Steve Hawkes
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British Airways was fined a record £270 million today after an unprecedented transatlantic investigation into the illegal price-fixing of fuel surcharges on passenger and cargo services around the world.
In a damning verdict, the US Department of Justice this afternoon shamed BA as a “conspirator” and hit the airline with a $300 million (£148 million) sanction.
It came just hours after the Office of Fair Trading charged BA with a fine of £121.5 million, the biggest ever levied by the watchdog for a breach of UK competition law. Together the two fines total £270 million.
Willie Walsh, BA chief executive, spoke of his “deep regret” as the airline desperately battled to recover from yet another blow to its reputation.
Today’s verdicts followed a year-long investigation by authorities on both sides of the Atlantic into collusion between BA and Virgin Atlantic in setting fuel surcharges between 2004 and 2006.
A separate, parallel investigation has been continuing into the price-fixing of surcharges on freight services.
William W Mercer, acting associate attorney general at the US Department of Justice, said BA’s illegal activity had left American consumers “picking up the tab”.
He added: “Today’s enforcement actions demonstrate that the Antitrust Division will investigate and prosecute illegal cartel activity – here and abroad – in order to ensure that American consumers and businesses are not harmed by illegal cartel activities.”
Philip Collins, OFT chairman said: “This case, and the substantial penalty imposed, will send an important message to corporate boards and business leaders about our intention to enforce the law.”
He added that the fine would have been higher if BA had not admitted any wrongdoing.
Virgin qualified for conditional immunity from investigations on both sides of the Atlantic after blowing the whistle on the price-fixing.
Details revealed for the first time today showed that BA and Virgin corresponded regularly between 2004 and 2006 over when to increase their respective surcharges, introduced to cover the spiralling cost of jet fuel.
During the two-year period, the surcharge rose from £5 to £60 for passengers booking return tickets on long-haul flights.
Mr Walsh today insisted BA’s passengers had not been overcharged and said that fuel surcharges were a “legitimate way of recovering costs”.
But he added: “This does not in any way excuse the anti-competitive conduct by a very limited number of individuals within British Airways.
“Anti-competitive behaviour is entirely unacceptable and we condemn it unreservedly.
“We have a long standing competition compliance policy which requires all staff to comply with the law at all times.
“I am satisfied that we have the right controls in place.
“However it is deeply regrettable that some individuals ignored our policy.”
The OFT could have fined BA up to 10 per cent of its annual turnover – £850 million.
Shares in the airline fell 11.25p to 386.5p but City analysts insisted they were not concerned by the fines.
BA had already set aside £350 million to cover fines from the investigations.
Andrew Light, an analyst at Citigroup said: “This news is already fully priced in.”
BA said the OFT and the Department of Justice in the US were continuing their respective criminal investigations into the conduct of certain individuals.
The airline suspended Martin George, its commercial director, and Iain Burns, head of communications, a year ago and both men later left the airline.
BA and Virgin Atlantic first introduced a fuel surcharge on long-haul routes in May 2004. BA’s surcharge is currently up to £86 on long-haul return flights.
The US Department of Justice also today fined Korean Airlines $300 million.
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For VA, RESULT times 3.
1. I arrange to fix my prices with one of my major competitors several times. NO COMPETITIVE DISADVANTAGE!
2. After getting what I want from the cartel arrangement, I "shop" my "partner", and escape with a slapped wrist (possibly only after they stop fixing prices with me).
3. My partner/competitor gets a massive fine, materially affecting their business and reputation.
Which is more honorable - to inform to avoid punishment after committing the crime, to hold loyal to a dodgy agreement, or to trade off a penalty (massively affecting the free market) so you can "encourage" others to behave deceitfully? Who would you rather trust - BA,OFT,DOJ,VA? What a bunch! BA might actually have behaved most honourably from this lot!
What is the OFT about? Did VA only shop BA when they stopped participating in a cartel?
Mike, Bristol,
Just done an internet search for a return flight to Miami next week at identical times, give or take 10 minutes,with BA and American Airlines. The AA flight is £200 more expensive , and the US Justice Dept have the nerve to say that BA have committed a crime against US citizens! But then again, if you book the flight in the US its probably cheaper , so isnt that AA committing a crime against UK citizens????
Gary , Weybridge, UK
Dear Sir,
I agree with your previous correspondent, Andrew Fox, what does happen to the £121.5? Is it donated to good causes (anti global warming measures, perhaps)? Or more probably , does it disappear into the ever more greedy maw of HM Treasury?
