NCAA, British Airways, Virgin Atlantic bicker over indicting report

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Virgin Atlantic Airways

Virgin Atlantic Airways

British Airways (BA) and Virgin Atlantic Airways (VAA) say they have always had the interest of Nigeria and its people at heart. But, the full report of the Nigerian Civil Aviation Authority (NCAA) enquiries into the activities of the two airlines obtained by The Nation and facts from the UK competition watchdog, Office of Fair Trade (OFT) and US Department of Justice (DOJ) detail unwholesome acts by the foreign airlines, writes OLUKOREDE YISHAU.

Its inaugural flight to Nigeria was over 75 years ago. In all of these years, the British Airways has enjoyed its status as, perhaps, the most favoured. But for the British carrier, the last two weeks have been testy. It was still grappling with the reduction of its flight slots into Lagos, when the Nigerian Civil Aviation Authority (NCAA) said the outcome of a six-month long investigation on it and another British airline, Virgin Atlantic Airways (VAA), shows that the two world famous carriers were involved in price-fixing. It slammed BA a fine of $135 million and VAA $100 million.    

Aside the fines imposed on the two airlines, the NCAA also wants them “to reimburse and compensate Nigerian consumers who purchased tickets and travelled on both airlines during the relevant period in a manner that is not only commensurate to what they have agreed to and are doing in the U.K and U.S, but that also reflects and highlights the yield, profitability and importance of this route to their business.”

The NCAA said failure to comply with the directives will result in disallowing their flights into the Nigerian airspace.

The two airlines have rejected the allegations. BA, in a statement, said: “We reject the allegations made by the Nigerian Civil Aviation Authority and we are vigorously defending our position. We remain committed to Nigeria and have been flying there for more than 75 years. We pride ourselves on offering competitive fares, a choice of products and connections to our Nigerian customers.”

Virgin, through its country representative, Chief John Adebanjo, said: “I don’t think we have violated Nigerian law in any way. We hold the Director-General of the NCAA and the agency in high esteem. We respect the laws of the land. A full response will be coming from our office later.”

The Nation learnt that the NCAA, in arriving at its decision on both airlines, gathered information from other aviation authorities all over the world, courts in the United States and Canada and travel agents. It also interviewed over a dozen witnesses, including officials of both airlines and their service providers.

Its investigators pored through over 10,000 pages of documents, over 650 pages of transcribed witness testimonies and representations made by and on behalf of BA and VAA.

Its conclusion is that “BA and VAA have engaged in unfair and deceptive practices against Nigerian consumers, the downstream aviation sector in Nigeria and the Federal Government of Nigeria. ” 

The NCAA report accused both airlines of engaging in unfair methods of competition. 

The report noted: “Starting sometime in 2004 and continuing to 2006, BA and VAA colluded together and started a conspiracy to fix, periodically increase and maintain Passenger Fuel Surcharges (PFS) as a component of the fare passengers pay to travel.  This collusion and conspiracy was ultimately discovered and became the subject of investigation in the U.S. and U.K and several class actions to protect consumers.  BA has since pleaded guilty to the criminal conduct in the U.S and paid a criminal penalty of $300 million and a fine of GBP 121 million in the U.K, based on investigations by the United States Department of Justice (USDOJ) and U.K. Office of Fair Trading (OFT).”

The Nation obtained documents from the OFT showing that the BA admitted colluding with VAA to short-change customers. VAA was the first to admit to the crime. As a result of this, it escaped paying fine. But BA was slammed with the highest fine ever imposed by OFT for anti-competition moves.

In a document dated August 1, 2007, the OFT said: “British Airways has admitted collusion over the price of ‘long-haul passenger fuel surcharges’ (surcharges) and will pay a penalty of £121.5m to be imposed by the OFT, thus enabling the OFT to close its civil investigation and resolve this case. The penalty will be the highest ever imposed by the OFT for infringements of competition law, and demonstrates the determination of the OFT to deal vigorously with anti-competitive behaviour.

“British Airways has admitted that between August 2004 and January 2006, it colluded with Virgin Atlantic over the surcharges which were added to ticket prices in response to rising oil prices. Over that period, the surcharges rose from £5 to £60 per ticket for a typical BA or Virgin Atlantic long-haul return flight.

