Legal collusion rife in the industry

Comment by Jeremy Skidmore (www.jeremyskidmore.com)

Following my recent comment on the environment, which stirred up some debate, it seems British Airways has taken to heart some of the wishes of readers and instigated its own green plan to put people off flying.

First there is the whopping great fine – £270 million and counting – for colluding on fuel surcharges – followed by news that it has been nominated the worst performing of all Europe’s major airlines and is forecast to lose a record 1.3 million bags this year.

Factor in terror threats and horrendous delays at airports and if that isn’t going to make you swap your foreign holiday for a train ride to the coast, nothing will.

Meanwhile, Virgin, aka the Teflon airline (no dirt ever sticks), gets away scot-free for turning ‘supergrass’.

I must confess that I have a soft spot for Virgin, and I think their service is great, but they do seem to get away with a lot. Perhaps they deserved a lesser fine for coming clean, but should they have got off completely?

Personally, I think surcharges are a nonsense. It is just a cost of business and should be included in the price of a ticket.

But the amazing thing about this case is why some individuals on both sides colluded in the first place, because BA and Virgin would have ended up surcharging the same for fuel anyway.

They are competing head on, on certain routes.  If BA adds a tenner on to its long-haul surcharge, Virgin would follow suit and vice versa.

Look at their fares to US cities. Is it an incredible co-incidence that their prices are very similar, as pointed out by BMI when it lobbied for open skies?

Of course not. They’re competing for the same passengers, they know what the market will bear and price accordingly. If one drops or raises its fares by £20, the other will follow suit.

It’s what happens in business between two companies offering similar products and targeting the same market. It’s a form of legal collusion, but there’s nothing wrong with it. Is it anti-competitive? Well, you can always fly with an American carrier, but I wouldn’t recommend it.

Legal collusion has being going on in tour operating for years. Although companies are now trying to differentiate products, ten years ago there was really nothing much to choose between a Mediterranean package with any of the big tour operators. What a surprise that their prices were very similar, or that whenever one started discounting the other followed.

When there was a shortage of holidays one summer (remember those days?), brochures were ripped up and all the operators started adding on £50 a head to the price of packages.

Go to any travel industry event and you’ll see the sales and marketing directors of rival companies talking intensely over a few drinks. I’m not suggesting they are colluding on prices – they’re too busy trying to get one over each other – but they all know exactly what each other is up to.

Price fixing is alive and well in the travel industry, but unless you want a huge fine, for heaven’s sake don’t talk about it!

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