Getting Caught - Airlines Admit Price Fixing
Whether you are an industry insider or just an interested bystander fascinated by the airline and air cargo industry, you have undoubtedly read about the allegations of price fixing faced by many of the global airlines over the past year. Past editions of this eNewsletter have intentionally avoided reporting on this particular story. If the airlines did collude to fix the price of airline seats, cargo rates and/or fuel surcharges, and if agreeing to pay such sizable fines is some measure of guilt, then we have reasoned that it is not necessary to kick them when they are down or go out of our way (as others in the media have) to throw the first stone.
Nonetheless, the US Department of Justice, the European Union and other governing bodies continues to pursue this case and the industry media have continued to report their findings. To some, this public embarrassment and resulting future distrust is justified. Collusion is simply unlawful in any society that promotes fairness in competition. Coming together in a secluded room to manipulate prices and therefore eliminate competition is intended to overturn the laws of supply and demand.
Honesty and integrity are more than tag lines; they are and should be a way of life. As a freight forwarder, we need a viable, profitable, growing and healthy airline industry. Without airlines our freight doesn't fly, and without forwarders their planes fly empty. As headline observers, we have seen the financial losses borne by the carriers since 9/11. We know today that increased fuel costs are literally crushing carriers into bankruptcy and have caused several to go out of business, cancel unprofitable flights and park fuel inefficient planes.
As forwarders, while we do pass along many of the fees and surcharges applied by the carriers to our customers, we also know that the fuel surcharges applied do not compensate the carriers for their entire fuel bill. We act as instruments to assist air carriers in covering their costs, allowing them to remain viable in an ever-changing environment. We sincerely believe and hope this issue will get filed under "lesson learned."
The three headlines below appeared in the news this last week of June 2008 regarding the price-fixing investigations:
Four carriers plead guilty to cartel charges
Air France-KLM, Cathay Pacific Airways and two other international carriers have agreed to pay US$504 million dollars in fines to settle US charges they conspired to fix air cargo prices.
The US Justice Department said that as well as the above named, a subsidiary of Danish carrier SAS and Martinair Holland had pleaded guilty to similar charges.
Air France-KLM will pay the largest fine among the four airlines charged, totaling US$350 million. Officials said the penalty was the second highest ever applied in a US criminal antitrust investigation.
"Air France is committed to compliance with all laws, including US antitrust laws. We have taken thorough steps across the organization to prevent a recurrence, as Air France is committed to the highest standards of corporate governance," the chief executive of Air France-KLM, Jean-Cyril Spinetta, said in a statement.
Hong Kong-based Cathay Pacific agreed to pay a US$60 million fine, while SAS will pay a US$52 million penalty and Martinair will pay US$42 million.
Jack Handley
Impact Publications
Friday, 27 June 2008
Airlines fined $504m in US probe
Five airlines have agreed to pay fines totaling $504m (£253m) for conspiring to fix prices for air cargo rates, the US Justice Department says.
The airlines include Air France and KLM, now operated by a single holding company, which is to pay $350m.
The other airlines involved are Cathay Pacific, Dutch airline Martinair and Scandinavia's SAS.
The payments come after a wide-ranging inquiry into the air cargo industry by the department's anti-trust division.
A statement by the department said the fine imposed on Air France-KLM was the second-highest levied in a criminal anti-trust prosecution to date.
BBC News
DOJ Nabs 5 More Airlines
Five more airlines have reached plea agreements worth a total of $504 million with the U.S. Department of Justice for conspiring to fix rates and fuel surcharges earlier this decade, the agency announced today.
The total number of airlines that have agreed to pleas with the DOJ is now 9, with fines totaling more than $1.2 billion, the highest total amount of fines ever imposed in a criminal antitrust investigation.
Qantas's former highest-ranking executive employed in the U.S. pleaded guilty, agreed earlier to pay a fine and to serve 8 months in jail for his role in the conspiracy.
