Airlines brace for damages claims after EU ruling

PUBLISHED : Monday, 15 November, 2010, 12:00am
UPDATED : Monday, 15 November, 2010, 12:00am

The Euro799 million (HK$8.49 billion) fine imposed last week on 11 airlines, including Cathay Pacific Airways, Singapore Airlines and British Airways, for antitrust offences in Europe may be just part of the penalty.

What is expected to have airline executives waking up in a cold sweat in the middle of the night is that the European Commission ruling and fine mean customers who became victims of the price-fixing cartel can now sue for damages.

At least five of the airlines - Air France and its subsidiary KLM, Lan Chile, SAS and Singapore Airlines - have indicated that they will, or will consider, appealing the ruling.

The European Commission has vowed to protect consumer interests after announcing the multi-carrier fine for cargo surcharges collusion last week. The cartel activities occurred to and from Europe between December 1999 and February 2006.

Commissioner Joaquin Almunia said it was basic justice that consumers should be able to obtain compensation for the harm caused by cartels.

Any person or company affected by anti-competitive behaviour may bring the matter before the courts of the member states of the European Union and seek compensation, the regulator said.

A paper on general antitrust penalties published by the commission at the end of last year serves as a non-legally binding guideline for plaintiffs to calculate damages and seek compensation correspondingly.

'National courts in Europe must follow the ruling of the European Commission on the question of the involvement of the concerned airlines in the cartel,' said Patrick Boylan, an antitrust lawyer at Simmons & Simmons, a London-based law firm. 'There are a number of parties, according to certain law firms in London, set to bring a case against the airlines involved.'

According to English law, a plaintiff can bring an action not only against a British defendant but also foreign parties, Boylan said. 'Airlines should consider the picture from an international perspective when they draw up their defence strategy.'

Actions for follow-on damages had already been filed in Britain and the Netherlands even before the regulator announced the ruling.

In Britain, two flower importers have sought to bring a group action against British Airways before the High Court, in which they seek to represent all direct and indirect users of air-freight services. The matter is now before the Court of Appeal and a judgment is expected in the next few weeks.

'This ruling could have a significant impact on the risk to airlines of class actions in England and Wales,' Boylan said.

Air France-KLM faces a damages claim for Euro500 million from Equilib, a company set up by plaintiffs for the purpose of bringing a claim.

The developing landscape for follow-on damages claims, however, will depend on whether European governments come to terms with a unified procedure for bringing class actions in their own countries, given that many European countries have yet to introduce class action in their legal system. Unlike Europe, there have been more than 70 class actions launched in the United States against airlines in relation to the freight cartel, leading to several settlements.

Some observers say greater transparency in the industry makes it less likely a cartel will be allowed to operate in the future.

After the deregulation of the aviation market in Europe and the US over the past three to four years, the air cargo market has become more transparent, said Sunny Yu, an executive director of CDSR Group, a Hong Kong-based freight forwarding firm.

For example, airlines operating in Hong Kong no longer used the same fuel charge scale unified by the Board of Airlines Representatives, an airline trade body. The airlines, however, issue their own fuel surcharges every month.

More competition had been introduced into the market and the air cargo market has become more fragmented, Yu said. 'After deregulation the freight rates are very transparent and no carrier can manipulate prices at present,' he said.

In light of the worldwide antitrust probe, airline executives have refrained from any occasion which involved price discussions. 'Carriers need to differentiate themselves through price, value-added service and efficiency now,' Yu said.

The global aviation industry used to be highly regulated with air rights on certain routes controlled by a limited number of airlines.

'Since there was not enough cargo space to cater for cargo demand, freight rates as well as fuel surcharges were manipulated by the supply side [airlines] at that time,' an executive from a freight forwarding firm said.

Freight forwarders, the selling agents of cargo space to exporters, are the direct customers of airlines.

However, the executive said it was hard for a freight forwarder to file a lawsuit against the airlines for damages because extra costs were usually passed on to the exporters or shippers, the customers of freight forwarders.

Not the worst part

Fine imposed last week by the European Commission against 11 airlines for antitrust offences: 799m



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