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British Airways was fined a total of £269 million for conspiring to fix the price of air fares yesterday but the airline could be forced to pay out millions more to passengers seeking compensation.
The Office of Fair Trading (OFT) fined BA £121.5 million for anti-competitive behaviour, the largest penalty it has levied against a single company. The US Department of Justice (DOJ) fined the airline a further $300 million (£147 million), the second largest anti-trust penalty it has levied.
These fines could be dwarfed by compensation demands from passengers and companies who have paid higher fares because of BA’s actions. British passengers are understood to have signed up to a class-action lawsuit that has been filed in the US and a further legal demand for restitution is expected to be filed in a London court this year.
The charges against BA relate to two instances of price fixing. In the first, BA and Virgin Atlantic discussed the amount they would charge customers to cover increases in the price of fuel. These “fuel surcharges” were introduced in 2004 and, over a period of 18 months until early last year, the two airlines colluded on the level and timing of increases to their surcharges.
Virgin’s lawyers blew the whistle on the illegal arrangement last June and police raided BA’s Heathrow headquarters. Through its actions, Virgin has escaped prosecution in Britain and the US and saved itself hundreds of millions of pounds in fines.
Martin George, BA’s commercial director, and Iain Burns, the communications director, resigned last year over the affair. Both are under criminal investigation by the OFT and US Department of Justice and could face prison sentences if found guilty.
Although BA has now settled with government regulators it still faces the anger of passengers who feel the airline defrauded them. BA and Virgin insist that customers did not financially lose out. The airlines say that the fuel surcharges rose because of increases in oil prices and the illegal discussions they had were only on the timing of announcements. The OFT and DOJ rejected that argument. Simon Williams, director of cartel investigations at the OFT, said: “The law is built on the assumption that all cartels have an anticompetitive effect and operate at the detriment to consumers.”
Scott Hammond, the Deputy Assistant Attorney-General of the United States, said: “Would a company risk these sorts of fines and continue to participate in a conspiracy that had no beneficial effect? I suggest that defies common sense.”
Lawyers are preparing class-action lawsuits against BA and Virgin to demand compensation. Cohen, Milstein, Hausfeld & Toll, a Washington DC-based law firm, has lodged a lawsuit in a San Francisco court and is preparing to bring a similar claim to London.
Virgin admitted yesterday that it had received a passenger lawsuit in the US and was in talks to settle it.
The second case of price-fixing relates to fuel surcharges for carrying cargo. This is a far wider investigation that covers about a dozen airlines in the US, Europe, Asia and Australia.
Willie Walsh, chief executive of BA, said: “Fuel surcharges are a legitimate way of recovering costs and when set independently do not breach competition law. I want to reassure our passengers that they have not been overcharged. However, this does not in any way excuse the anticompetitive conduct. This . . . is unacceptable and we condemn it unreservedly.”
BA was also revealed last night to be the worst large European airline for losing bags and is forecast to lose 1.3 million bags this year, according to new figures.
Research by the Association of European Airlines showed that the airline lost 28 bags per 1,000 between April and June compared with an average of 16 for other operators. The figure is nearly double the number lost by the airline in the same period last year.
Air passenger groups suggested that the problem would get worse as the summer holiday season continued. Andrew Dodgson, a spokesman for the Transport and General Workers’ Union, said that part of the problem was that the airline was taking its workers off duty to train for the new baggage systems at Terminal 5, which is due to open in March.
Up, up and away
2004
May BA and Virgin introduce a £2.50 passenger fuel surcharge (PFS) on
long-haul flights
August BA tells Virgin it will increase surcharge to £6
October 8 BA announces increase to £10, Virgin the same
2005
March BA tells Virgin it plans to increase PFS to £16. Virgin confirms
to BA matching increase
June BA tells Virgin its PFS will rise to £24. Virgin announces
identical increase
September Virgin informs BA it “is likely” to increase its PFS to £30.
BA matches it
November 18 Virgin informs BA it is about to announce a cut to £25
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Who get's the fine money?
How about refunding it to the passengers that were overcharged.
people, LA,
what I'd really like to know is what happens to the nearly $600 million in fines to DOJ an GB? Seriously-- how does a country ever have a debt when you have the option of fining a private corporation hundreds of millions?
And in all frankness-- what happens to the money? Or does it ever actually change hands? Symbolic action should be left to the symbol-minded.
Nick, Rancho Cucamonga, CA
I still think that virgin should have been fined, even though one person said if the wistle blowers are fined they will stop blowing the whistle 'no they won't' some people think differently to the ordinary peson in the street, and would still tittle tattle because they always have,
maybe it is the new american way of thinking ' or have they forgot' 'didn't they take us all for a very expensive ride in the last war, they did not charge the Russians French or the Germans the way they charged Britain, allies 'balderdash', with friends like these who needed enemies, they nearly bankrup us and their country boomed
Margaret, South Yorkshire, Great Britain
The OFT has gone well over the top as the punishment does not fit the crime. The PFS does not seem too much considering the volatile state of the oil market. Okay so there was collusion between BA and Virgin. Surely fining both companies say £1m would have been punishment enough.