David Gillingham, Westbury, UK
As a BA employee we at the company find it very regrettable that this had happened. As a business we have overcome many struggles of the past few years and have all worked extremely hard. It's a shame that higher management were allowed to do this and damage the reputation of such a successful brand. It was also surprising to see that Virgin were able to get away with it.
Also i would like to point out that the increase in fuel charge also affected all the staff of BA, who also had to pay out for the increases and were not aware of what was going on.
Finally just like to remind the public that the everyday staff of British Airways do care for our customers and we are all disappointed by the actions of our previous senior directors.
Bhav, London, UK
I think it's outrageous that Virgin have escaped scot-free. They were party to the wrong-doing and only turned state witness after it was clear an investigation would occur. Yet their reputation and profits remain unscathed, despite their customers suffering as much as BA's.
They are no better than BA and should volunteer to stump up half the cost of the fines.
Hang your head in shame, Sir Richard!
Louise, Gerrards Cross, UK
This just shows the inevitable consequence of the law accepting the "corporate veil". Until managers find themselves at serious personal risk, personal fines and/or jail time, from behaving illegally on behalf of their employers then they will continue to do so since ,if they get away with it, it's all upside to them; if they don't then in all probability it'll be swept under the corporate carpet anyway.
'Once upon a time' it was reasonable to assume corporate execs would behave with at least a reasonable level of honesty and integrity, now that appears to have gone completely out of the window. If you can get away with it, that's fine is the new motto. Would it be too cynical to suggest that it's related to the ever increasing amounts of money that execs get paid? Break the law, bank a huge bonus. Let's face it, is there any serious risk that you'll ever be held personally accountable?
About time the law caught up, all power to the ongoing criminal investigations ...
E Burgess, Slough, UK
I think that although BA was fined the money could be used for something useful,like going into their heavily underfunded pension scheme! But no doubt the fines will just line the pockets of both the UK and US govts to be spent within a black hole in the system like the NHS. Although it is correct to fine the companies involved because they breached corporate law, all should be held responsible and dealt with accordingly.
Furthermore I beleive that Virgin should have been fined as well since both BA and Korean airlines were. Virgin were involved and irregardless of them notifying the OFT they committed the crime of cartel and collusion, they should also receive fines as punishment, otherwise they might as well do it again, own up and get away with it!
All as this shows is that unless someone confesses to collsion and cartel it is highly possible that those taking part will never be found out. This goes to show that the law works but there are loop holes- in this case virgin.
David. W, Southampton,
Branson and Virgin have been saying all along BA is up to no good; here is the proof. Refund customers, don't give the money to the politicians; they will just use it to produce more arms to export to the Middle East so that "peace" will follow. What a crock.......
GK, Calgary, Canada
BA customers get ripped off, and the UK and US Governments profit from it. Brilliant!
Bob, Wirral, UK
Having travelled several times during this period at over inflated prices with BA I'm with Frank, give the money back to the customers!
Helen, Hamilton, Bermuda
Would OFT keep that money or can passengers claim refund?
D.Stedman
d.stedman, london,
England has the strategy to deal with any Australian who is unfortunate enough to try to compete with this skilled attack on our good behavior and sportsman like approach to a somewhat exhaustive sport of TRYING to track down your bags.
Just listen to what the talented and multi traveled David and Deborah Pank from Sydneyâs Darling point have to say. âIt has been three weeks now and during that time we have had one proactive approach from BA and that was where we had to log on to a website and find out that they have found our bags but they are in Italyâ¦We came to London from New York so I have no idea how they got to Italyâ says a desperate Australian David.
Apparently Londonâs Heathrow is a mess. BA have strict recruitment guidelines to make sure that any baggage handlers have passed the grade prior to being employed however these security guidelines are making it impossible for Heathrow to cope.
Sarah Pank, Paris, France
And who exactly is this fine going to, the customers affected?
I doubt it.
Benjamin, Manchester,
Virgin has taken part in an illegal price cartel and has then grassed up BA when it looked as though they would be found it. There is no honour amongst thieves! Do we want to use a carrier that can't even be dishonest honestly?
Frank Upton, Solihull,
I'd rather swim the Atlantic than fly with BA.
Mike, Jacksonville, NC, USA
Both airlines have behaved with total contempt to their customers...I do have to ask though is it fair that Virgin Atlantic seems to have got away with it just because they blew the whistle? How much did Virgin profit from the scam?...and please dont say they were responsible in coming clean for the sake of fairness...the thought of this coup against their old enemy must have been irresistable.
a dearden, brighton, uk
So Virgin gets off and BA gets a large fine. For the last 10 years I have taken summer trips to Boston and BA has consistently been the cheapest of all carriers for transatlantic economy fares. It seems to me like Virgin needs to fix the prices more than BA, and then goes to the competition authorities purely as a means of gaining some competitive advantage.
