Australian carrier Qantas has agreed to pay a $125,000 fine to the Department of Transportation (DOT) to settle a charge that it violated a U.S. rule prohibiting foreign airlines from carrying domestic traffic.

Qantas admitted no wrongdoing in the March 28 consent order, but said it would pay the fine to quickly resolve the matter.

Under U.S. law, foreign airlines can only fly passengers between two domestic locations, a practice known as cabotage, if they then carry those passengers onward to a final destination outside the U.S.

The DOT said Qantas violated the rule in 2015 and 2016 when it marketed and sold itineraries from New York to Los Angeles, and then onward to Auckland and Papeete, Tahiti. Qantas flew the New York-Los Angeles segment, but relied on codeshare partners American and Air Tahiti Nui to move passengers onward to Auckland and Papeete, respectively.

"By holding out flights and transporting revenue passengers between two points within the United States and then placing those passengers on flights operated by other carriers for onward transportation to foreign destinations, Qantas engaged in unauthorized cabotage," DOT assistant general counsel Blane Workie wrote in the consent order.

Qantas, while acknowledging that it sold those itineraries, said it disagrees with the DOT's interpretation of U.S. regulations, which relies on a 1959 U.S Civil Aeronautics Board decision.

"This decision was made nearly 30 years before codeshares were used in aviation," a Qantas spokesperson wrote in an email. "Qantas believes that passengers travelling on a Qantas codeshare flight are Qantas customers, irrespective of the fact that they are travelling on an aircraft operated by a partner, and hence these itineraries do not represent cabotage."

The spokesperson also noted that Qantas quickly stopped selling New York-Auckland and New York-Papeete itineraries when the DOT raised concerns.

Qantas must pay half the $125,000 fine within 30 days and the other half within a year.

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