June 23, 2006 | posted by Michael Baxter in Uncategorized |

It was very nice of BA to give passengers advance notice of a rise in fuel surcharges, but was there an ulterior motive? Were they in fact sending out a signal to competitors, in effect a kind of nod and wink? BA is under investigation for price fixing, and if found guilty could face a fine of as much as £850mn, or 10% of turnover. None of us like paying fuel surcharges, but with the price of oil so high, you can understand why they exist. But, the issue is this: are BA and other airlines upping fuel surcharges in a deliberate and planned way, or is their similar behaviour simply down to market forces?
BA first imposed a fuel surcharge back in 2004, when oil was still in the $30 a barrel range. Since then the company has upped the charge an additional six times and, for some flights, the fuel surcharge is actually more than the normal ticket price. The suspicion lies in the fact that other airlines have followed a similar pattern of pricing.
The airlines deny collusion, saying that they all face the same costs, and that similar pricing moves are simply down to the fact their costs are all broadly the same. But, if that is so, it’s hard to explain why last June both BA and Virgin increased their respective fuel surcharges by 50% on the same day, and yet at the time oil itself had only risen by 5% from when the two airlines had previously upped their charges.
There is another explanation for the airlines raising their surcharges in tandem. It stands to reason that all airlines will seek to raise prices to cover increased costs, but are worried about how the public will react. Therefore, as soon as one company makes the upward change, all the others rapidly follow suit, because there will be less backlash. It’s not collusion, it’s just safety in numbers - a kind of herd instinct
The fact is that BA has admitted that both U.K. Office of Fair Trading and the U.S. Department of Justice “are investigating alleged cartel activity’”. The airline has also put two senior members of staff, that’s commercial director Martin George- the man who fired ad agency MC Saatchi last year, and head of communications Iain Burns, on leave for the duration of the investigation.
The OFT has not revealed the names of other airlines being investigated, although Virgin Atlantic has said it is helping with enquiries. Back in February an investigation into price fixing over cargo flights was kicked off. As that famous airline expert, Oscar Wilde, once said “to suffer one investigation with the OFT over price fixing is unfortunate, to suffer two seems careless.”