Procurement Intelligence Unit

The European Commission has recently approved British Airways merger with Spanish carrier Iberia, as well its partnership with American Airlines for cross-Atlantic flight scheduling. However, the air industry has been dogged by price collusion, corruption and scandals across the world, resulting in increase costs for air cargo shipping. Marketing liberalisation and growth does not seem to be easing logistics operations and it seems unlikely that the clear skies will be clean skies.

The airline's future appears to be on a wing and a prayer; with crippling strikes grounding craft and fierce competition from no-frills carriers squeezing the market, BA is ever more desperate to secure revenues. Indeed, only in May a price-fixing trial against BA executives collapsed because of technicalities. Previously in 2007 the airline paid £112 million to UK authorities for its involvement in price-fixing.

Further afield, ubiquitous price-fixing is causing sky-high cargo rates. In 2008 US regulators fined five airlines a total of US$614 million for conspiracy to fix cargo prices. In March 2010, South Korean prosecutors fined Korean Air and Asiana Airlines a total of KRW11 billion (US$98 million) for "excessive freight charging". The two airlines have also fallen foul of authorities in Australia and New Zealand, and US regulators have fined them US$1.6 billion since 2007.

The Australian Competition and Consumer Commission (ACCC) recently accused Japan Airlines and Air New Zealand of colluding in the prices of air cargo transportation. The Australian watchdog plans to prosecute a total of 15 aeroplane operators that "had the purpose or effect of fixing the price of a fuel surcharge and a security surcharge that were applied to air cargo carried by them and other airlines."

Recent investigations into China's aviation sector have revealed the extent of corporate corruption in Eastern air operations. A senior executive at one Chinese carrier committed suicide in June after coming under suspicion for graft, and two other airline executives have been arrested. Routes, landing and departure slots, and regulations are all controlled by rent-seeking officials that act as gate-keepers to a lucrative growth market.

The airline industry has had mixed fortunes over the last 12 months. The losses of European carriers were deepened by the volcanic ash disruption in May, whereas in other continents airlines are flying high and accelerating their recovery from the recession. The International Air Transport Association (IATA) found that air cargo transportation expanded in 2010, and increased global air freight saw the industry's profits increase by US$2.5 billion.

Parts of the air freight industry appear to be under a cloud, but it is clearly not fair for these challenges to be shifted to the businesses that use these airlines to ship products. Repeated legal actions by the authorities over the decades do not seem to have abated illicit activities by the airlines. With increased financial pressures on carriers, it seems unlikely that airlines will change their practices out of the blue.

Those using air cargo services should not be afraid to challenge any unusual practice, or refer issues to the authorities when competition is limited. The case in South Korea was only brought to court through the collective actions of businesses that used air transport services. Any suspicious practices within the industry should be explored and users may need to investigate more thoroughly compared to other categories to secure the best deal.