EU: Air Cargo Carriers fined €799 million for fixing "bolt on" charges

With a total fine of €799 (passing the magic USD1,000 million mark) the eleven air cargo carriers charged by the European Union have annoyed the EU to a rarely seen degree.

"It is deplorable that so many major airlines coordinated their pricing to the detriment of European businesses and European consumers" said Vice President for Competition Joaquín Almunia adding:" with today's decision the Commission is sending a clear message that it will not tolerate cartel behaviour".

The cartel members coordinated various elements of price for a period of over six years, from December 1999 to 14 February 2006. The cartel arrangements consisted of numerous contacts between airlines, at both bilateral and multilateral level, covering flights from, to and within the EEA. Airlines providing airfreight services primarily offer the transport of cargo to freight forwarders, who arrange the carriage of these goods including associated services and formalities on behalf of shippers.

The contacts on prices between the airlines concerned initially started with a view to discuss fuel surcharges. The carriers contacted each other so as to ensure that worldwide airfreight carriers imposed a flat rate surcharge per kilo for all shipments. The cartel members extended their cooperation by introducing a security surcharge and refusing to pay a commission on surcharges to their clients (freight forwarders).

The aim of these contacts was to ensure that these surcharges were introduced by all the carriers involved and that increases (or decreases) of the surcharge levels were applied in full without exception. By refusing to pay a commission, the airlines ensured that surcharges did not become subject to competition through the granting of discounts to customers. Such practices are in breach of the EU competition rules.

On the other hand, Commission allegations of collusion on two other surcharges and regarding freight rates in the Statement of Objections have been dropped from the case for insufficient evidence. The Commission also dropped charges against another 11 carriers and one consultancy firm which had previously received the Statement of Objections for the same reason.

In setting the level of the fines, the Commission took into account the sales of the companies involved in the market concerned, the very serious nature of the infringement, the EEA-wide scope of the cartel and its duration.

That provides some cause for celebration - but also embarrassment for some carriers as it make plain their share of the relevant market.

The calculation of the fines has been complex: all carriers were granted a 50% reduction on sales between the EEA and third countries in order to take into account the fact that on these routes part of the harm of the cartel fell outside the EEA. The Commission increased the fine for SAS by 50% for its previous involvement in a cartel in the airline sector (the SAS/Maersk cartel) All carriers received a reduction of 15% on account of the general regulatory environment in the sector which can be seen as encouraging price coordination. Four carriers were also granted a 10% reduction for limited participation in the infringement. As the fines on two companies would have exceeded the legal maximum of 10% of their 2009 turnover, the amount (before possible leniency considerations) was reduced to this level.

Lufthansa (and its subsidiary Swiss) received full immunity under the Commission Leniency Programme, as it brought the cartel to the Commission's attention and provided valuable information. The fines of the following carriers were also reduced for their cooperation with the Commission under its Leniency Programme: Martinair (50%), Japan Airlines (25%), Air France-KLM (20%), Cathay Pacific (20%), LAN Chile (20%), Qantas (20%), Air Canada (15%), Cargolux (15%), SAS (15%) and British Airways (10%).

Five carriers applied for a reduction claiming inability to pay the fine. However, none of the applications met the conditions for a reduction, leaving open the question of how and when the fine will be paid, whether it may be deferred or waived or whether it will drive at least some of those five airlines into a financial abyss.

The eleven airlines, and the fines payable, are as follows:

Air Canada €21 037 500Air France €182 920 000KLM €127 160 000Martinair €29 500 000British Airways €104 040 000Cargolux €79 900 000Cathay Pacific Airways €57 120 000Japan Airlines €35 700 000LAN Chile €8 220 000Qantas €8 880 000SAS €70 167 500 Singapore Airlines €74 800 000Lufthansa € 0Swiss International Air Lines € 0

And that's not an end to it: the Commission says "Any person or firm affected by anti-competitive behaviour as described in this case may bring the matter before the courts of the Member States and seek damages. The case law of the Court and Council Regulation 1/2003 both confirm that in cases before national courts, a Commission decision is binding proof that the behaviour took place and was illegal. Even though the Commission has fined the companies concerned, damages may be awarded without these being reduced on account of the Commission fine.The Commission considers that meritorious claims for damages should be aimed at compensating, in a fair way, the victims of an infringement for the harm done."

The fines present a double blow for KLM-Air France, the merged airline was formed from the independent parts in 2004.

And the fines were announced on the day that JAL was waiting to find out how many of its staff would take voluntary reduncancy as it sheds thousands of jobs across all categories.

For Singapore Airlines the fine was announced on the day that SIA said it had returned to profit.

And after a slew of bad news, Qantas will no doubt see the fact that it has been ordered to pay just over 1% of the total fines as a good thing. Unfortunately, it shows that Qantas has a minuscule part of the cargo trade between AsiaPacific and Europe.