What you need to know about the recent air cargo cartel case in India

By Maria Koliasta*

India’s antitrust regulator imposed a fine on Jet Airways (India) Ltd, SpiceJet and IndiGo for fixing fuel surcharges on air cargo.

Jet Airways was fined Rs. 151.69 crores ($22.9m) and IndiGo and SpiceJet were fined Rs. 63.74 crores ($9.6m) and Rs. 42.48 crores ($6.4m ), respectively.

The imposed fines corresponded to 1% of the companies’ average turnover of the last three financial years.

The complaint was raised against Jet Airways, IndiGo, SpiceJet, Air India and GoAir by the Express Industry Council of India, representing 29 parcel transport firms (i.e Blue Dart, FedEx, DHL, First Flight, UPS etc). Nevertheless, no fine was imposed on GoAir and Air India.

According to the Express Industry Council of India, the aforementioned airlines conspired to introduce a fuel surcharge on air cargo. This fuel surcharge was fixed at a uniform rate of Rs.5/ Kg and became effective on May 15, 2008. Essentially, the act of cartelization is reflected in the uniform increase of the FSC rate on the very same date. Vijay Kumar, Chief Operating Officer of the Express Industry Council of India, said ‘What is surprising is that all airlines have chosen to increase the FSC by the same amount more or less at the same time. This has led us to believe that this action has been taken in concert[1]. This uniform increase is harmful not only to the interests of freight companies but also it detrimentally affects consumers since higher costs are constantly passed on to the ultimate consumers. Vijay Kumar also mentioned that ‘Though designed to mitigate the fuel price volatility, FSC has been used as a pricing tool to harm the interests of express companies, freight forwarders and ultimately the end-user[2].

The Indian Competition Commission (ICC) concluded that the three aforementioned airlines operated in collusion in fixing the FSC and, thus, violated the provisions of section 3(1) and section 3(3) of the Competition Act. It, essentially, found that the three airlines had fixed a fuel surcharge at a uniform rate on the very same date and they all increased the surcharge at the same time without any analogous rise in fuel prices. The ICC rejected the airlines’ argument that the fuel surcharge was applied to address the high volatility in aviation turbine fuel (ATF). It noted that the arguments presented by the airlines regarding the changes in FSC rates due to the changes in ATF prices were not sufficient. The three airlines claimed that apart from USD rates and ATF prices there were other factors that are usually considered when FSC is calculated, they failed, however, to provide any cost data to strengthen their arguments.

Then, the ICC examined whether the three airlines acted in a concerted manner while fixing the FSC. Section 2(b) of the Act defines agreement as, ‘any arrangement or understanding or action in concert whether or not formal or in writing or intended to be enforceable by legal proceedings’. The ICC was based on the following data[3]:

Untitled

The table above illustrates that whenever the FSC of one airline was increased it was concurrently followed by the other airlines. Hence, it is evident that the airlines exhibited parallel behaviour. Nevertheless, the ICC noted parallel behaviour of competitors can also be the outcome of intelligent market adaptation in an oligopolistic market. The ICC, thus, examined whether airlines’ conduct could be considered as a market adaptation in an oligopolistic market or if collusion was the only rational interpretation of the airlines’ conduct. Shri K. Rammohan, Senior General Manager of Jet Airways stated ‘that the information on revision of FSC though communicated between their own staff, there’s likelihood of transmission of such information to other competitors by agents though it is understood and implied that confidentiality should be maintained. It was also stated that information on competitor’s price revision on FSC is received through multiple sources and through common agents[4]. Likewise, Mr Raghuraman Venkatraman, Vice President (Cargo) of Spice Jet and Shri Mahesh Kumar Malik, Vice President (Cargo Sales & Services) of Indigo stated ‘that the information on pricing by other airlines including FSC rates are provided by common agents too[5]. Having considered the above, the ICC noted that such a behaviour significantly diminished any doubt since the concerned company could take into consideration such information before shaping its own behavior. The ICC claimed that the airlines were well informed of the changes in FSC rates.

In view of the foregoing, the ICC concluded that the airlines operated in parallel and in collusion in fixing fuel surcharge rates violating section 3 (3)(a) of the Competition Act.

*Stagiare Attorney at WilmerHale (Brussels)
LLM, University of California, Berkeley, School of Law

Disclaimer: the post reflects the author’s own views and by no means those of Wilmer Cutler Pickering Hale and Dorr LLP.

[1] http://www.thehindubusinessline.com/economy/logistics/domestic-airlines-levying-irrational-fuel-surcharge-on-cargo/article4209642.ece

[2] Ibid.

[3] Competition Commission of India, Case No. 30 of 2013, p.40

[4] Competition Commission of India, Case No. 30 of 2013, p.45

[5] Ibid.

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