BA in fuel surcharge investigation

By David Browne

LONDON (eTN) -- News that British Airways (BA) is under investigation for price fixing has sent shockwaves through the aviation industry. Britain's competition (anti-trust) regulator, the Office of Fair Trading, is looking into price-fixing but is focused on the fuel surcharge imposed by BA and other airlines on top of airfares.

The Office of Fair Trading (OFT) would not say if it had received a specific complaint or allegation and said that no assumptions of wrongdoing should be made as the investigation has only just started.

American Airlines and Virgin Atlantic said they were cooperating with the investigation but gave no indication about whether they too are implicated in price fixing. BA's fuel surcharge is currently £35 on a long-haul single journey; American Airlines surcharges £37 per single trip from the UK. American Airlines said today that it had received a United States federal grand jury subpoena in connection with a government investigation into alleged price fixing in the air passenger industry.

British Airways broke the news of the probe in a brief statement to the London Stock Exchange early on Thursday morning. Reaction was swift, and shares in BA dropped by 4.5 percent in value in early trading, as stock traders feared that if found guilty of price-fixing, BA could be fined as much as 10 per cent of its global sales revenue, which would have a serious impact on profits. Last month BA posted a full-year profit of £620 million, 21 percent up on the previous year.

The investigation could take months to complete, and the bad publicity is a severe blow to BA.

The seriousness of the situation was emphasized by BA's immediate decision to suspend its commercial director, Martin George and head of communications, Iain Burns. The airline gave no reason for the suspensions, but such action at the outset of an investigation is unprecedented.

In its statement, BA said, "The Office of Fair Trading and the United States Department of Justice (DOJ) are investigating alleged cartel activity involving British Airways and other airlines in relation to pricing of passenger air transportation, including fuel surcharges.

"British Airways' policy is to conduct its business in full compliance with all applicable competition laws.  British Airways is assisting the OFT and DOJ with their investigations.  Martin George, Commercial Director, and Iain Burns, Head of Communications, have been given leave of absence during the investigation."

The OFT would give no details of its investigation, but said that it was acting under both civil and criminal powers. Its civil law powers are in the Competition Act, which covers companies, and the criminal aspects arise from the Enterprise Act, which covers actions by individual directors.

A spokesman for the OFT told eTurboNews that they were "investigating British Airways about alleged price co-ordination by airlines in relation to surcharges on long-haul flights to and from the UK. The investigation is at an early stage so no assumption can be made at this stage as to whether there has been an infringement of competition law.

"The OFT will not be in a position to conclude whether the law has in fact been infringed until it has completed its investigations and assessed the available evidence."

OFT officers visited BA's head office on June 13. Earlier this year BA was caught up in an investigation by the European Commission about cargo pricing, along with Air France and the German flag-carrier, Lufthansa. That inquiry is continuing.  The price fixing investigation was welcomed by the low-fares airline Ryanair, which does not impose a fuel surcharge on its tickets.

"It is about time that British Airways' rapacious fuel surcharges were investigated," said Peter Sherrard, Ryanair's head of communications. "It is ridiculous that as the price of oil has doubled from $35 to $70 a barrel, British Airways has increased its fuel surcharge 14-fold. When British Airways collected more in fuel surcharges (£470 million) than its entire profit after tax last year something is clearly wrong."