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U.S. fines airlines over price fixing

Under a settlement, British Airways and Korean Air will pay a total of $600 million.

August 02, 2007|Peter Pae | Times Staff Writer

British Airways and Korean Air -- carriers with major operations at Los Angeles International Airport -- have each agreed to pay $300 million in fines and plead guilty to U.S. charges that they colluded with other airlines to set ticket prices.

The fines are the second-largest ever obtained by the Justice Department and are expected to be the first of several stemming from a two-year probe into fuel-related fees that international carriers charged cargo customers and passengers -- some as high as $110 per ticket.

"The crimes committed by Korean Air and British Air are among the largest and [most] far-reaching antitrust conspiracies that we have ever detected," said Scott Hammond, the Justice Department's deputy assistant attorney general for antitrust cases. "Virtually every American business and consumer was impacted by these crimes."

The biggest hit may have been taken by travelers in Southern California, where Korean Air operates four daily nonstop flights from LAX to Seoul and British Air has three flights a day from LAX to London. The two airlines board nearly 110,000 passengers a month in Los Angeles.

But for now, passengers and cargo customers are unlikely to see a dime of the $600 million in fines that the Justice Department will collect if the plea deals are approved by a federal judge.

A Justice Department spokeswoman said that the money would go into a federal crime-victims fund, not to affected passengers, who would have to seek compensation directly from the airlines.

Making matters more complicated, Justice Department officials said that although passengers flying on the two carriers paid more for their tickets as a result of the "illegal cartel," they could not say how much of it could be considered overcharge and subject to restitution.

They noted for instance that in 2004, the fuel surcharge paid by passengers was about $10 a ticket, and by the time the cartel was broken up last year, it had increased to about $110 a ticket.

But exactly how much of that was improper is unclear, a Justice official said, since fuel costs did increase for the airlines.

"The reason why I can't answer that question, just to be clear, is because these conspirators managed to foil the free market system," said William W. Mercer, acting associate attorney general.

The airlines, while admitting to colluding on setting the fuel fee, contend that the surcharge itself was not illegal and did not constitute price gouging.

Speaking to reporters in London, British Airlines Chief Executive Willie Walsh said the fuel surcharge increases came as crude oil prices surged.

"I want to assure our passengers that they were not overcharged," Walsh said. "Fuel surcharges are a legitimate way of recovering costs. However, this does not in any way excuse the anti-competitive conduct by a very limited number of individuals."

Several British Air executives in the probe have resigned or have been placed on leave.

In addition to the U.S. fine, British Airways also agreed to pay a separate $247-million fine to the British government for discussing the fuel surcharges with archrival Virgin Atlantic Airways.

Virgin Atlantic and German carrier Lufthansa have been cooperating with investigators and are in a conditional "leniency program," under which they can avoid conviction and fines. Separately, Lufthansa said it was in the process of settling a class-action lawsuit that would pay out $82 million to cargo customers.

In a statement, Korean Air said it was cooperating with federal investigators and was "pleased to be among the first airlines to have reached a full resolution of the matter."


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