, Singapore Airlines, Cathay Pacific, Japan Airlines and British Airways, along with of course Qantas and Air New Zealand, were named in a $200-million Australian class-action lawsuit filed by disgruntled airfreight customers.

Earlier, 15 class-action lawsuits were filed in the US against Air-France-KLM, British Airways, Cargolux, Cathay Pacific, Japan Airlines, Korea Air, Lufthansa, Nippon Cargo Airlines, SAS and Singapore Airlines, along with several US airlines, all accused of inflating their rates.

In December 2007, the European Commission accused 25 airlines including, among others, Air Canada, Air France-KLM, Air New Zealand, All Nippon Airways, British Airways, Cargolux, Cathay Pacific, LAN Cargo, Japan Airlines, Lufthansa, Malaysian Airline System, SAS, United Airlines of violating EU rules on restrictive business practices.

Coordinated effort required

While the probe into price-fixing appears to be a bottomless pit, it also brings into focus several interesting aspects. First, the airlines that operate globally have no respect for competition laws when it comes to grabbing business by fair means or foul.

Second, in curbing unfair practices, the effort of any single country is not enough; international law enforcement cooperation is critical for breaking up such illegal cartels.

But more fundamental is the issue: considering the widespread nature, one wonders whether the practice that has been in force for a long time is now being declared illegal. How come the authorities concerned woke up so late?

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