/ 30 June 2006

BA in new price-fixing probe

A tip-off from Virgin Atlantic led to the price-fixing inquiry into British Airways (BA), it has emerged, marking a return to the hostile relations that existed between the two airlines during the ”dirty tricks” campaign of the 1990s.

BA was plunged into crisis after it said last Thursday that the United Kingdom’s Office of Fair Trading and the Justice Department in the United States are conducting a joint investigation into allegations of price-fixing.

The Office of Fair Trading raided BA offices on June 13 and the airline has now suspended two of its senior executives, commercial director Martin George and head of communications Iain Burns.

It is understood that the investigation was triggered after an allegation that BA sounded out Virgin about plans to increase its fuel surcharge, an additional fee levied on passengers to offset the rising cost of oil. The aim would have been to gauge the likely reaction of rival airlines to any increase in the surcharge. According to competition law it is illegal to pass information on planned price rises to competitors, and Virgin subsequently alerted the fair trading office.

American Airlines, which is a partner of BA in the Oneworld Alliance, and United Airlines said they were both cooperating with US authorities, but each stressed they were not the target of the inquiry.

Last week Virgin said that it was aware of the investigation and was cooperating with the investigation, but noted that its offices had not been raided.

BA could face a fine of up to £850-million, 10% of its annual turnover, while individuals found guilty of breaking the law could face up to five years in prison.

A former head of the US Department of Justice’s transport section told The Guardian that BA could also be liable for vast sums in lawsuits from passengers if collusion is proven. American consumers can typically claim triple the amount of price damage they suffer.

Roger Fones, a partner at Washington law firm Morrison & Foerster, said: ”If it turns out there was an agreement among competing airlines, which is far from clear at the present, it could result in private class action lawsuits in the US on behalf of passengers for treble damages.”

American law claims jurisdiction over any collusion affecting US consumers. If the investigation proceeds, the Justice Department could set up a border watch to apprehend any of the executives involved on entry to the US.

The episode has echoes of the acrimonious ”dirty tricks” war between the two airlines. In January 1993, Virgin was awarded £610 000 damages after BA was found to have conducted an underhand campaign, which included hacking into Virgin’s computer system to get the names of passengers and then trying to get them to switch to BA.

BA had brought its own libel claim against Virgin and founder Richard Branson over allegations about its ”dirty tricks” campaign but the case backfired.

BA was also found to have fed disinformation about Virgin and Branson to the media in an attempt to undermine the company’s financial position and told its staff to shred sensitive documents.

The UK flag carrier apologised unreservedly for the ”injury caused to the reputation and feelings of Richard Branson and Virgin Atlantic” and in particular for attacking the ”good faith and integrity” of Branson. On top of the damages awarded to Virgin, BA also paid both sides’ legal costs, which were estimated at £3-million. — Â