Last month’s agreement by Cathay Pacific and three other airlines to plead guilty and pay more than half a billion dollars in criminal fines has shed light on industry price-fixing, analysts say.
They say an industry culture that accepted the practice has allowed it to endure, especially in the cargo sector, while the lack of Asia-wide anti-trust provisions has also been a contributing factor.
“It is impossible that an activity on this scale and geographical breadth could endure for years, unless it formed part of an endemic culture,” the Sydney-based Center for Asia Pacific Aviation (CAPA) consultancy said.
“For a heavily regulated industry that is only now emerging from government ownership, it is hardly surprising that this culture would overhang the widespread changes that have taken place,” it said.
The US Department of Justice said four airlines, including Air France-KLM and Hong Kong-based Cathay Pacific, agreed to pay criminal fines totaling US$504 million for conspiring to fix air cargo prices until at least February 2006.
A subsidiary of Danish carrier SAS, and Martinair Holland, also agreed to plead guilty to similar charges, it said.
Air France-KLM will pay the heaviest fine among the four, totaling US$350 million. Officials said the penalty was the second highest ever applied in a US criminal anti-trust investigation.
While cargo prices were the focus of the latest fines, British Airways and Korean Air last year pleaded guilty and were each sentenced to pay US$300 million criminal fines for conspiring to fix international passenger charges, and air cargo rates, the justice department said.
The British Airways conspiracy involved fuel surcharges, it said.
“I don’t think it’s anywhere near as prevalent on the passenger side as on the cargo side,” said Jim Eckes of Indoswiss Aviation consultancy in Hong Kong.
He said cargo operations were often run by people with experience in passenger travel who do not necessarily understand the freight sector and feel: “Let ‘em do what they want to do as long as it’s profitable.”
Peter Harbison, CAPA’s executive chairman, agreed that fixing cargo prices is easier, but said it used to occur “fairly openly” on the passenger side until about 10 years ago — and that the culture still “overhangs” today.
He said that the aviation industry was rapidly evolving to a more purely commercial sector but that it still has a mix of government operators.
“There’s a lot of interaction at management level between airlines,” Harbison said. “It is actually not illegal — not in most jurisdictions anyway.”
Eckes agreed that talking about prices between competitors has more of a stigma in the US, where the law is firm.
Shukor Yusof, an aviation analyst with Standard and Poor’s Equity Research, said Asia lacks an over-arching anti-trust legal framework.
“There’s no one main body to oversee that kind of thing,” he said.
But the trade association representing 17 airlines in the region rejected allegations that the industry was still dogged by a culture that accepts price-fixing.
“I wouldn’t see that as a fair characterization,” said Andrew Herdman, director-general of the Association of Asia Pacific Airlines.
“International airlines operate across the world and have to comply with laws and regulations of various countries,” Herdman said.
Almost every jurisdiction has regulations that govern competition, “although there are differences in approach,” he said.
Herdman said that the industry is intensely competitive, with thin profit margins at the best of times.
While governments must implement legislation, airline owners have to discourage cooperation that leads to price-fixing, Harbison said.
The rise of low-cost carriers has helped, and further freeing up markets will reduce the incidence of collusion, he said.
“Fixing fares does require a certain amount of dominance in the market,” he said.
Justice Department officials, whose investigation continues, said Cathay and the three other airlines plotted to “suppress and eliminate” competition.
They said the conspiracy affected billions of dollars of consumer and other goods shipped by the airlines, including produce, electronics and medicines, over several years.
The plea agreements are subject to US court approval, and follow fines imposed earlier this year against Qantas of Australia and Japan Airlines for a similar conspiracy.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique