BA’s 640% oil premium
August 1, 2007 by Evan Sparks
Today British Airways and Korean Air Lines entered pleas and received fines of $300 million for conspiring to fix prices–BA, to fix abnormally high “fuel surcharges” on passengers and cargo, and Korean, to agree with air cargo competitors to set abnormally high rates.
The Department of Justice is not announcing co-conspirators, but Virgin Atlantic and Lufthansa agreed to cooperate, avoided prosecution, and are paying restitution. The story would be much clearer if we knew exactly whom BA and Korean were in cahoots with.
BA seems to have pretty flagrantly milked its customers: its fuel surcharge in 2004 was $10 and the price of oil was approximately $35 per barrel. By 2006, BA was charging a $110 fuel surcharge (I know, that’s enormous!) but oil was at $60 per barrel, meaning that BA’s premium was about 640 percent over its previous ratio!
I know less about the cargo conspiracies, and the press accounts I’ve seen so far have been vague. I hope to read the filed charges once they’re put online. For now, it seems that the Justice Department caught airlines with their hands in the cookie jar. Good for them: price transparency is the way to go, and vigorous enforcement can protect competition.
Ryanair, the spunky thorn in BA’s side, was quick on its feet with a sassy press release, promising never to levy a fuel surcharge (no, we’ll just charge you for everything else), claiming its average fare is lower than BA’s surcharge, and jabbing at its rival: “BA has been ripping off passengers for years by price fixing and working with other airlines to inflate fuel surcharges. Since BA first introduced its fuel surcharge in 2004, the price of oil has doubled, yet BA has increased its fuel surcharges seventeen-fold to £43 per one-way flight.”
British Airways PLC and Korean Air Lines Co. Ltd. Agree to Plead Guilty and Pay Criminal Fines Totaling $600 Million for Fixing Prices on Passenger and Cargo Flights [U.S. Department of Justice]
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BA’s 640% oil premium
August 1, 2007 by Evan Sparks
Today British Airways and Korean Air Lines entered pleas and received fines of $300 million for conspiring to fix prices–BA, to fix abnormally high “fuel surcharges” on passengers and cargo, and Korean, to agree with air cargo competitors to set abnormally high rates.
The Department of Justice is not announcing co-conspirators, but Virgin Atlantic and Lufthansa agreed to cooperate, avoided prosecution, and are paying restitution. The story would be much clearer if we knew exactly whom BA and Korean were in cahoots with.
BA seems to have pretty flagrantly milked its customers: its fuel surcharge in 2004 was $10 and the price of oil was approximately $35 per barrel. By 2006, BA was charging a $110 fuel surcharge (I know, that’s enormous!) but oil was at $60 per barrel, meaning that BA’s premium was about 640 percent over its previous ratio!
I know less about the cargo conspiracies, and the press accounts I’ve seen so far have been vague. I hope to read the filed charges once they’re put online. For now, it seems that the Justice Department caught airlines with their hands in the cookie jar. Good for them: price transparency is the way to go, and vigorous enforcement can protect competition.
Ryanair, the spunky thorn in BA’s side, was quick on its feet with a sassy press release, promising never to levy a fuel surcharge (no, we’ll just charge you for everything else), claiming its average fare is lower than BA’s surcharge, and jabbing at its rival: “BA has been ripping off passengers for years by price fixing and working with other airlines to inflate fuel surcharges. Since BA first introduced its fuel surcharge in 2004, the price of oil has doubled, yet BA has increased its fuel surcharges seventeen-fold to £43 per one-way flight.”
British Airways PLC and Korean Air Lines Co. Ltd. Agree to Plead Guilty and Pay Criminal Fines Totaling $600 Million for Fixing Prices on Passenger and Cargo Flights [U.S. Department of Justice]
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Posted in Evan's Commentary | Tagged asia, british airways, competition, europe, korean, ryanair, usa |