Monday, August 06, 2007
Who benefits from BA's big fines?
 I have a problem with the huge fine levied against British Airways for its passenger and cargo price-fixing. Half a billion dollars is a serious amount of money. Of course those involved in cartels should be punished, and as a frequent flyer I have suffered from BA's actions, but is fining the company such a huge sum a suitable punishment? It seems a remarkably unimaginative form of sanction. Think about it. Why should the competition regulators -- the Office of Fair Trading (£121 million and the Department of Justice ($300 million) -- benefit from this windfall in their budgets? What will they do with the money? No doubt, they will investigate more cartels but that isn't going to improve my traveling lot much. After all, who suffers from this fine? Well, BA management are certainly embarrassed but unless they were actually involved in the price-fixing and have been sacked, those that remain can say "not me guv'". The shareholders will suffer because there will be lower profits and ultimately smaller dividends but the BA share price may actually end up rising because the uncertainty is over! Nope! The ones who suffer are probably the passengers who will be traveling on an airline that now has half a billion dollars less to spend. BA is being deprived of valuable capital which could and should be used to upgrade the airline. The airline has already made some pretty swinging cuts. It's cost-cutting has bitten into the passenger experience hard: miserable sandwiches where there used to be a meal; poor industrial relations with its staff and suppliers because of lower budgets; moral so low, it's become legendary in the industry. Instead, the regulators should have insisted BA spend half a billion dollars to improve the airline's products and services, both in the air and on the ground. Just think -- that money could have brought back food on some flights or refurbished aircraft. It could have reduced the under funded pension scheme and allowed some benefits to be restored to the suffering staff. But -- some will say -- spending the money that way will give BA a competitive advantage, which is hardly the idea of the punishment. So what? If you want to add a bit of pepper, force the airline to give away 1,000,000 tickets to charities around the world so they are flying planes which make less revenue. Force them to give World Offers at a further 15 per cent discount. These would all reduce shareholder value but benefit the passengers. Do anything but levy a thumping fine which improves nobody's lot. Price fixing is a nasty, insidious crime with many victims. The sanction should be designed to punish the company's owners, benefit the company's customers and send a clear signal that the regulators will be as cunning as the crime.
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