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Last Updated: Monday, 9 October 2006, 07:24 GMT 08:24 UK
The Great Plane Robbery?
By Nishi Bolakee
BBC Money Programme

Some of the world's biggest airlines, including our very own British Airways, stand accused of ripping off consumers in price fixing conspiracies.

BA plane
BA has been subject to a dawn raid

The Office of Fair Trading in the UK and the Department of Justice in the US have launched investigations into two alleged conspiracies with a series of dawn raids on airline offices.

Competition law bans firms from agreeing prices so that customers benefit from cheaper goods and services as companies compete.

Higher prices for goods

The first alleged conspiracy concerns the prices of surcharges on cargo shipments.

BA, Lufthansa and other major airlines have been accused of agreeing to add some surcharges at exactly the same rate.

The allegations are being investigated by competition authorities throughout the world while American class action lawyers also pursue the airlines in civil suits.

What the air cargo carriers did was raise the prices over and above what they should have been
Michael Hausfeld, class action lawyer at Cohen, Milstein, Hausfeld and Toll

Bruce Simon, of class action lawyers Cotchett, Pitre, Simon, and McCarthy, says "It is simply extraordinary, that all the prices were the same at the same time."

"And of course, one of the allegations is that the prices shouldn't be the same if the operating costs are different for the airlines, and there's no economic reason why it should be that way."

So how does this affect the consumer?

US lawyers suing for compensation reckon that shippers were forced to pay more for exporting their goods leading to higher prices for products in the shops.

There's an incentive to any player in the game to blow the whistle

Michael Hausfeld, another class action lawyer from the firm Cohen, Milstein, Hausfeld and Toll, says: "They are definitely affecting every consumer literally in most purchases they make. It all goes into the price."

"And, what the air cargo carriers did was raise the prices over and above what they should have been."

Recently, Lufthansa - the German national carrier, agreed to pay $85 million in compensation to shippers to settle with lawyers in the cargo case.

Other airlines may follow suit with similar payments and the total compensation bill could top $1 billion.

Increased cost of flying

The second official investigation involves allegations of price-fixing of surcharges on passenger flights.

BA's offices have been raided, and there is a mystery surrounding BA's old enemy Virgin Atlantic, run by renowned consumer champion Richard Branson, and its role in the affair.

The allegations relate to passenger fuel surcharges which have risen from £5 return for long haul flights when they were introduced in May 2004, to £70 from April this year.

They were introduced to help the airlines with the rising cost of fuel.

While Virgin's offices have not been raided by official agencies, Richard Branson's company is being sued, along with BA, by class action lawyers in the US who allege that the two companies conspired to fix the price of the surcharges.

Immunity?

"I have nothing to indicate that Mr Branson, was involved or knows anything about the situation
Bruce Simon, class action lawyer at Cotchett, Pitre, Simon, and McCarthy

Virgin is said to have played for advantage in the controversy by blowing the whistle and reporting its old adversary to the UK's Office of Fair Trading.

That could mean that Virgin would qualify for immunity in official legal proceedings.

Some reports suggest Virgin did no more than report an illegal approach by BA although class action lawyers believe it went further.

Bruce Simon is doubtful that Mr Branson had any knowledge of a price fixing scheme and says: "I have nothing to indicate that Mr Branson, was involved or knows anything about the situation.

"Those matters don't have to rise to the level of the board. They don't have to rise to the level of a chief executive officer for them to be implemented."

Meanwhile, BA has suspended the number two in the company, Commercial Director Martin George, and its Director of Communications Iain Burns.

And on Monday BA announced that the two men had resigned.

Virgin plane
Virgin is being sued along with BA for price-fixing

The surcharges have hit consumers like Chris and Carolyn Wood, frequent travellers to the US on both Virgin and BA.

Four generations of the Woods, eight people in total, flew to visit relatives in Florida in September.

Chris paid for five members of his family to take this trip. He was shocked to find just how much was added to the price of his tickets to help airlines pay for taxes, airport fees and the rising cost of fuel.

Chris says: "I'd offered to pay for my mother-in-law as a special treat. I found that in terms of just my cost, which was my two boys, my wife, my mother in law, and myself, we'd got an extra seven hundred odd pounds or so".

'Dirty Tricks'

The current row is the latest chapter in a long history of bitter conflict between the two companies.

Jeff Randall, Editor-at-Large of the Daily Telegraph and former BBC Business Editor says: "This is yet another delicious chapter in a saga that's been going on the best part of twenty years."

If airlines are found to be guilty of price fixing then the consequences could be severe.

Pat Treacy, a competition lawyer for law firm Bristows, says "The legal worst case scenario for BA - the very worst thing that could possibly happen to a company under the law, is that it would be fined 10% of its global turnover."

BA's turnover is around £8bn, so the company could be fined £800m.

The class action lawyers are seeking yet more huge sums in compensation for customers whom, they allege, have been overcharged.

The Money Programme report is shown on BBC Two at 10pm on Monday 9 Ocotber.


SEE ALSO
BA pair quit amid surcharge probe
09 Oct 06 |  Business

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