Today, I was fortunate enough to attend a lecture given by lawyers from the law firm Slaughter and May, who are currently acting on behalf of British Airways, concerning their alledged involvement in the Air Freight Cartel.
I knew little about this cartel, or BA’s alleged involvement, and so I thought I’d share the story with you.
Everything laid out below is all based on publicly available information, and I’ve tried not to bore you with the legal technicalities!
What is the Air Freight Cartel?
This cartel is much different from the traditional, drugs-style cartels (sorry - I know).
Essentially, this is a group of 14 airlines, who all allegedly colluded together to fix the prices of cargo freight across the world.
Who was involved?
Those inculpated in the cartel included:
- Air France
- British Airways
- Singapore Airlines
- Cathay Pacific Airlines
- Japan Airlines
- Air Canada
- Latam Airlines
- Swiss International Airlines
What’s the story?
In 2005, the European Commission recieved two applications by two airlines for ‘immunity’. This essentially allows whistle-blowers to come forward without fear of facing repurcussions, but this is in exchange for information. The two airlines in this case were Lufthansa and Swiss International Airlines.
They informed the Commission of the activities that had been taking place within this cartel. These activities included:
- Fuel surcharges;
- Security charges;
- Non-payment of commission to freight forwarders
With this information, the Commission proceeded wth dawn raids on offices around the EU. With the information gathered, and after conducting oral hearings, the Commission then concluded there had been:
"a single and continuous infringement of Article 101 of the Treaty on the Functioning of the European Union … covering the EEA territory … by which the addressees coordinated their pricing behaviour in the provision of airfreight services with respect to various surcharges and the payment of commission payable on surcharges” (Recital 1, Case AT.39258)
With this decision, they proceeded to impose fines on the airlines. In total, the fines stood at €799,000,000.
After three appeals (of which BA won one), the Commision’s decision still stands (as of November 2017). However, BA is currently appealing. In total, this process is now 13 years long.
What’s the issue?
What’s the issue in airlines fixing prices if they all agree on it together? Well, under European Union competition law, this is illegal, as are cartels, as they stifle competition.
This is by virtue of Article 101 of the Treaty on the Functioning of the European Union (TFEU):
"The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market”
The application of the various surcharges, as the Commission contends, violated this. It points to particularly-shady conversations in support of this:
“We will leave nothing written. And no other traces. So bring your camouflage cape” (Documentary evidence cited at para 962)
British Airways has faced numerous civil claims from private parties and is currently facing them in the UK courts. As some will remember, one such case was that involving The Honourable Mr Justice Smith’s lost luggage, in which he demanded BA tell him where his luggage was, all the time whilst sitting on their court hearing.
The cartel is also under investigation around the world. The US DoJ has levied fines of $1.7 billion, whilst the Australian Competition and Consumer Commission fined carriers over A$75 million. Other jurisdictions are also investigating.
Here’s a link to the EU case: http://ec.europa.eu/competition/antitrust/cases/dec_docs/39258/39258_6547_3.pdf
And here is a link to the transcript of the hearing in which Mr Justice Smith wished to find out about his luggage: https://www.legalcheek.com/2015/07/full-transcript-of-judges-luggage-rant-at-british-airways-lawyers-emerges/
Futher information can also be found here: http://www.aircargonews.net/news/policy/single-view/news/airlines-appeal-european-commissions-cartel-fines-of-EUR776m.html
Moral of the story - don’t price fix ladies and gents!