BA fined £270m and now faces £300m lawsuit

Virgin escapes punishment for its part in price fixing, but both airlines to be sued in class actions by passengers in UK and US

British Airways and Virgin Atlantic face a £300m lawsuit brought by millions of air passengers, after their roles in a price-fixing cartel were exposed by the authorities yesterday.

The class action lawsuit will be fought in the UK and US, and could see the airlines being forced to repay hundreds of millions of pounds to customers. The revelation came as BA was hit by record fines totalling almost £270m from the Office of Fair trading and the US department of justice for fixing the price of fuel surcharges for long-haul passenger flights and its cargo business.

The rulings will trigger a class action lawsuit by one of America’s top litigators, Michael Hausfeld, who is preparing to lodge a writ in the UK over the next three months. Mr Hausfeld told the Guardian the lawsuit would be filed on behalf of “millions of air passengers” and the damages could exceed BA’s swingeing punishment.

“Traditionally, recoveries from civil lawsuits exceed regulatory fines in aggregate,” said Mr Hausfeld, senior partner at Cohen, Milstein, Hausfeld and Toll. “Collective action will be brought in London, so that consumers that were victims of this cartel have the opportunity to recover that which was robbed from them.” It is understood that Which?, the consumer group that launched a class action lawsuit over replica football kits this year, is also consulting lawyers about bringing a separate legal action against the airlines.

Mr Hausfeld has garnered a fearsome reputation in the US for a string of lawsuits representing native Alaskans affected by the Exxon Valdez oil spill, victims of the Holocaust and victims of apartheid.

BA’s punishment comprised a record £121.5m fine from the OFT for fixing long-haul fuel surcharges, followed by a $300m (£148m) fine from the DoJ for colluding over cargo and long-haul surcharges.

BA was brought before the authorities after lawyers at Virgin Atlantic blew the whistle on conversations between senior figures at both airlines over surcharges – a levy added to tickets to cover the rising cost of oil.

Virgin escaped any penalties yesterday because they broke the cartel by going to the authorities. But this will not protect them from the class action suits about to be launched.

BA admitted that between August 2004 and January 2006 it held seven phone conversations with its rival, followed soon afterwards by separate announcements from the airlines unveiling matching movements in the surcharges.

Philip Collins, the OFT chairman, said: “This case, and the substantial penalty imposed, 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 behaviour.”

BA’s chief executive, Willie Walsh, said passengers had not been overcharged, but condemned the actions of a “limited number of individuals” in the company.

He said: “I want to reassure our passengers that they were not overcharged. Fuel surcharges are a legitimate way of recovering costs. However, this does not in any way excuse the anti-competitive conduct by a very limited number of individuals within British Airways.”

Two senior BA executives have left the company following the announcement of the investigations last year. It is understood the collusion began when the former head of communications at BA, Iain Burns, phoned his counterparts at Virgin Atlantic to discuss surcharge plans – a clear breach of competition law, which prohibits cooperating in the setting of prices.

Mr Burns’ immediate boss, former commercial director Martin George, also resigned after admitting illegal conversations had taken place on his watch. The future of both men remains under a cloud, as the OFT and DoJ continue criminal investigations into price fixing, a crime which carries a five-year jail sentence in the UK. Scott Hammond of the DoJ’s antitrust division said that “virtually every American business and consumer was impacted by these crimes”.

The regulatory fines are the latest blow to BA’s finances and reputation after a torrid 12 months for the airline.

Its management must contest Mr Hausfeld’s lawsuit while it prepares to move into Terminal 5 at its Heathrow base early next year, amid speculation that the decampment is straining BA’s relationship with some of its 46,000-strong workforce.

Virgin Atlantic echoed Mr Walsh’s comments on overcharging, insisting passengers had not been ripped off by the collusion. Legal experts said the airlines must prove that prices did not rise as a result of the collusion, or else they might struggle to defeat the lawsuit. The DoJ indicated yesterday that Mr Hausfeld has a strong case after it said passengers who flew across the Atlantic with BA during the period in question “paid more for their tickets as a result of the illegal cartel”.

Paul Charles, director of communications at Virgin Atlantic, said the company’s founder, Sir Richard Branson, “apologises” for the price fixing. He added that the airline had paid a price for its involvement in the cartel. “We have not got away scot-free. We have got legal fees to pay, the ensuing media coverage to deal with; and we have got to renew our compliance and training companies,” he said.

Analysts said both companies face long-term damage to their reputations as a result of the investigations, with further class action lawsuits expected following the OFT and DoJ announcements.

source:Guardian Business