There is a dark cloud hanging over the offices of Virgin
Atlantic and Cathay Pacific. No, it has nothing to do with volcanic
ash - rather, the airlines have found themselves accused of
price fixing by the Office of Fair Trading (OFT).
The OFT announced last week that it had issued a Statement of
Objections to the airlines, alleging that they had been fixing the
price of passenger fares on the London to Hong Kong route. It is
claimed that, between 2002 and 2006, employees of each airline had
been co-ordinating pricing strategies through the exchange of
commercially sensitive information on pricing and other
matters.
The arrangement came to light when Cathay Pacific confessed all to
the OFT and, as a result of its timely approach to the authorities,
it has received 100% immunity from fines. Virgin Atlantic, however,
is not quite so fortunate. If found guilty, it could be fined up to
10% of its worldwide turnover and the individuals involved may find
themselves the subject of criminal prosecution for cartel
offences.
There is a certain irony in all of this. You may recall that, back
in August 2007, British Airways was fined a record £121
million for its role in a price fixing scheme with Virgin Atlantic.
In that instance, Virgin Atlantic received total immunity from
fines because it was first to confess. Now, however, Virgin
Atlantic may be on the receiving end of a hefty penalty whilst its
alleged cartel partner receives total immunity. It is also worth
noting that Cathay Pacific is part of the oneworld alliance which,
of course, is led by British Airways!
It is also worth bearing in mind that the earlier infringement (and
record penalty) concerned a period which did not exceed 18 months.
Here, however, the arrangement is alleged to have lasted for around
4 years.
Virgin Atlantic now has the opportunity to respond to the OFT's
case against it and has vigorously denied the allegations that it
has broken the competition rules.
It has been a busy time for the OFT. It recently fined two tobacco
manufacturers and a number of retailers a total of £225
million for unlawful practices in relation to the retail prices of
tobacco products in the UK. Again, there were winners and losers in
the leniency race.
Last week's announcement, together with the tobacco fine, again
emphasises the importance of
being first to the OFT's door with cartel information. 100%
immunity sounds very nice in theory - it sounds even better
when quantified in Pounds Sterling saved!
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
