DOJ Investigation Kicks Into High Gear

The US Department of Justice announced this week British Airways and South Korean-based Korean Air Lines Co. Ltd. have each agreed to plead guilty and pay separate $300 million criminal fines for their roles in conspiracies to fix the prices of passenger and cargo flights. The plea agreements are the first to arise from the Antitrust Division’s ongoing investigation into the air transportation industry.

The charges against the two airline companies were filed this week in the US. District Court for the District of Columbia. Under the plea agreements, which are subject to court approval, British Airways and Korean Air have agreed to cooperate with the Department’s ongoing investigation.

“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,” said Attorney General Alberto R. Gonzales. “International law enforcement cooperation is crucial in prosecuting global cartels such as these, and today’s enforcement actions represent the successful coordination between the United States and the UK’s Office of Fair Trading.”

The Department said that passengers who flew on British Airways flights between the United Kingdom and the United States during the charged period paid more for their tickets as a result of the illegal cartel. In 2004, British Airways’ fuel surcharge for round-trip passenger tickets was around $10 per ticket. By the time the passenger conspiracy was cracked in 2006, the surcharge was nearly $110 per ticket -- a 10-fold increase, said the Department.

The DOJ also noted during the air cargo conspiracy, British Airways’ fuel surcharge on shipments to and from the United States changed more than 20 times and increased from four cents per kilogram of cargo shipped to as high as 72 cents per kilogram.

The Department charged Korean Air with agreeing with air cargo competitors on rates charged to customers in the United States and elsewhere for international air cargo shipments. The Department noted that the conspirators agreed to increase the fuel surcharge over time from 10 cents per kilogram to as high as 60 cents for each kilogram of cargo shipped from the United States. The Department also charged that Korean Air reached an agreement with its rival to fix certain passenger fares for flights from the United States to Korea.

“When British Airways, Korean Air and their co-conspirators got together and agreed to raise prices for passenger and air cargo fares, American consumers and businesses ended up picking up the tab for their illegal conduct,” said Acting Associate Attorney General William W. Mercer. “Today’s enforcement actions demonstrate that the Antitrust Division will investigate and prosecute illegal cartel activity–here and abroad–in order to ensure that American consumers and businesses are not harmed by illegal cartel activities.”

Two other airlines – Virgin Atlantic and Lufthansa AG – have agreed to cooperate in the Division’s ongoing investigations. Both Virgin Atlantic and Lufthansa have been conditionally accepted into the Antitrust Division’s Corporate Leniency Program, which allows a qualifying company that is the first to voluntarily disclose its participation in an antitrust crime and which fully cooperates in the subsequent investigation to avoid criminal conviction and a heavy fine.

Virgin Atlantic entered the program after reporting its participation with British Airways in the passenger fuel surcharge conspiracy. As ANN reported last year, Lufthansa was conditionally accepted after it disclosed its role in the international cargo conspiracy in which British Airways and Korean Air were participants.

Virgin Atlantic and Lufthansa are obligated to pay restitution to the US victims of their conspiracies, according to the DOJ.

FMI: www.usdoj.gov, www.britishairways.com, www.koreanair.com