British Airways PLC and Korean Air Lines Co, Ltd. will each pay $300 million fines and plead guilty to charges that they participated in conspiracies to fix prices of passenger and cargo flights, according to the U.S. Department of Justice Antitrust Division. United States v. British Airways PLC, 07-183-JDB (D.D.C. filed Aug. 1, 2007); United States v. Korean Air Lines Co., Ltd., 07-184-JDB (D.D.C. filed Aug. 1, 2007).
The two companies — both among the top ten largest international cargo carriers with combined U.S.-related cargo revenues reportedly topping $1 billion – will plead guilty to violations of Sherman Act Section One and have agreed to cooperate with the department’s ongoing criminal investigation, the DOJ said.
“The Department of Justice is committed to vigorous antitrust enforcement and will continue to bring to justice those who fix prices and thereby deprive the American public of the benefits afforded by a truly competitive market,” Attorney General Alberto R. Gonzales said in a written statement.
Each company is accused of participating in two conspiracies: one to fix prices for international air transportation services for cargo (“air cargo services”) and the other to fix prices charged for international air transportation services for passengers (“passenger services”). In both cases, both companies are accused of meeting with co-conspirators to discuss prices, ultimately agreeing on prices, and working with co-conspirators to monitor and enforce the agreed-upon rates.
Two other airlines, Virgin Atlantic and Lufthansa AG, have been conditionally accepted into the Antitrust Division’s Corporate Leniency Program and also have agreed to cooperate in the investigation. The leniency program allows a qualifying company that is the first to disclose participation in an antitrust crime and which fully cooperates in the investigation to avoid criminal liability. Virgin Atlantic entered the program after reporting its participation with British Airways in the passenger services conspiracy, and Lufthansa entered the program after reporting its role in the air cargo conspiracy, DOJ said.
“Virgin Atlantic and Lufthansa are obligated to pay restitution to the U.S. victims of their conspiracies,” according to the DOJ press release.
The airline conspiracy investigation demonstrates the value of the leniency program, said Scott D. Hammond, the DOJ’s deputy assistant attorney general for criminal enforcement. Hammond credited the amnesty program with breaking up dozens of cartels and helping to obtain more than $2 billion in fines.
British Airways allegedly conspired to fix prices charged for air cargo services from March 2002 to February 2006. The company allegedly conspired to fix prices for passenger services from August 2004 to February 2006.
DOJ claims that British Airways conspired with competitors to fix the fuel surcharge for passengers on long-haul international flights, including flights between the United States and the United Kingdom. During the time period of the alleged conspiracy, the fuel surcharge for round-trip passenger tickets rose from $10 to nearly $110, according to the DOJ. The air passenger conspiracy raised the price of “virtually every ticket” purchased between 2004 and 2006 for the conspirators’ long-haul international flights, according to the DOJ.
Britain’s Office of Fair Trading also fined British Airways $246 million for its participation in the alleged conspiracies. OFT Chairman Philip Collins said that the investigation demonstrates the benefits of international cooperation between competition authorities.
“Such close co-operation is intended to deal with companies that operate globally and who do not respect competition laws,” Collins said in a written statement.
British Airways Chief Executive Willie Walsh said that passengers had not been overcharged, and that “a limited number of individuals” in the company broke competition laws, according to a report from the Associated Press.
Korean Air allegedly conspired to fix fares charged to passengers and travel agents for flights from the United States to Korea from January 2000 to July 2006. DOJ claims the company agreed with competitors regarding base ticket rates or fuel surcharges for passenger services, or both. The company is also charged with conspiring to fix rates charged to customers in the United States and elsewhere for cargo services from January 2000 to February 2006.
Korean Air is represented by Morgan, Lewis & Brockius; British Airways is represented by Sullivan & Cromwell.