What is more amoral is what I term as legalairres disease where parasite lawyers are about to make a killing.
The OFT would be better employed spending time on the feudal leasehold system where home purchasers are being ripped off by a feudal law that dates back to the middle-ages. Young first time buyers and elderly purchasers of private leasehold retirement homes are victims of this antiquated law, but you can bet that the OFT will not touch this with a barge pole.
Denis Knowles, Maidstone, Kent ME18 5BL
I agree with Mr Redmore. Both BA and Virgin advertise these "great special fares" from the US to the UK but after all the added surcharges it's a good $200 - $300 more than advertised. A rip-off.
Anita, NY, NY
If the OFT started fining the whistle-blowers (e.g. Virgin), then they would stop blowing their whistles (that is why Virgin has not been fined).
Mark, Bristol, UK
The GB/USA love in is rape it seems.
All the problems with jets and they hit UK like this not the bloody Arabs and 3rd world expansionist ruining the whole planet.
The American advisers to the Bank and FTSE are always wrong as was the Chrysler of the 1970 era: famous Tilling Stevens diesel given to Japan with future developments known when transport costs up from 100km to half way around the world; UK development for B,C cars given to Simca France making a Capital loss of £10 million and future manufacturing in UK decimated etc; Scots and Jacobite's given expensive Linwood Plant by Irwin and later Irwin-Singer as solicitor in Oxford who belies actions are time limited not a right in long term law; Iran cars as Kyami negotiated by Roots and then Taken over by D Howard as MD to build Hillman and other UK cars with revo against Shah en Shah and start of present wars; the alkida attacks with Jets hijacking and other terrorists and USA hit UK and airport with suicide pilots.
Dr MI Barton MA. MBA, Oxford, UK
Are we to believe that the prosecution of BA is simply motivated by a desire in the US for keeping the law? Isn't it more likely that the US authorities want to hammer non-American competition with tiresome, expensive and debilitating law suits? And how convenient for Virgin! This must now become a business ploy: enter into an agreement with a rival to break the law, and then blow the whistle, escape scott free while allowing the rival to face the dire consequences.
Bill, Doncaster,
I agree with Gordon Moore - ok, so Virgin came clean first and voluntarily, but getting away with it vs £270m is a bit too much of a difference. Surely Virgin should suffer by at least 50% of the BA fines? I'm glad I don't have any shares in BA - but I find Virgin's behaviour in some ways even more despicable.
Duncan, London,
Let me see if I've got this right.
If you don't like a competitor you come to an illegal agreement with him, shop him to the regulator, and then walk away laughing as your competitor is fined.
Neat!
Mike Bibby, St Albans, England -not EU
I travel often by air and often to /from US as an economy passenger of both airlines ,I feel that fuel surchases are reasonable things to expect when fuel prices escalate as they have, the ony thing BA and Virgin did was to try and have their charges in some sort of harmony.
The question, surely is, was the amount reasonable. Any refund should be based on that criteria .
Roger Weeks, Colchester, essex
In reply to Geoffrey who asks how Ryanair manages to make profits without fuel surcharges - well don't be naive - Ryanair applies a number of surcharges for baggage, food, drink, wheelchairs, assigned seats etc that you don't pay on BA.
In addition Ryanair has the worst working conditions in the airline industry. If you join Ryanair as a pilot or Cabin Crew you pay £50 to apply, then pay if they interview you, then if you're a pilot you pay for the sim check, Finally you pay them an inflated fee for training you to fly a Boeing (currently £23 500) then buy the uniform (£350), they don't provide staff with any catering or water at work and if you join them as a pilot you earn £8000 a year in yr 1. Ryanair crew are worked to the limits of the law on hours and the appalling pay on offer means that many of the pilots who join are tired Eastern Europeans of mixed nationalities on the Flight Deck and a poor command of English. I'm an airline pilot and I wouldn't put my family on Ryan.
Josh, London, England
Virgin Atlantic are as guilty as BA, and should also be fined but not the same as BA but more. They made the deal but decided to blow the whistle so can, MR. Branson be Trusted ?this is not the first time his companies have been involved in something like this. Once again the poor traveller has to pick up the tab.
No doubt the fine will be paid by the passengers through some other hidden CHARGE.
Bill Ewing, Dundee,
While I agree that price fixing needs to be punished when proven, I feel that this fine levied against BA is much too severe when compared with the Virgin 'let-off' in return for snitching on there rivals. I see absolutely no reason for Virgin not to be fined, it could of course have been a reduced sum in return for cooperation. The focus of media attention is rightly (to an extent) on BA, but lets turn the spotlight on Virgin for a while as they were far from an innocent party in these proceedings.
