A high-ranking European airline executive has pleaded guilty to air cargo price fixing. The Justice Department has already levied more than a billion dollars of fines against British Airways, Korean Air, Air France-KLM, Qantas Airways and Japan Airlines. It seems that price fixing, when it comes to cargo, is a crime. When dealing with passenger airfares, it’s evidently considered simple competition.
On the cargo front, guilty pleas and heavy fines are the rule of the day. But on the passenger side of the equation, there seems to be almost no legal activity, at least in the domestic airline skies.
Overseas, our anti-price-fixing forces have settled a case against British Airways and Virgin Atlantic for using the fuel surcharges as a profit center for several years. And four current and former British Airways executives were charged this week in connection with an inquiry into fuel surcharge price fixing,
The agreement resolves a civil lawsuit brought in the United States that contended that passengers were overcharged on the fuel surcharges and were told that the added fees were necessary to cover the rising cost of fuel, but in reality were used to increase the airlines’ profits.
It seems very strange that with domestic airline airfares moving in virtual lockstep with each other, even when one airline resorts to additional flights on the same route, the US authorities consider it simple competition. It boggles the mind of mere mortals.
It is against the law in most countries for companies to collude to set prices or divide territory. Price fixing activity in the United States is a criminal offense and can result in prison terms, while in the EU companies face fines that are capped at 10 per cent of annual turnover.
Meanwhile, here in the US airlines drop prices to below their costs to protect their “fortress hubs” and deny competing lower-cost airlines new routes.
American Airlines and United Airlines are flying money-losing flights in direct competition with JetBlue. United Airlines has the audacity to initiate these routes while standing in front of airline loan panels with hat in hand. Delta Airlines has hired banks of consultants to figure out how to keep arch rival AirTran in check in Atlanta. And whenever Southwest announces a bargain transcontinental airfare even airlines in bankruptcy normally match the Southwest price.
Even while standing in the halls of Congress begging for more government (i.e. taxpayer) handouts, the domestic airlines brazenly break what many think are laws of competition with oligopolistic maneuvers. The ferocious economic attack on an airline that used to be “one of the group” was dramatic when America West didn’t play by (what many would call) the cartel’s rules.
While crying that they need to make more money and attempting twice to raise prices by $20 a ticket, the airlines at the same time are slashing their fares to the America West hub airports of Phoenix, Las Vegas and Columbus, Ohio. In fact, the majors are undercutting the America West fares by up to $500 to make sure the upstart is taught a good lesson or is forced out of business. For one additional corporate kick in the teeth, Continental Airlines severed their code-sharing and frequent flyer agreements.
It seems that some of those criminal lawyers and investigators circling the cargo side of the airline business should take a look at the passenger side of the ledger. The cargo raids started back about two years ago on Valentine’s Day. Fuel surcharge coordination was the trigger and seems to be a continuing problem.
Maybe the powers that be should plan another unannounced search of airline books to check out the current dramatic increases in fuel surcharges, frequent flier program changes and additional fees that are being added with amazing congruity by the airlines.
Back in 1994 the Justice Department enforced price-fixing rules that seem similar to today’s pricing maneuvers by the legacy carriers.
The Antitrust Division has identified over 50 separate price fixing agreements covering hundreds of routes. By supplying or withdrawing changes in fares, the airlines told each other what fares they wanted to charge in which markets, what competitors’ fares were acceptable to them, and what deals they were willing to make, according to the Justice Department.
The Justice Department said ATP allowed the airlines to float “trial balloon” price increases, make and receive counterproposals, and reach consensus on the amount and timing of price increases or the removal of discounts.
That quote from the DOJ settlement back in 1994 sounds remarkably like the way the current price setting mechanism works today.
Collusion in this day and age of virtually instant communication is hard to prove and the airlines are claiming that they are simply engaged in “leader-follower behavior” that is not illegal. However back in the 1990s the Justice Department concluded, “The carriers probably conveyed more information through their computers than conspirators meeting in a hotel room ever would.”
Some erudite American once said, “If it walks like a duck and quacks like a duck, I would call it a duck.”
Once again, something is looking awfully close to price fixing to me. It’s time someone took a good look, especially with the exponential growth in fees and surcharges.
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Excellent article! The Justice Department needs to read it so that they ‘ll know they can proceed against passenger carriers.