Price fixing probe is a farce

TravelMole Comment by Jeremy Skidmore (www.jeremyskidmore.com)

Have you heard the one about the senior executive who went out for dinner with his rival to discuss how much they’d be charging their customers?

No, it’s nothing to do with British Airways, but it could be describing any one of dozens of tour operators over the past decade.

BA is being investigated by the Office of Fair Trading over allegedly trying to fix fuel surcharges. According to the allegations, my old mate, communications director Iain Burns, is supposed to have contacted Virgin to find out about it was planning to do about fuel surcharges. Both he and his boss Martin George have been asked to look after their gardens while the matter is being investigated.

It’s nonsense to attack Virgin for ‘ratting’ out BA to the OFT. There may be no love lost between the two airlines, but Virgin was under a legal obligation to pass this information on to the OFT. Similarly, if BA is found to have broken the law, then action has to be taken.

The problem here is that the law is an ass when it comes to price fixing – or indeed even enquiring about what a competitor is doing.

Collusion between companies is often impossible to prove. Tour operators have been talking to each other at varying levels for donkeys years, often to try to outwit each other. 

Most importantly, even if they are trying to collude on prices, it doesn’t really matter. It simply doesn’t work in a market with many different players. The internet makes everything so transparent. Someone will always undercut you.

Some things that might look suspicious are simply the result of a free market. Business class fares charged on popular routes by BA and Virgin are virtually identical. Is that a price fix? No, it’s because that’s the fare the market for their passengers will bear and if you want something different or cheaper you can find it. At some stage, one of the airlines has put a toe in the water to test how much it can charge and the other has either price-matched or undercut its competitor. 

Now look at tour operating – it’s more incestuous than virtually any other business you can name. Have you ever seen the managing directors of Tesco and Sainsbury’s dining together? Probably not, but certainly in the late 1990s, you’d see the chiefs of the vertically integrated companies chatting away. A bomb on Grosvenor House at any given time would have wiped out most of brains of British tour operating. I think you can safely assume those gentlemen occasionally chatted about work and knew plenty about what each other was doing. Was the public disadvantaged? Of course not, the big companies were always trying to outdo each other and holidaymakers did, and continue to, enjoy very competitive prices.

As far as BA is concerned, I predict a long and costly OFT investigation (which we will pay for). I’m not allowed to predict the outcome but I can say, with the utmost confidence, that holiday and flight prices will remain as competitive as ever. And, as the OFT is supposed to look after the interests of the public, that’s all that matters.