Airline legal battle takes off

EasyJet wants to prevent the new BA subsidiary taking off

British Airways has launched a pre-emptive legal action to try to block a claim by the cut-price airline operator, easyJet, that it is illegally subsidising a new cheap fares operation.

BA says Go has no unfair support

BA is planning to launch its 'Go' airline later this month with low-cost flights to Europe from Stansted airport.

EasyJet has issued High Court proceedings seeking injunctions to prevent BA "illegally cross-subsidising" its new subsidiary.

It maintains that BA is breaching Article 86 of the European Community Treaty which bans companies from "abusing a dominant position" so as to stifle competition.

It says BA is offering huge extra bonuses to travel agents who sell more of its flights, as well as guaranteeing aircraft leases for Go and thus extending its creditworthiness to the new operation.

EasyJet say BA is subsidising its new outfit

It also says that BA has failed to give assurances or publish financial statements so the amount of any subsidy can be deduced.

However, BA has asked Commercial Court Judge, Mr Justice Tuckey, to "strike out" easyJet's claim as "unsustainable in law and disclosing no cause of action".

Jonathan Sumption QC, for BA, said the commercial opportunities offered by competitive de-regulation of European routes and carriers were being exploited by airlines such as easyJet, Virgin, Debonair, Ryanair - and now Go, with flights initially to Rome, Milan and Copenhagen.

He also rejected easyJet's claims that Go benefited from the "halo" or "brand image" effect because customers would believe that a company associated with BA would have higher standards of reliability and safety.

Such advantages to a subsidiary were all part of normal business for most companies, said Mr Sumption.

The judge, in a three-day hearing, is also expected to hear argument on easyJet's injunction application before giving judgement.

BA is fighting to avoid a potential multi-million pound fine at the hands of European competition regulators. It is understood that the European Commission has the power to fine BA up to 10% of its £8bn-plus turnover if it finds against it.

Case background

Rival airline Virgin complained to the European Commission that BA was using its 40% share of the UK travel market to decrease the competitiveness of its rivals.

Virgin Air have has had a series of legal battles with BA

The charge centres on BA's move to cut travel agents' commissions in January this year, offering instead an additional bonus scheme for those giving BA more business than the same month last year.

This made agents potentially much better off if they gave BA extra sales.

The European Commission gave official notice that it was concerned about a possible infringement of European competition law.

But BA defended the commission payments, saying its action was normal practice for rewarding agents.

"If the EU said it didn't like our scheme then they would have to find against practically every other airline in Europe," a spokesperson said.

"We have already been vigorously defending ourselves against this charge and we will put our answers to the commission this week."