Fear factor: the impact of price-fixing accusations on the air cargo industry

Source:
This story is sourced from Airline Business
Subscribe today »

Air cargo has always prided itself on being a friendly and open industry. The US investigation into possible collusion over surcharges is changing all that

When it was announced in February 2006 that the US Department of Justice and the European Union had raided the cargo offices of several airlines to investigate possible collusion over fuel and security surcharges, the reaction of the air cargo community was puzzlement and disbelief.

Many leading executives were gathered at the time at a conference in Shanghai, and all were unanimous in the view that there was no case to answer and the investigation would prove short-lived. Instead, the effects of the DoJ investigation - the EU has been silent on its case so far - have spread like a cancer through the industry and the full implications are still far from clear. One effect it has had is that the formerly friendly air cargo industry has become wary and cautious.

The first sign that the investigation would be more than a flash in the pan came in September 2006 when Lufthansa Cargo offered $85 million to settle civil claims on the issue in the USA and Canada, and was provisionally accepted into the DoJ's corporate leniency programme, whereby the first company to co-operate with an anti-trust investigation avoids criminal prosecution. That made it almost certain that other airlines would be charged and, sure enough, in August 2007 British Airways and Korean Air both pleaded guilty to conspiring to fix surcharges. They agreed to pay fines to the DoJ of $300 million each.

The big question for the industry is: which carrier will be next? About 20 airlines are said to have been questioned by the DoJ since February 2006, and 16 are said to be still under investigation. In August Qantas made a provision of $40 million to cover potential fines in the USA, and Air France-KLM admitted it was still under investigation.

Meanwhile, Air New Zealand, BA, Cathay Pacific, Japan Airlines, Lufthansa, Qantas and Singapore Airlines have been named in a civil class action filed by freight forwarders in Australia. Seven BA executives, including operations director Gareth Kirkwood, and seven from Korean Air have been told by the DoJ that they could still face criminal prosecution and jail terms of up to 10 years. Whether these prosecutions will in fact go ahead, and how much the issue will ultimately cost the air cargo industry, is something that nobody can currently predict. But there has been a marked change of mood among air cargo managers.

The top executives of more than one airline have stopped travelling to the USA or UK for fear of arrest, and one air cargo executive admits that even when he meets counterparts in other airlines for innocent reasons, he now picks out-of-the-way venues where airline ­executives do not congregate. "We have all been made by the airline to sign a new contract saying we understand and are aware of the anti-trust compliance policy," he says. "If we meet with competitors for any reason, we have to report it to our legal department."

Air cargo managers may also be reluctant to travel to conferences after US Federal Bureau of Investigation officials used the Cargo Network Services conference in the USA in May to serve subpoenas on at least eight airlines. FBI officials even knocked on hotel doors at odd hours of the night to interview cargo executives. "One manager I know was questioned in his nightshirt," says one attendee, while another says the questioning from the FBI officials was "not very pleasant".

There was surprise and some anger that the FBI had chosen such confrontational tactics. "All of us have offices: couldn't they have visited us there?" asks one cargo manager.

Climate of caution

As to whether they have changed their practices on surcharges, airlines insist they were doing nothing wrong before. However, announcements of changes to fuel surcharge rates by different carriers no longer follow each other in lock step, as they did in the past. One airline admits that it no longer even announces surcharge changes on its company intranet, and instead communicates them directly to the relevant staff and customers. The Lufthansa fuel index, which was widely referred to in the industry when airlines wanted to justify the level of surcharges, has also disappeared from the carrier's website.

"We are all very cautious and afraid to say too much, for fear it might be misinterpreted," says one manager. "Everything has become awkward and tricky. It is a strange period we are going through."