Lufthansa Decision Awaited

Judge promises to issue ruling as soon as possible.

By: Jim Strothman

RALEIGH, N.C. Long-simmering divisions over the proposed Lufthansa settlement in agents’ antitrust suit against major carriers came to the forefront last week as a U.S. District Court judge now considers how he will rule.

The ruling by Judge Earl W. Britt could set a precedent for other airlines in the case, as well as indicate whether the landmark class-action suit will head to trial Feb. 2.

Britt said he would file his written ruling as soon as possible. A ruling could come within the next several weeks.

Arguing against his association’s own attorneys, John Hawks, president of the Association of Retail Travel Agents, fervently told Britt that proposed settlement is a “terrible deal" for the majority of U.S. travel agents.

"I'm standing here today (opposing) our attorneys, and that's very tough," Hawks said during the lively two-hour hearing.

The judge patiently listened as Hawks passionately explained for 40 minutes how ARTA, which represents 3,327 agents, was "left out" and "unaware" of settlement discussions despite being a party in the antitrust suit.

Last month’s statement by the Department of Justice Antitrust Division expressing concern that the "proposed settlement raises antitrust problems" also drew debate.

Anti-Trust Complaint

In his letter to Lufthansa lead counsel David W. Ogden and plaintiff counsel Daniel R. Shulman, the department’s Deputy Assistant Attorney General J. Bruce McDonald said, "The settlement would include an agreement among the competing travel agents that jointly sets the commissions that each will charge to Lufthansa," potentially violating antitrustprice-fixing rules.

But Shulman and attorney A. Douglas Melamed, also representing Lufthansa, argued that the antitrust division's position is wrong. Shulman argued that the settlement is not an agreement among agents on prices they will charge Lufthansa.

"The position of the antitrust division leads to the absurd result that no price-fixing class action could ever be settled on commercial terms or by a future business arrangement," they argued.

Financial implications of the class-action suit, filed under the name of travel agent Sarah Futch Hall, were noted by ARTA's Hawks, as well as attorneys for all sides.

Several said the value of the case, considered to be a bellwether for several other similar lawsuits against the airlines, has been estimated by at least one economist at more than $16 billion.

Trebled damages, as happens in antitrust cases, could total $48 billion, they noted.

Shulman told the judge that a nearly $50 billion judgment against the airlines three of which have filed bankruptcy amid slumping travel demand since the case began would not only devastate the airlines, but would harm travel agents' future business.

"Travel agents have symbiotic relations with the airlines," Shulman observed. A ruling in favor of Lufthansa's proposal would be "a judgment to restore competition a win-win ruling" that would help the class action suit's ultimate goal of breaking up the airlines' "price-fixing cartel" and force the airlines "to pay commissions again," Shulman said.

Britt pointedly asked Shulman why ARTA had not been included in settlement negotiations with Lufthansa.

When Lufthansa first approached plaintiffs' attorneys, "we had to make choices" to assure confidentiality and to quickly pull together a small, but economically astute team to negotiate, Shulman said.

"We have made a commitment to ARTA that, in the future, we will have a member of ARTA on the team," Shulman said.

Hawks said that whatever happens in the future, ARTA member agencies are "fully and completely opposed" to the Lufthansa settlement.

Short Notice

Hawks also said that when ARTA was finally notified of the proposed Lufthansa deal, the board was given less than eight hours notice by its attorneys to vote on it.

Hawks said the proposal also was similar to a 1995 TWA settlement with travel agents, which brought objections from the justice department.

American Airlines also is opposing the Lufthansa deal, which would include a bonus program that would pay agents as much as $100 when they book with the airline.

It also would create a mechanism for agencies that went out of business in the last five years to file claims for underpaid Lufthansa commissions.

Hawks argued, however, that "more than 95 percent of class (action) member will not receive cash after the first year," noting the deal calls for much larger sales by agents in the second and third years out of reach of "mom and pop" and other agencies.

As proposed, the settlement also "excludes major (indirect) sales channels," such as selling Lufthansa air tickets to cruise lines and vacation destinations that buy blocks of tickets to assure travelers can get there.

Hawks said such sales can account for as much as 50 percent of an agency’s sales.

If the settlement is approved, "Lufthansa wins the lion's share of benefits," Hawks argued.

"It wins a three-year sales promotion, and sets an unacceptably meager (fee) standard,” he said. "