GEXPO

LONDON (Reuters) - Britain's Office of Fair Trading said on Thursday it had fined British Airways 58.5 million pounds for price fixing in relation to fuel surcharges, imposing a penalty that is less than half that agreed in August 2007.

The case against British Airways, which colluded with rival Virgin Atlantic in pricing surcharges on long-haul flights, has been a long and tortuous one for the consumer watchdog after it lost a 2010 criminal case against four BA executives.

In an original deal struck in August 2007, BA had initially agreed to pay a fine of 121.5 million pounds for anti-competitive practices that took place between 2004 and early 2006. The OFT said the reduced penalty announced on Thursday reflected recent case law in calculating fines and the level of cooperation shown by BA since 2007 in particular.

"This decision brings the OFT's investigation to a conclusion," the OFT said in a statement.

Virgin does not face a fine because it reported the case to the watchdog in the first place.

From: http://www.nytimes.com/reuters/2012/...t.html?_r=1&hp

Also: http://www.guardian.co.uk/business/2...?newsfeed=true

Wonder if this means anything for the fuel surcharges.

Wonder if people's trust in BA is diminished by this.

boadh398

Beardy's lot should have been fined for wasting the regulator and courts' time.

It is impossible to sell absolutely fully flexible (all airline) fares without some kind of agreement on structure. It is unreasonable not to discuss this amongst airline companies, and it is also unreasonable not to agree a surcharge rate. This is not price-fixing in the traditional sense, but its impact will filter down to non full fare tickets.

An intelligent lawyer could have put foward a good case, and an experienced regulator should have been able to understand without penalising any party.

The fact that Virgin have got off without any fine for "reporting" BA is just ludicrous. This should have been referred to the competition commission in order to point out that Beardy was doing this and creating an unfair balance.

In fact for even "reporting" what was an industry standard and was a requirement for the aforementioned fully flexible all airline fares, Virgin executives should be prosecuted.

Flying Bat

Yes the fuel surcharge news is interesting topic.
Four questions.

I wonder which executives would be vulnerable form these illegal activities?

Is there any possibility airline involved with anything similar now? I suppose this question reflects the fact that the airline has the highest surcharges of any carrier, this does not seem like a good thing.

If the airline hedges jet fuel price risk, is it simply the case that it passes on the financial fallout where it's hedges have failed to work either properly, or sufficiently?

If it's hedging practices do show positive financial gains, do consumers enjoy any benefit, in the same way as they suffer the disbenefit of poor results form the fuel price hedging? Or do the executives just enjoy the fact of hedge profits falling to the bottom line for a windfall?

ColdWalker

That's one big, big fine!

dddc

No. People are like sheep. They soon forget or if not, someone new comes along that hasn't heard about it. Has the "Dirty Tricks" campaign when VS started stopped people flying BA? Has all the negative publicity about Ryanair stopped people flying them?

Maybe this was payback by Virgin for the "Dirty Tricks" campaign!

Dave Noble

Reporting that which has been proven to be criminal to the regulator is now wrong somehow or is it because BA got penalised and BA can do no wrong?

Airlines are COMPETING companies, not some nice cabal who are allowed to agree prices between them. There is no excuse for colluding on fuel fines and is a form of price fixing

boadh398

Wrong in the no exuse point. Fare structure J2BA = CW only on BA metal or codeshare with BA flight number, however Fare structure J1 (admittedly not a return) allows travel open-jaw and on any operator on the same route.

So given that out of London BA and Virgin were sharing routes (not in the friendly sense), in order to be able to sell a J1 fare, and not surprise a customer with an excess for moving from one metal to another, the prices have to be agreed.

What either airline does for its other lower cost fares should not be discussed but it can be inferred that if I must charge all CW passengers in this example the same fuel surcharge, it would follow that both Virgin and BA were doing the same.

In essence someone has decided that a necessary industry practice is illegal and criminal (?) however I never read that anyone tried to defend the practice for the reasons stated above.

IMHO BA can do wrong and have done, however Beardy's lot can do no good. Take the fact that the settlement from Virgin for nearly being electrocuted was measly and dismissive as just one case in point, and you'll start to understand. I can't remember the last time BA tried to electrocute me (oh that's because it has never happened )

baggageinhall

Two people commit an armed robbery. A few days later, one decides to go to the police and confess. He gives full details of the other person’s involvement.