Major international airlines - Société Air France (Air France), Cathay Pacific Airways Limited (Cathay), Koninklijke Luchtvaart Maatschappij N.V. (KLM Royal Dutch Airlines), Martinair Holland N.V. (Martinair), and SAS Cargo Group A/S (SAS) - have agreed to plead guilty and pay criminal fines totaling $504 million for participating in a multi-year conspiracy to fix prices for air cargo rates and fuel surcharges, the Department of Justice announced Thursday. Of the $504 million in fines, Air France-KLM, which now operates under common ownership by a single holding company, has agreed to pay a $350 million criminal fine, the second highest fine ever levied in a criminal antitrust prosecution.
Cathay has agreed to pay a $60 million criminal fine; Martinair has agreed to pay a $42 million criminal fine; and SAS has agreed to pay a $52 million criminal fine. The plea agreements are subject to court approval.
Michael Fabey / Traffic World
www.aircargoworld.com
June 26, 2008
Northwest Airlines helps natural disaster relief efforts in China
WorldPerks® Customers Contribute Millions of Miles
EAGAN, Minn. - (June 3, 2008) - In the wake of the May 12, 2008 earthquake in China, the outpouring of support by North American WorldPerks® members for relief efforts in that area has prompted Northwest Airlines (NYSE: NWA) to also offer WorldPerks members in Asia the opportunity to contribute miles to the relief effort.
As of June 3, 2008, the Salvation Army has received more than 10.7 million miles through the AirCares® program at Northwest Airlines. Northwest matched the first million miles contributed to The Salvation Army. Other charities have received more than 3.1 million miles. Northwest also sent an e-mail to WorldPerks members reminding them of the opportunity to donate miles or money to its AirCares partners.
Northwest invited WorldPerks members in Asia to contribute mileage to its AirCares partner Médecins Sans Frontières (Doctors Without Borders). The miles will be used to provide transportation for MSF doctors who are traveling to the region and wherever their help is needed most. Northwest matched the first one million miles. In one day, Doctors Without Borders received more than 11 million miles.
NWA Cargo Ships Supplies
NWA Cargo, working with the U.S. relief organization AmeriCares, utilized the capability of the NWA freighter network to move a large shipment of relief supplies to the area of China affected by the earthquake. AmeriCares is one of Northwest's AirCares charity partners.
The shipment, known as a BLU-MED portable facility, is a 15-bed portable hospital that has the capacity to serve 250-300 patients per day. An identical facility provided medical services to over 90,000 people in Pakistan after the 2005 earthquake. The shipment, consisting of nearly 25,000 pounds of equipment, also includes tents, beds, and other supplies, including an 8000-pound, 125-kilowatt portable generator.
The shipment departed Los Angeles (LAX) on Saturday, May 31, made a connection at the freighter hub in Anchorage (ANC), and arrived in Shanghai (PVG) on NWA flight 913 on the morning of Sunday June 1. It will be forwarded by truck to Chengdu (CTU) for distribution to the Sichuan Provincial Health Department.
The successful movement of the relief shipment was the result of great effort and teamwork by NWA Cargo personnel in Los Angeles and Shanghai, with support by NWA Cargo Headquarters and Cargo Operations Control in MSP.
Northwest has long supported the disaster relief supply shipment efforts of AmeriCares, partnering with them during the China River flood, the Yangtze River flood, the tsunamis and now again with the China earthquake efforts. AmeriCares is known for its timely responses to disasters by being able to get the needed relief supplies where they are needed.
United, US Airways suspend merger talks
United Airlines and US Airways have suspended their talks on a merger because of concerns about labor opposition and integration costs.
The two carriers have been in talks for a few months. United was also in talks with Continental Airlines on a merger.
The merger talks follow Delta Air Lines and Northwest Airlines' agreement to merge to counter skyrocketing fuel prices, a weak US economy and growing competition from European carriers.
US airlines are hoping mergers or alliances could give them more power to reduce flights and raise fares.