Steve, Folkestone, England
What about Virgin Atlantic? They are every bit as guilty as BA in all of this. It seems they've gone running like a child at school to tell teacher and somehow that absolves them of responsibility? The rules on 'whistleblowing' in these affairs seem to be unfair just like the price-fixing in the first place.
Geoff, Belfast, UK
Could somebody please explain how Ryanair manages to make profits without a fuel surcharge? Is Ryanair's management simply better at hedging against future fuel costs? Or does Ryanair's might and size now enable it to buy the same fuel at cheaper prices? Ordinary passengers can only wonder at this.
Geoffrey, Belfast, UK
So what!
It sounds to me as if BA and Virgin were co-operating.
I can't believe the fuss.
Carl Teper, Jerusalem, Israel
This whole business is riddled with what I term as legalairres disease, which is rife in America, where ruthless greedy lawyers are making a fortune out of easy-picking law suits. The fuel charges compared with the cost of a flight ticket is not that enormous to justify such financial punishment and everyone knows that oil prices are volatile. Of course price fixing is wrong, but the punishment does not fit the crime. There are many areas affecting ordinary consumers that the OFT would do better investigating such as the feudal leasehold system that exists only in England and Wales where buyers of newly-built flats pay more for their property than freehold and yet do not own it. Moreover they continue to pay ground rent. Put this before the OFT and they will run a mile rather from it rather than pursue it.
Denis Knowles, Maidstone, Kent ME18 5BL
It is clear that neither BA nor Virgin can be trusted to set ticket prices. It is certainly time for government price limits to be set on all key routes, with ticket prices set by a parlimentary committee. When private control fails, public control must start.
Vincent Murphy, London, UK
It is disgusting practice that Virgin have essentially been 'let off the hook'. It should not matter who told on who what matters is that what BOTH companies were doing was against the law!
Lucy Martin-Davis, Lincoln, UK
So how do we get our money back?
keith wallis , hong kong, hong kong
Can someone explain why Virgin are being allowed to walk away laughing from all this?
In a criminal case, turning Queens Evidence or supergrass would get you a reduced sentence from the judge. Here they seem to have been handed their ideal outcome of a couple of years benefitting from the same scam as BA, and then walking away to watch as their rival is hammered.
I certainly will never contemplate using Virgin Atlantic after this hideous affair. Branson must be gurgling with delight in his tax haven hideaway.
Roy Ellor, Salford, UK
I totally agree with Mr Moore. Why have Virgin not been fined as well? They are equally as guilty of price-fixing, they admitted to it! Just because they blew the whistle on BA eventually, doesn't mean they shouldn't escape some form of punishment. They ripped off their customers just as much as BA did to theirs!
Matthew Burton, Peel, Isle of Man
I'm delighted that BA has been fined and even more so that Richard Branson dropped them in it.
I worked as a stewardess for Pan American in the 60s and Flight Attendant supervisor for US Air in the 80s. I made it a point to fly home one time on BA and was appalled at their arrogant, bored in-flight service. There was absolutely no eye-contact with the passenger let alone a smile.
Freddie Laker was put out of business by BA and I've figuratively cheered Richard Branson from the sidelines every step of his way to success.
Angela Taylor, Aldeburgh, Suffolk
Should we regard BA as an innocent victim of the actions of a few rogue employees ? As Mr Walsh, predictably, would have us do.
Or should we view it in the light of BA's past and present form on the subject. BA has also currently been fined for colluding with another carrier on cargo rates. Additionally, it has a history of dirty tricks. BA was obliged to pay Virgin £600m in a previous scam. And its part in the demise of Laker, Dan Air and BCal cannot be overlooked. Nor its predatory pricing after securing monopoly or near monopoly positions.
He protests too much, me thinks.
Ubi, Edinburgh, UK
Who is ultimately going to pay this fine of £269 million? The BA passengers will pay this as fares will increase to cover the cost. What is the Office of Fair Trading (OFT) going to do with the fine money it receives (£121.5 million)? Probably pass it to the Government. What has actually been achieved here? Absolutely nothing.
Tony Gratton, Larnaca, Cyprus
I shall never fly BA or Virgin ever again. Both Airlines deserve to have their licences revoked. Both should be put out of business.
This is a disgraceful and thoroughly venal action on the part of the Airlines. It should not be tolerated.
David Michael, London, UK
I just cannot understand why Virgin are not brought to task over this price fixing business. If would have been the other way around were BA had blown the whistle do you think Branson would have reacted defferently. Oh yes!!
Gordon Moore, Glasgow, UK
I wonder if fuel surcharges are the only areas of anti-competitive behaviour by these companies. A recently introduced London / Nairobi service by Virgin charges $999 for the cheapest economy return, BA charges $1000. When all surcharges are added the fare on both airlines is majically $1270. Possibly other routes have similar coincidences?
Richard Redmore, Nairobi, Kenya