Eleven airlines have been fined a total of €799m (approx. $1.1bn) as a result of the European Commission's finding this week that they fixed the price of fuel and security surcharges on cargo flights worldwide. The European Commission has been investigating the industry since 2006 in an inquiry that covered a six-year period from December 1999 to February 2006.
Price fixing
Agreements between competitors to fix prices are contrary to EU competition rules and can result in fines of up to 10% of worldwide group revenue.
The Commission found that 12 airlines (Air Canada, Air France-KLM, British Airways, Cathay Pacific, Cargolux, Japan Airlines, LAN Chile, Lufthansa/Swiss, Martinair, SAS, Singapore Airlines and Qantas) contacted each other throughout the six-year period with the aim of ensuring that all airlines imposed a flat rate fuel surcharge per kilo for all cargo shipments on flights to, from and within the EEA. The Commission also found that the airlines agreed to introduce a uniform security surcharge and collectively refused to pay commission on surcharges to their customers (freight forwarders who arrange the transport of goods by air on behalf of companies wanting to transport goods). The Commission found that these alleged agreements meant that there was no price competition on fuel or security surcharges between airlines.
Following its investigation and after considering the airlines' defence arguments the Commission dropped all charges against an additional 11 carriers (mainly based outside the EU) and one consultancy firm. Fried Frank advised one of those carriers.
Fines
The fines in this case amount to €799m in total (approx. $1.1bn), with almost half (€340m) being imposed on Air France/KLM, which also owns Martinair. All but one of the airlines had their fines reduced because they cooperated with the investigation, and the Commission also reduced fines against all airlines by 15% on the basis that price coordination was encouraged by the regulatory regime in several overseas countries. Additional reductions were granted to four airlines because the Commission found that they were involved to a limited extent in the cartel. Lufthansa did not receive any fine because it 'blew the whistle' to the Commission, and as a result received 100% immunity from fines. In a departure from recent decisions, despite five airlines claiming that they could not afford to pay any fine, the Commission decided not to reduce any fines for this reason.
What next?
The airlines which have been fined will now need to consider whether to appeal the Commission's decision to the European courts. If they do so, they must lodge their appeals within two months.
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