Carrier could see 16pc drop in forecast earnings Cathay Pacific Airways could see estimated earnings slashed by up to 16 per cent this year after it agreed to pay a US$60 million fine for fixing cargo rates in the United States, adding to the carrier's operating woes. The airline agreed to pay the amount to the US government as settlement for a conspiracy to fix prices for cargo fuel surcharges on flights between Hong Kong and the US. Cathay and three other carriers - Air France-KLM, Martinair and SAS Cargo Group - reached a deal with the Department of Justice on Thursday over the probe. All airlines pleaded guilty and agreed to pay criminal fines totalling US$504 million. A similar investigation is continuing in Europe. The penalty rubs salt into Cathay's wounds from surging fuel costs and a global economic slowdown. 'The fine will reduce our current full-year net profit estimate of HK$2.9 billion by 16 per cent,' said Vincent Ng, associate director of equity research at Standard & Poor's. The Hong Kong-based carrier earned HK$7 billion last year. According to US investigators, from as early as May 1, 2002 and continuing until at least February 2006, Cathay participated in meetings in Hong Kong to discuss the cargo rate fuel surcharges to be applied on routes from Hong Kong to the US. Cathay and subsidiary Dragonair are the biggest air cargo operators in Hong Kong. Cathay's cargo division accounted for 17.5 per cent of total sales last year. The fines are a signal that antitrust regulators are closely watching carriers' attempts to pass on rising fuel prices to customers to see if they breach the law. Antitrust practices can lead to prison terms in the US and a penalty of up to 10 per cent of annual sales in the European Union. Cathay said yesterday that since the investigation by the EU was still continuing, it was not at liberty to comment. Since the beginning of the year, airlines have stopped filing their fuel surcharge application collectively through the Board of Airlines Representative, an airlines association in Hong Kong representing nearly 20 carriers. Previously, the board would file the surcharges for its members under the guidance of a published price index by Lufthansa, which has a specific formula to calculate the surcharge. However, this mechanism violated competition law in the US and the EU decided to let consumers make choices in a liberal market. 'Cathay Pacific has always endeavoured to comply with all Hong Kong laws and those of every jurisdiction in which we operate,' Cathay chief executive Tony Tyler said. 'Unfortunately, in this instance, it transpired that some of our actions relating to shipments from Hong Kong to the United States were in conflict with US antitrust laws, and we very much regret this.' Even though Hong Kong carriers now file their surcharges individually, the difference in price offered is still very small. 'Although the filing is more transparent right now, the airlines are yet to use the surcharge as an effective competition tool,' said Sunny Ho, executive director of the Hong Kong Shippers' Council. Shares in Cathay fell 1.73 per cent to HK$14.78 yesterday.