British Airways at Centre of Price Fixing Investigation

Strategic Insights -

British Airways is at the centre of a growing scandal involving alleged price fixing on long-haul flights to and from the UK. The airline has suspended two senior executives after a raid on its offices by the Office of Fair Trading (OFT). The investigation, a joint effort between the OFT and the US Justice Department, is focusing on ticket prices and the fuel surcharges added to offset rising oil costs. If BA is found guilty, it could face fines of up to £850m.

Key Takeaways:

  • The investigation is a joint effort between the UK's Office of Fair Trading and the US Justice Department, focusing on alleged price fixing on long-haul flights.
  • British Airways has suspended two senior executives, Martin George and Iain Burns, after a raid on its offices by the OFT.
  • The airline faces fines of up to £850m if found guilty of price fixing.
  • The investigation also involves Virgin Atlantic, American Airlines, and United Airlines, which have all stated that they are cooperating with the investigation.
  • Low-cost airlines have long argued that major carriers like BA and Virgin have bumped up fuel surcharges unnecessarily, while undercharging on short-haul flights.
  • The investigation is separate from a previous antitrust case launched in February, which relates to anti-competitive practices in the air cargo industry.
  • British Airways has increased its fuel surcharge six times since 2004, from £5 to £70 per return flight.

Statistics:

  • The alleged price fixing could result in fines of up to £850m for British Airways.
  • Since introducing the fuel surcharge in 2004, British Airways has generated an additional £640m in revenue.
  • The fuel surcharge has been increased six times, from £5 to £70 per return flight.
  • British Airways estimates its fuel bill will rise by an additional £600m to £2.2bn this year.
  • Oil prices have increased from around $38 a barrel in 2004 to around $69 a barrel currently.

Sources:

  • The Financial Times, June 24, 2008
  • The Guardian, June 24, 2008
  • Bloomberg, June 24, 2008
  • Office of Fair Trading press release, June 13, 2008
  • British Airways press release, June 24, 2008