Another summer, another headache for British Airways. Staff shortages forced the carrier to ground flights in mid-2004, a strike a year later cost the airline millions in lost revenues, and last August's terrorist alert brought security gridlock to its Heathrow hub. The sting this season: huge fines for anti-competitive behavior.
Britain's Office of Fair Trading earlier today hit BA with a record $247 million fine after the airline admitted to colluding with rival Virgin Atlantic over fuel surcharges both airlines added to ticket prices. Later on Wednesday, the U.S. Department of Justice, which was pursuing a similar case against BA in parallel with the one brought by the OFT, issued BA with its own $300 million penalty.
On at least six occasions between Aug. 2004 and Jan. 2006, the OFT found, the two companies discussed or briefed each other about proposed changes to the levy, which is meant to help airlines offset the soaring cost of fuel. In that period, the surcharges rose 12-fold to $122 for a typical BA or Virgin long-haul flight. BA has owned up to the collusion. "Anti-competitive behavior is entirely unacceptable," BA chief Willie Walsh said Wednesday. "We condemn it unreservedly." For its part, Virgin is expected to escape a fine, since it blew the whistle on the collusion in 2006. An OFT criminal probe into the actions of individuals involved is continuing.
The size of the fine won't have taken Walsh by surprise. In May BA set aside some $700 million to cover the fines and legal bills relating to the OFT and DoJ cases. And though the British fine was a record, it could have been even worse: The OFT was free to fine BA up to 10% of its global sales, which last year amounted to some $17 billion.
UBS maintained its "buy" rating on BA stock in a research note, and another London-based airline analyst said the fine left BA's outlook "unchanged." But it's been a turbulent year for Britain's largest carrier. The specter earlier this year of cabin crew strikes, though eventually averted, triggered mass passenger cancellations and diluted the airline's results. Operating profit in the year to April slid 13%. The airline insists it's not been helped by tough security measures still in place at U.K. airports, where passengers are limited to one item of hand luggage and have to put ointments and liquids in clear plastic bags. In April, BA even came out top in a league of European airlines most likely to lose your luggage.
Still, the opening in March of Heathrow's $8.5 billion Terminal 5, where BA will centralize its operation from two of the hub's other terminals, ought to offer a welcome boost. According to investment bank Merrill Lynch, T5, as the new terminal is known, should allow the airline to coordinate schedules and squeeze costs by, for instance, not having to ferry passengers between terminals. Maybe BA will have better luck next summer.