British Airways (BA) has been fined £121.5m and $300m by the Office of Fair Trading (OFT) and the United States Department of Justice (DoJ) respectively for its part in fixing fuel surcharges on both passenger and cargo flights.
BA has admitted to the OFT that between August 2004 and January 2006 it colluded with Virgin Atlantic over the level of passenger ticket surcharges (which were added to ticket fares as a response to rising oil prices). The OFT has revealed that, during this period, surcharges rose from £5 to £60 on typical BA or Virgin Atlantic flights. BA also pleaded guilty to the DoJ for colluding with Virgin over levels of fuel surcharges on both passenger and cargo flights. Affected cargo flight surcharges increased from four cents per kilo to 72 cents per kilo between 2004 and 2006.
Part of BA’s admission is that on at least six occasions it and Virgin discussed or informed each other about proposed surcharge level changes instead of independently setting levels in accordance with competition law.
The OFT fine of £121.5m fine is the highest it has ever brought and the OFT’s chairman has made it clear that that the penalty was set at a level that ensures businesses are aware that the OFT will punish those who breach competition law. The OFT clearly also considers that high profile fines such as this will deter businesses and business leaders from engaging in cartel-like behaviour.
The £121.5m fine may initially seem high. Indeed, it accounts for just over 1% of BA’s group turnover. However, the OFT was entitled to levy a fine of up to 10% of worldwide turnover which, if it had done so, would have amounted to £850m. Businesses are likely to be wary of being saddled with such potentially crippling fines and will therefore wish to avoid being found guilty of forming similar cartels by competition authorities.
In addition to the high fines, it is worth noting the close cooperation between the OFT and DoJ and this is certainly something the OFT is likely to want to repeat in future. Where such successful cross-border competition authority cooperation takes place, the potential sanctions against infringing businesses and their personnel increase and the bad publicity becomes more widely spread.
Virgin Atlantic prompted the OFT investigation by coming forward with incriminating information. This means that it now benefits from both the OFT and DoJ’s leniency programmes and thereby avoids suffering competition authority sanctions. The OFT is clearly sending out a message of encouragement for businesses to blow the whistle on their fellow cartel members and enjoy immunity from financial penalties and from criminal sanctions (for their personnel). The OFT will be hoping to catch more offenders as a result.
As mentioned, BA’s fine deals with the administrative sanctions that it can suffer under the Competition Act 1998, but if BA employees fixed prices dishonestly they may also face potential criminal sanctions under the Enterprise Act 2002. Also, although the OFT has made it clear that BA’s admission that it has breached competition law does not imply that any such criminal offences were committed, it is still to decide on whether criminal proceedings are to take place. In the US, a judge is expected to uphold BA’s $300 million fine and decide whether the BA personnel involved will face criminal prosecution. If the DoJ does prosecute, these personnel could be extradited to the US and, if convicted, jailed or fined a sum that is unlimited in law.
BA’s Chief Executive Willie Walsh has admitted that BA staff breached competition rules. However, he has also claimed that the price-fixing did not lead to customers getting overcharged. Nevertheless, affected passengers have now brought a class action lawsuit in a San Francisco court against BA (as well as Virgin, United Airlines and American Airlines). They are also reported to be preparing a similar suit in London.
The message to other businesses is to be very careful that any pricing-related activities do not constitute infringements of competition law. If businesses do discover evidence of cartel-like behaviour they (following legal advice) may wish to consider whether it is appropriate to alert the competition authorities and attempt to get leniency or, if this is not possible, attempt to achieve a plea bargain. They will also need to bear in mind that plea bargain and leniency program arrangements with competition authorities go only so far and that private legal action from affected consumers appears to be increasing.
Sources: OFT press releases 113/07 and 114/07 dated 1 August 2007 available at www.oft.gov.uk