The airlines also face a renewed sense of urgency to cut costs as jet fuel prices have more than doubled since the start of last year.
www.cargonewsasia.com
May 30, 2008
Book Review: Flying Too Close to the Sun - The Success and Failure of the New-Entrant Airlines
by Sveinn Vidar Gudmundsson
This month's featured book, brought to our attention by Ashgate Publishing in the UK, examines post deregulation airlines in the United States. How many millionaires and investment groups intoxicated over seeing their name on a Boeing jet and a row of painted tails have gotten into the "airlines business" only to find themselves unsuccessful, unable to compete, locked out of gate slots and relegated to off-line airports due to lower landing costs? The companion book to this one day would probably address the older legacy carriers (Pan Am, TWA, Republic) that couldn't keep up with these newer lost-cost - low-fare carriers' perhaps a case of mutual destruction.
Since deregulation in the United States, most jet operating new-entrant carriers have failed. Theories on competition had been put to the test and reality turned out to be different to the vision. To begin with, many new-entrant airlines were successful, but were not able to create sustainable strategies to survive as incumbent carriers adjusted to the new operating environment. This book explains the complex issues that led to the almost total failure rate of the 'first wave' new-entrant airlines.
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KLM Aiming for Greener Fuel
From pond scum to green gold? KLM hopes to start powering aircraft with fuel derived from algae by the end of the year. KLM and Dutch technology company, AlgaeLink, recently signed an exclusive contract to produce the fuel for the test project. The algae kerosene will initially be mixed with conventional jet fuel. The ultimate goal of the project is to power 50 turboprop planes in KLM's fleet with 100% of the bio-jet fuel by 2010.
KLM expects to save millions of dollars a year in fuel costs and carbon dioxide fines by switching to the carbon dioxide-neutral fuel. In 2012, European airlines will be required to pay extra for CO2 emissions. According to AlgaeLink, algae fuel is CO2 neutral and cost-effective once crude oil passes the $100-per- barrel mark. The biofuel producer also claims that its algae fuel is more environmentally friendly compared to other biofuels as it does not contribute to deforestation.
NWA Becomes Sponsor of Great River Greening
Northwest Airlines announced that it has signed
on as a corporate sponsor with Great River Greening to restore urban natural resources throughout Minneapolis/St. Paul. NWA will commemorate this sponsorship by participating in a Great River Greening tree planting event on May 31.
Northwest Airlines, through Great River Greening, is partnering with the Longfellow Community Council to beautify the Midtown Greenway in Minneapolis. The Greenway is a publicly-funded walking path and bicycle trail that runs through the center of South Minneapolis, providing green space and eco-friendly transportation along former railroad lines.
This partnership is part of Northwest's EarthCaresSM program. "Northwest Airlines is dedicated to opportunities to do our part to conserve natural resources and protect the environment. We are pleased to offer partnering opportunities to our employees to promote positive environmental change," said Tim McGraw, director of corporate environmental and safety programs.
Northwest's team of volunteers will plant prairie seed, oak trees and shrubs to increase wildlife habitat, which will be highly visible to pedestrians and bicyclists who use the Midtown Greenway. The site is six blocks from the significant natural areas of the Mississippi River Gorge.
Great River Greening is Minneapolis/St. Paul's largest organization to engage volunteers in hands-on conservation work. "This is a great collaboration between Northwest Airlines and Great River Greening, said Executive Director, Deborah Karasov. "This partnership demonstrates Northwest's commitment to our state of Minnesota, our communities and environmental preservation."
Going Green is a team sport
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Past editions of our e-Newsletter have made mention of the Harvard Business Review web site, discussing an article titled, "You are only as Green as your Supply Chain." We direct your attention to this site once again to share with you the following discussion, "No Company Is an Island."
HBR Green Wrap-Up: No Company Is an Island
by Gregory C. Unruh
Posted on April 17, 2008 3:26 PM
For the twelve weeks from January 23 to April 16, 2008, HBRGreen hosted six discussions on the emerging intersection of business and the environment. Leaders of the business world asked provocative questions and readers from around the globe answered with robust and lively commentaries, bringing an unparalleled level of insight and experience to the conversation. What did we learn? We learned that going green is more than a slogan. It's a complicated business practice that requires a sustained and unified effort from a diverse set of companies, customers, suppliers, workers, nonprofits, governments, and NGOs. Indeed, no facet of doing business remains untouched.
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