British Airways fined $550 million for fuel charge collusion

British Airways fined $550 million for fuel charge collusion
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First Published: Wed, Aug 01 2007. 09 06 PM IST
Updated: Wed, Aug 01 2007. 09 06 PM IST
Jill Lawless / AP
London: British Airways PLC was fined almost $550 million (euro400 million) on Wednesday by US and British regulators after the airline admitted colluding with rival Virgin Atlantic over fuel surcharges on long-haul flights.
BA was fined 121.5 million pounds ($246 million; euro180 million) by Britain’s Office of Fair Trading and $300 million (euro250 million) by the US Department of Justice after parallel trans-Atlantic investigations.
The US Justice Department also levied a $300 million fine on Korean Air Lines Co. Ltd for colluding with competitors to fix fuel surcharges on cargo shipments to the US and fixing some passenger fares from the United States to Korea.
It said both airlines had agreed to plead guilty to price fixing.
In addition to the fuel surcharge fixing, US officials said BA and Korean Air Lines were involved in a conspiracy with German carrier Lufthansa AG to fix charges for international cargo shipments.
The Justice Department said Virgin and Lufthansa would not face sanctions because they had come forward to authorities.
“When British Airways, Korean Air and their co-conspirators got together and agreed to raise prices for passenger and air cargo fares, American consumers and businesses ended up picking up the tab for their illegal conduct,” said Acting Associate Attorney General William W. Mercer.
British Airways said it accepted the penalties. In May, it set aside 350 million pounds ($710 million; euro520 million) to pay for any possible fines as a result of the investigations.
In a statement, BA admitted that between August 2004 and January 2006 it colluded with Virgin Atlantic over the surcharges, which were added to fares in response to rising oil prices. Under the Office of Fair Trading’s leniency policy, Virgin Atlantic is not expected to face a fine because it reported the alleged misconduct to authorities.
BA Chief Executive Willie Walsh said passengers had not been overcharged, but acknowledged that a “limited number of individuals” in the company had broken competition rules.
“Anticompetitive behavior is entirely unacceptable and we condemn it unreservedly,” he said.
Authorities in Britain and the United States have been investigating allegations of price-fixing on fuel surcharges since June 2006. A criminal investigation continues.
Over that time, fuel surcharges rose from about 5 pounds ($10; euro7.40) to about 60 pounds ($120; euro90) per ticket for a round-trip long-haul flight on BA or Virgin.
Two BA executives — commercial director Martin George and head of communications Iain Burns — went on leave after the inquiry began, and later resigned.
OFT chairman Philip Collins said the fine — the largest ever imposed by Britain’s competition watchdog — “will send an important message to corporate boards and business leaders about our intention to enforce the law, and serves to remind companies of the substantial risks involved if they are found to engage in such behavior.”
The office found that BA and Virgin discussed proposed fuel surcharges on at least six occasions over the year and a half to January 2006. Soon after that, Virgin went to the authorities.
In a statement, Virgin said it had informed regulators “as soon as our legal team was made aware of the nature of contacts that had occurred between some individuals at British Airways and Virgin Atlantic.”
Deborah Jones, deputy director of cartel investigation at the Office of Fair Trading, said it was fair to treat Virgin differently because it had come forward first. She said that did not mean Virgin was getting off scot-free.
“Virgin are still facing the censure, the publicity that they have engaged in this behavior,” she said. “They are not immune from customers who may seek some form of compensation.”
BA shares fell 1.2% to 393 pence ($7.98; euro5.83) on the London Stock Exchange.
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First Published: Wed, Aug 01 2007. 09 06 PM IST