Let us start with the good news.
On Friday British Airways (BA) announced strong quarterly returns from a financial point of view with profit before tax up by 51% between April and June to ”289m ($588m). However passenger load factor was down 1.5% to 81.2%, which could mean people are turning away from the airline. BA is aware of this and blames Heathrow and other problems.
The bad news is the continued shenanigans between BA and Virgin Atlantic. It is sad that Britain”s two major international airlines are spending enormous amounts of time and effort in actually getting nowhere. What is perhaps most extraordinary is that the two got together at all.
The UK”s Office of Fair Trading (OFT) seem to have given (perhaps short term) victory to Virgin Atlantic in the fuel collusion war.
The sheer scale of the OFT”s massive ”121.5m ($246m) nuclear strike ” fine seems too puny a word ” takes the breath away, but it was more than matched by the US Department of Justice (DoJ) that weighed in with its own $300m (”150m) haymaker, leaving BA battered against the ropes.
Virgin has of course emerged unscathed in the first instance and the saga is likely to continue with possible criminal investigations hovering and lawyers on both sides of the Atlantic looking for a killing in respect of the so-called conspiracy.
But what both airlines are stressing ” and they”re right ” is that passengers haven”t been hurt financially by this. The fuel surcharges reflected the massive increase in the price of oil and probably would have reached more or less the same level independently anyway.
Probably. That is what the OFT and the DoJ were trying to establish beyond anything else, that it should be left to natural market forces as to what eventual price any surcharges reached. To artificially rig the market by colluding with rivals is clearly detrimental to passenger needs and what both regulatory bodies were doing was flying the flag for principle.
But while BA has seized the headlines for its collusion with Virgin it is not the only carrier in trouble with the authorities. At the same time, Korean Air has also been penalised by the DoJ to the tune of $300m, but in respect of its cargo operation.
In a previous case earlier this year Lufthansa agreed to pay $85m to settle class action suits in the US, also in relation to its freight business. Conditional immunity was received. Last September American and United Airlines reached settlements with regard to legal action in the US courts seeking damages for alleged price-fixing related to cargo activities. Both carriers said no payments were made.
According to BA it first exchanged information with Virgin on fuel increases back in August 2004, when Rod Eddington was CEO and this continued until January 2006. Willie Walsh was appointed in May 2005.
In a statement, BA says that six discussions took place during a period of 16 months.
Either Virgin was privately happy, at least initially, with what was happening, or was leading BA on. And as the oil price increases to all carriers were around the same mark, the charge to the public would have been similar.
Whilst yet again admitting BA”s fault, as he did with the recent baggage fiasco, and previously with staffing problems, Walsh summed up the situation explaining what has become a staggeringly expensive episode: "I want to reassure our passengers that they were not overcharged and that fuel surcharges are a legitimate way of recovering costs,” he said.
What has proved interesting is the provision of ”350m by BA in its accounts to deal with the OFT situation. Questions are now being asked how this figure was chosen, bearing in mind that to date the cost to the airline is ”269m. Was it a guess or did someone make a suggestion?
There is a history of animosity between British Airways and its much younger (and smaller) competitor. Family feuds are always bad news and here we are talking of the UK plc family. Let us hope that the events of last week can be put behind us and that both BA and Virgin Atlantic can fly the flag for Britain together.