Both will be prosecuted. The person who confessed pleads guilty. The other party realises that with his co-accused giving evidence against him, he will almost certainly be convicted and pleads guilty too.

The person who helped the police will received a lower sentence than the other to reflect his assistance in convicting the other.

Taking us back to this case, the fact that Virgin received absolute immunity does, for some, stick in the craw. They benefited from the illegal collusion but by going to the regulator, they kept their gains and suffered no penalty.
Both should have been fined but Virgin to a lesser extent for their assistance. Today’s news simply shows that the OFT have recognised the change in case law. The principle (wrong in my view) of punishing one but not the other hasn’t changed.

albpenny

With all due respect, you have completely missed the point. BA and Virgin were discussing future fuel surcharges in general (not as part of a particular fare structure). By discussing such commercially sensitive information, the uncertainty on the market was reduced - there was no incentive for either party to reduce fuel or other surcharges, as each knew that the other would keep the price at a certain level. I am not sure why you can't see that this is detrimental to consumers as they would continue to be charged higher charges as the parties were not, in effect, competing.

In terms of coordinating fare structures, this is fine (and not the issue here) provided it is done within the terms of the law, ie that the parties do not discuss future behaviour. Agreements along there terms would lead to clear consumer benefit as the passengers would be able to fly any airline with that ticket - it is similar to bus tickets, where different bus companies honour a competitor's ticket.

The OFT's leniency policy is in place so that companies whistleblow when they discover that their employees have been infringing competition law. the first company to come forward and report a cartel will usually get 100% leniency - it is an incentive firstly to report illegal behaviour and secondly to comply with OFT requirements throughout the procedure. The chances are that this cartel would have continued had Virgin not come forward, or else maybe BA would have blown the whistle. It's the price companies pay for and a risk they take when engaging in illegal behaviour. Virgin didn't get off scotfree in any sense - their legal fees would have been enormous and they now face class actions from affected passengers.

Finally, in relation to criminal liability, the OFT has tried and failed to bring criminal sanctions against BA directors, but the action failed in 2010 as a result of lack of evidence - the cartel offence requires that the OFT proves that there was dishonesty, which is actually quite difficult to prove as ultimately the directors are very unlikely to have know what was going on lower down the chain.

albpenny

This isn't caselaw at all, it's European policy, and the vast majority of jurisdictions have a form of "immunity". Leniency is not guaranteed though and the OFT (and other regulators) can remove it if the companies do not comply with the investigation's procedures etc. Also, it requires an admission of guilt, which means that those affected can bring damages actions.

NickB

This is a pragmatic principle, reflecting the difficulty of obtaining evidence of anti-competitive collusion. You have a choice: stay high and mighty on principle and allow vast numbers of anti-competitive practices to flourish and be undetected or you can bring some to light and therefore bring them to an end at the cost of letting some perpetrators unpunished.

If what is more important to you is to eradicate as much as possible anti-competitive practices, and this surely has to be the main aim of competition law, then the "cost" of letting some illicit behaviour unpunished has got to be worth it.

If, on the other hand, what matters most to you is moral principle regardless of its consequences on society, if you are willing to accept more breaches of competition law to the detriment of consumers for the sake of moral principle, then it would follow that you are likely to regard such a system as flawed.

PanGalactic

Probably means they will go up in order to help them pay the fine!

GUWonder

Good luck with trying to raise prices above what the market is already willing to pay.

If raising fuel surcharges is what BA does merely because of this and gets away with that, then that would be an indication of BA having already failed to maximize revenues sooner than later.

albpenny

BA was originally fined in 2007 and so will already have provided for the penalty. As today's fine is actually a reduction of the original 2007 penalty, they will have approx £60m in provision that won't be used for the fine.

I think you can rest assured that if BA do raise fuel surcharges, it won't be as a result of needing to pay the fine.

Globaliser

This is such old, old, old, old news. It's been thrashed out and rehashed over and over again, here and elsewhere.

The only real news in this is that after what was discovered during the criminal prosecution, BA has secured such a significant reduction in the penalty. It's not clear from what's been said whether and to what extent those discoveries played a part in this decision, but IIRC they did play a large part in BA's decision to try to secure a reduction in the number that they had actually already agreed to.