I'm not condoning BA's behaviour but time and again BA is held to higher regulatory standards than any other airline. There are aspects of this that stink. Plea bargaining and its equivalents carry a very high moral hazard.
al, london,
So Virgin were involved for two years and THEN blew the whistle?
This stinks. BA behaved execrably, but Virgin turned them over and played the system after they had enjoyed two years worth of this activity.
Which is worse?
Roy Ellor, Salford, UK
The fines should be in the form of rebates, if anything.
I've flown a lot with BA recently on the trans atlantic route. There service is the cheapest I could find, So I can't complain.
adam, leeds,
who gets the money ?
michael a suttle, bray, ireland
Gosh, I should think that the money for the fine ought to go to the passengers who were the actual "victims" of this scheme.
Roberto L Tanizaki, Manila, Philippines
It just adds to the sorry list of unscrupulous and narrow minded business practices that BA have indulged in over the last 40 years! For the UK's national airline it's a National Disgrace! But as long as investors make money the government will look the other way!
Rik Lambert, Letchworth, UK
One cannot help comparing this huge fine, imposed for a commercial misdemeanour, with earlier penalties for those with responsibility for rail crashes and associated deaths and injuries.........
Tom Read, Colchester,
'Twas ever thus! Why the surprise - they have been colluding for years. The four carriers who operate from Heathrow to JFK have always fixed their fares. Have a look at the quoted prices for, say, a return LHR/JFK for 14 - 21 November.
BA £257.10
Virgin £256.90
United $534.60 (£260.78)
American $527.70 (£257.41)
Competition? Don't make me laugh!
Dennis, Bordeaux, France
Serious look & concerned brow from Willie Walsh. He should resign. It happened on his watch. Does no one take responsibility any more. Doesn't his staff know that price fixing & collusion is illegal. However companies will always chance that they can get away it while we pay.
Willie will just jack up more fuel charges and us mugs will pay again.
This investigation happened in the US. Hello Serious Fraud Office maybe the same thing is happening in the UK? Doh!
William, Dubai, UAE
Who gets the £270Million, and what do they do with it?
Charlie Dobson, Bristol, England
BA's reputation for punctuality, service and almost everything else has sunk in recent months. Could its unethical practices and company performance by any chance be related?
Ted, Rome, Italy
Until individuals are at threat from losing their freedom and being banged up, price fixing and many other corporate crimes will go unchecked within the UK. Why punish the workers or shareholders of a company when its just a few corrupt executives that need to be punished heavily with either a few years inside or a severe personal fine. Only then will it focus the minds of these crooks.
Mike, Alicante, Spain
Just out of interest, where does the money from these huge fines go? Who gets it? Is it shared equally between those passengers that have been ripped off (presumably records are kept?), or does it go in someone elses pocket? If so whose pocket does it go into? It would be interesting to find out wouldn't it!
T. Bishop, London, UK
These latest fines come as no surprise. My parents recently flew on a BA flight from Australia to Paris via Heathrow, only to receive their lugagge one month following their arrival in Paris.
Further, they received no service thoughout the ordeal. The only contact they had was from a baggage handler who confirmed that Heathrow was in a state of chaos and thousands of bags were being flown to Milan, Italy to be dealt with there.
It was only when my father physically went to the Paris warehouse that he found the luggage sitting in a pile. My parents are lucky that they happen to be spending several months in Paris- just think of most who come to Paris for a few days or a few weeks.
The following press release was published regarding the incident.
Sarah Pank, Paris, France
So what happens to the £121.5m?
Andrew Fox, London, UK
They should have been fined the full 10%, the proceeds of which should be invested in research into clean fuel for air travel
Mike, London,
Instead of fining BA why did the regulator not require BA to repay the surcharges to customers? Those are the people who may have suffered from the collusion, not the regulator.
N Reed, Truro, UK
It makes you wonder why anyone would willingly choose to fly with BA. With their price-fixing, extremeley poor recent record on industrial disputes, poor relations with BAA and the abysmal state of luggage handling, the only soilution is for customers to boycott them.
opinionated, London, UK
The fine should be given back to the customers, not the Governmenr.
Frank, Swindon, UK
Where does the money come from to pay the fine - passed on to the customer via increased charges? Fining large corporations simply increases costs to the consumers. Jail time for for board members would be preferable and more effective.
Lee Wilkins, Darien, Connecticut