Association of Asia Pacific Airlines

Cathay offices raided in price-fixing probes across globe

PUBLISHED : Thursday, 16 February, 2006, 12:00am
UPDATED : Thursday, 16 February, 2006, 12:00am

Air-cargo industry rocked as US and European authorities investigate surcharges for fuel and security

Competition watchdog authorities raided the offices of Cathay Pacific Airways in Frankfurt, Los Angeles and San Francisco yesterday as the carrier was caught up in global probes into price fixing in the air-cargo industry.

The raids - part of a co-ordinated series of sweeps on leading airline offices in Asia, Europe and the United States - are understood to involve allegations of price fixing for various surcharges for fuel and security.

The European Commission, which with the US Department of Justice, is conducting the investigation, said in a statement: 'The commission has reason to believe that the companies concerned may have violated [a European Union] treaty, which prohibits practices such as price fixing.'

The commission declined to name the targets.

Asian carriers caught up in the investigation include Cathay, Korean Air, Asiana Airlines, Singapore Airlines and Japan Airlines.

European carriers include Air France-KLM, Lufthansa, British Airways and Luxembourg's Cargolux.

At least three US airlines are also being investigated or have been asked to assist the authorities.

'Cathay Pacific Airways is in co-operation with the European Commission and US Department of Justice in respect of their investigation into air-cargo operations,' a spokesman said yesterday.

'Cathay is in strict compliance with the applicable legislation in all of its operating markets.'

Employees in some of the offices targeted around the world were ordered not to touch their computers and to wait outside as security officials combed the premises for evidence.

One focus of attention is thought to be the fuel surcharge formula created by German carrier Lufthansa and widely used around the world.

The formula revisits aviation fuel prices every two weeks and adjusts the surcharges accordingly and is openly available on the carrier's website.

Many airlines adopted the formula at the request of their customers, who wanted a level of predictability when budgeting transport costs for moving goods to market each season.

Tacked on to freight rates, surcharges for items such as security and fuel typically add 25 per cent to the cost of moving between Asia and Europe and it is thought the probes may have been triggered by complaints from powerful retailers.

Senior executives convening in Shanghai yesterday for the International Air Transport Association's annual cargo conference were surprised by the quasi-military nature of some of the raids.

'Given that we all use Lufthansa's transparent [formula], why did they feel the need to co-ordinate raids with uniformed officers?' asked an executive from one of the carriers being probed.

'If they had suspicions about the formula, why didn't they just hand the matter over to the competition authorities to investigate?'

There was no confirmation last night that the investigation is focused solely on the surcharges levied by the industry, but one executive could see no alternative.

'We're not all colluding on price, I'll tell you that,' said Stan Wraight, a vice-president at AirBridge Cargo, which is not under investigation. 'It's so competitive right now, there is no price left to fix.'