Opinion ID: 433759
Heading Depth: 2
Heading Rank: 1

Heading: Laker's Antitrust Claims

Text: 9 Accepting the veracity of Laker's allegations for the purposes of this appeal only, 1 we learn that Laker Airways, Ltd. was founded as a charter airline in 1966. It began charter operations between the United States and United Kingdom in 1970. As early as 1971 it sought to branch out into scheduled transatlantic air service. Laker hoped to gain a sizeable share of the transatlantic market by offering only basic air passage with little or no in-flight amenities and non-essential services. Flying at a reduced cost would enable Laker to set rates much lower than those then charged by existing transatlantic air carriers. 10 Laker's potential competitors allegedly resisted the entry of this new carrier, delaying the commencement of Laker's novel economy service for several years. However, by 1977 Laker obtained the necessary authorizations from the United States and British governments and inaugurated its low cost transatlantic airline service between London and New York. 11 The prices for scheduled transatlantic air service are substantially controlled by the International Air Transport Association (IATA), a trade organization of the world's largest air carriers. The IATA meets annually to establish fixed fares for air carriage, which are implemented after authorization by national governments of the individual carriers. Laker's fares were approximately one-third of the competing fares offered by other transatlantic carriers which were predominantly set under the auspices of the IATA. The airline members of IATA allegedly perceived Laker's operations as a threat to their system of cartelized prices. The new competition not only jeopardized the established markets of those carriers operating between the United Kingdom and the United States--such as British Airways and British Caledonian Airways--but also affected the demand for services provided by airlines flying direct routes between points in Continental Europe and the United States--such as Swiss Air Transport (Swissair), Lufthansa German Airlines (Lufthansa), KLM, and Sabena--since some passengers allegedly found it cheaper to fly through London on Laker Airways, rather than direct on the other European transatlantic carriers. During meetings of the IATA in July and August 1977 the IATA airlines allegedly agreed to set rates at a predatory level to drive Laker out of business. 12 Notwithstanding this asserted predatory scheme, up until 1981 Laker managed to operate at a profit. At its zenith, Laker was carrying one out of every seven scheduled air passengers between the United States and England. 13 However, during 1981 Laker's financial condition rapidly deteriorated. In mid 1981 the pound sterling declined precipitously. A large segment of Laker's revenues was in pounds, but most of its debts, such as those on its United States financed fleet of DC-10 aircraft, and expenses were in dollars. Already weakened by the asserted predatory pricing scheme, Laker ran into repayment difficulties. Fearing financial collapse, it sought to have its repayment obligations refinanced. 14 At this point several airlines allegedly conspired to set even lower predatory prices. In October 1981 Pan American Airlines, Trans World Airlines, and British Airways dropped their fares for their full service flights to equal those charged by Laker for its no-frills service. They also allegedly paid high secret commissions to travel agents to divert potential customers from Laker. These activities further restricted Laker's income, exacerbating its perilous economic condition. At IATA meetings in December 1981 at Geneva, Switzerland, and in January 1982 at Hollywood, Florida, the IATA airlines allegedly laid plans to fix higher fares in the spring and summer of 1982 after Laker had been driven out of business. 15 IATA members also interfered with Laker's attempt to reschedule its financial obligations. After Laker arranged a refinancing agreement, KLM, Sabena, and other IATA airlines allegedly pressured Laker's lenders to withhold the financing which had previously been promised. As a result of these alleged conspiracies, Laker was forced into liquidation under Jersey law in early February 1982.