Air Cargo Pricing Under Fire

A cargo price fixing probe launched in February by the U.S. Department of Justice and European Union authorities has reached agreements with three airlines. Lufthansa (www.lhcargo.com) agreed to pay $85 million, while United Airlines (www.unitedcargo.com) and American Airlines (www.aacargo.com) were not fined. Broader issues of antitrust immunity are also at stake.

The $85 million settlement with Lufthansa will provide conditional immunity from antitrust investigations for it and its Swiss International Airlines (www.swiss.com) subsidiary. The agreement should protect both airlines from class action suits as well.

The American Airlines and United Airlines agreement with the Department of Justice (DOJ) does not involve any financial penalty.American Airlines will not change pricing, but will provide more information to the shippers who filed the suits. United says it will cooperate with plaintiffs.

At the heart of the issue are surcharges for fuel, security and insurance levied against cargo shippers. European airlines reportedly initiated the fees and U.S. airlines followed their lead. However, for criminal charges to be brought in the U.S., DOJ would have to prove the airlines actively conspired to fix prices. Both American and United were subpoenaed to provide information and were not charged. Unless any class actions are certified, they do not expect further legal action.

The probe was officially launched when U.S. and European officials and members of the Korean Fair Trade Commission "raided" or made "unscheduled visits" to the offices of various airlines. According to industry reports, 14 airlines have been contacted regarding the investigation.

Though indications are that Virgin Atlantic Airways (www.virgin-atlantic.com) was also part of the current settlement, information was not readily available on whether the British airline was subject to fines.

For several years the U.S. Department of Transportation (DOT) and DOJ have been moving towards eliminating antitrust immunity for the airlines. In testimony before the DOT in 2003, DOJ opposed a filing by the International Air Transport Association (IATA) in which IATA (www.iata.org) sought approval of agreements by its members to amend Resolution 502—Low Density Cargo.DOJ argued the agreement would change the volume conversion factor used to calculate freight rates for low-density shipments and the antitrust immunity IATA sought was "effectively a price-fixing agreement to increase rates for low density shippers." DOJ further stated IATA had not demonstrated any offsetting important public benefit or fulfillment of a serious transportation need required in allowing antitrust immunity.

The DOJ statement called for each carrier to be required to "determine independently whether and to what extent it wishes to increase, or decrease, low density cargo rates."


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