Massive fines for SAS and Maersk in price fixing scandal

Sunday, October 07, 2001
By Brendan Killeen

http://archives.tcm.ie/businesspost/2001/10/07/story129825828.asp

As airlines around the world brace themselves for hard times, two Scandinavian carriers -- SAS and Maersk -- will be operating under an additional burden after being ordered to pay massive fines in a price fixing scandal.

The two companies had agreed not to compete on certain routes, leading to higher ticket prices and greater profits. The scandal has caused anger among Scandinavian people, who pay some of the highest taxes in the world and expect fair play from their semi-state institutions.

The case against Maersk Air, the passenger arm of the freight giant AP Moller Maersk, and SAS, the pan-state airline of Denmark, Sweden and Norway, began with the disappearance of a letter from Captain Niels Sundberg to the EU Commission. Sundberg -- the owner of Danish airline Sunair -- complained that Maersk and SAS were cooperating unfairly. Eventually, Sundberg kicked up such a fuss that the EU was forced to initiate an investigation in June last year.

EU investigators visited the two companies' headquarters in Copenhagen, and found more than 4,000 documents detailing how the SAS-Maersk partnership would play out in future.

The documents indicated that the companies did not want any paperwork detailing the agreement to be stored in their offices for long periods. The EU Commission said the documents provided overwhelmingly persuasive evidence that SAS and Maersk knew their partnership was in violation of EU fair market regulations, but aimed to keep it from public knowledge.

The illegal arrangement began in October 1998, when SAS and Maersk Air began a close cooperation that included an expanded bonus programme.

A month later, Maersk began cancelling its cooperation on money-losing routes with airlines such as Finnair, because of the apparent price agreement it reached with SAS.

The two companies went on to divide the routes from Copenhagen to Stockholm, Athens and Venice, as well as Billund in Denmark to Frankfurt, and worked in close collaboration on bonus points schemes.

The EU's competition commissioner, Mario Monti, fined SAS £30 million, or 10 per cent of the company's profits, and Maersk Air more than £10 million, for having undertaken a "secret, illegal and competition-stifling agreement to divide lucrative routes between them".

The scandal has led to the resignation of the directors of both companies, despite initial claims that price fixing was "normal business practice" or an inbred business culture.