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Wednesday, February 15, 2006

Collusion Among Air Cargo Carriers?

Here's a follow up to a recent post on anti-trust enforcement. It seems authorities are investigating air cargo operations for collusive behavior. As the article notes, without an explicit document or some other solid piece of evidence, collusion can be hard to prove:

Inspecting the cargo, The Economist:  The death of Sir Freddie Laker last week reminded the world’s air travellers of the high cost of flying before he took on, and helped to break, the transatlantic oligopoly enjoyed by the big airlines. The established carriers, their dominance threatened by the rock-bottom fares offered by Sir Freddie’s airline, colluded to slash prices and did their bit to bring down the interloper. His carrier went bust but he subsequently sued his rivals for predatory pricing, and won. So it is perhaps fitting that on Tuesday February 14th, just days after Mr Laker died, competition authorities launched investigations into possible price collusion by a number of large airlines. ... The suspected price-fixing relates to fuel surcharges and other costs at the airlines’ cargo arms. ...

Neither the European Commission nor America’s Department of Justice named the airlines concerned, but those raided include British Airways, Air France/KLM, Lufthansa, Luxembourg’s Cargolux, Cathay Pacific and Japan Airlines. United Airlines and American Airlines both said that they were approached to provide information as part of the probe. South Korean airlines admitted to visits from that country’s competition authorities. Some reports suggest that the alleged collusion goes back several years. ...

The air freight industry, worth some $50 billion last year, remains a mix of large, cargo-only companies (such as the parcel firms), smaller specialist operators and passenger airlines that operate cargo divisions. The latter’s freight arms tend to be small compared with their passenger operations. ... Even Korean Air, which was the leading freight operator among passenger airlines in 2004, derives only around 30% of its revenues from the cargo business. However, profit margins in cargo can be big. And the business is set to continue growing at a healthy pace ...

A spokesman for the European Commission pointed out that the fact that it is investigating the airlines does not mean that “the companies are necessarily guilty of anti-competitive behaviour ... The airlines have every reason to hope there is no case to answer. The European Union can levy a fine of up to 10% of worldwide revenues on any firm found guilty of participating in a cartel. That would hit airlines disproportionately hard, since their overall businesses are, by and large, so much bigger than their cargo divisions. In America, the threat of prison hangs over price-fixers.

The carriers concerned have vociferously protested their innocence. Some analysts have suggested that airlines are prone to copy one another’s pricing strategies without that necessarily involving direct collusion. Moreover, proving that firms have operated as a cartel is difficult without some sort of “smoking gun”, such as documents describing meetings in which price-fixing was discussed. ...

    Posted by on Wednesday, February 15, 2006 at 04:53 PM in Economics, Market Failure, Regulation | Permalink  TrackBack (0)  Comments (3)

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