“Virgin Atlantic is not expected to pay any penalty as it qualifies in principle for full immunity under the OFT’s leniency policy. Under this policy, a company which has been involved in cartel conduct and which is the first to give full details about it to the OFT will qualify for immunity from penalties in relation to that conduct. In addition, any company staff involved in the price fixing disclosed will qualify for immunity from criminal prosecution in relation to that conduct. The OFT’s investigation was prompted after Virgin Atlantic came forward with information about price fixing with BA over the surcharges. British Airways has also provided full co-operation with the OFT’s investigation under the leniency programme and this is reflected in the penalty announced today.

“British Airways accepts the OFT’s finding that on at least six occasions the two companies discussed and/or informed each other about proposed changes to the level of the surcharges, rather than setting levels independently as required under clear and well-established competition law principles.”

At the time the OFT was investigating both airlines, the United States Department of Justice also investigated the two airlines and returned a guilt verdict. 

OFT Chairman Philip Collins said: “This case, and the substantial penalty imposed, will send an important message to corporate boards and business leaders about our intention to enforce the law, and serves to remind companies of the substantial risks involved if they are found to engage in such behaviour. It also illustrates how the OFT’s leniency programme enables companies to eliminate or reduce their exposure to penalties by taking prompt and effective action. On a broader front, the OFT is committed to strong and effective competition law enforcement, especially in relation to price fixing and other hardcore infringements. Our commitment to enforcement emphasises the importance of effective and comprehensive competition law compliance led by boards and senior management and supported by effective risk management systems and corporate governance.”

The OFT also put on trial officials of BA believed to have had a hand in the price-fixing cartel. But, it later withdrew the case. On November 8, the OFT issued a Statement of Objections to British Airways (BA) and Virgin Atlantic in its civil law investigation into alleged collusion over the pricing of passenger fuel surcharges for long-haul passenger flights to and from the UK between August 2004 and January 2006.

It said: “Issuing a Statement of Objections is a necessary procedural step before the OFT can proceed to a final decision. The Statement of Objections outlines the OFT’s proposed decision and invites the parties to make representations. BA reached an early resolution agreement with the OFT, which was announced in August 2007. Virgin Atlantic was granted conditional immunity under the OFT’s leniency policy in 2006, having brought the matter to the OFT’s attention.”

A source told The Nation that the NCAA investigation was prompted by the OFT and US Justice Department’s findings. The NCAA stated in its report: “Both airlines have settled consumers in the U.S. and U.K approximately $204 million in compensation of the anti-competitive method of setting and conspiring to increase the PFS.” In both countries, customers who bought both airlines tickets between August 11, 2004 and March 23, 2006 were asked to fill a form of eligibility for refund. 

This was after a class action was instituted against both airlines. The settlement arrived at after the suit requires the companies to refund up to £73,531,076 to members of the U.K. settlement classes who submitted valid claim forms and $59,007,273 to U.S. class members who submitted valid claim forms. 

From the NCAA report, the pattern of the alleged collusion in the country was similar to the ones used by the airlines in US and UK. 

The report noted: “BA and VAA did in fact collude and in furtherance of that collusion periodically increased PFS, including against Nigerians. BA and VAA operate approximately 90% of the direct flights between Nigeria and the U.K. Being a duopoly, the effect of this collusion was and continues to be devastating on Nigerian travellers who have limited choices and have had to and continue to pay indiscriminately high fares. The increases in PFS had no linear correlation with the changing price of crude oil or the cost at which BA and VAA were buying Jet A-1 fuel in Nigeria.”

The NCAA found that for the period under review the two airlines, despite reduction in the oil price never decreased the PFS. It said as a result of these several hundreds of thousands of Nigerians have been victims.

“There was no reason for BA or VAA to impose these burdensome arbitrary and high surcharges on Nigerians because the Nigerian route ranks as one of the most profitable in their networks providing large yields and wide margins to their businesses.

“The PFS in the manner it was imposed and maintained was and is deceptive as both BA and VAA sought to, and succeeded in conveying the PFS to consumers as a third party charge or cost recovery fee that did not either go to them or contribute to their profits.  This is untrue as the PFS was nothing but an additional fare.  The PFS is essentially a fare increase that goes to the airlines,” the report said. 

With both airlines rejecting the allegations against them, the stage seems set for a major fight. NCAA Director-General Dr. Harold Demuren has vowed not to bend the rules. He said: “What we are saying is that our market is open for exploration but closed to exploitation. We will no loner tolerate exploitation, deceptive and discriminatory practices that cause regional imbalance in fares.”

A source said the Federal Government may institute a class action as done in the UK and US to get the airlines to toe the line. 

The battle has just started. Who wins?

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