Party: British Airways (BA)
Issue:BA's corporate deals
Relevant provision: Competition Act 1998/Article 82 EC Treaty
Summary of work
The Office of Fair Trading (OFT) has closed its investigation under the Competition Act 1998 (the Act) and Article 82 of the EC Treaty (Article 82) into the conduct of BA as it no longer constitutes an administrative priority for the OFT. In reaching this decision, the OFT has applied the criteria it uses to prioritise competition casework (see note 1). Based on this assessment, the OFT concluded, after consultation, that no further resources should be committed to this case.
The OFT's investigation
The OFT opened a formal investigation under the Act in April 2003 on the basis that it had reasonable grounds for suspecting that BA was abusing a dominant position through offering non-linear discounts in its corporate deals. Since 1 May 2004 the OFT has also considered BA's corporate deals under Article 82.
BA's corporate deals usually include some combination of upfront route-specific discounts (URDs) and backend aggregate rebates (BARs) (see note 2). URDs are usually percentage discounts on published fares for specified booking classes on a specified route and are provided at the time of purchase on the basis that the corporate customer is expected to meet a certain target on that route (such as the number of journeys or spend) during the period of the deal. BARs are percentage discounts provided to the corporate customer as a rebate at the end of a set period (such as a year) based on the total air spend with BA during that period relative to a target. Typically higher rebate percentages are paid as higher targets are met. The rebate percentage applies to all eligible expenditure rather than just expenditure beyond the target. The terms of a corporate deal (such as the routes covered, the URD and/or BAR rates given and the targets set) vary considerably between customers, which may reflect their different needs.
The OFT identified three potential areas of concern when considering the possible foreclosure effects of BA's corporate deals. These were: (i) provisions in some contracts that allow BA to 'claw back' (that is, seek repayment of) URDs and/or reduce or withdraw URDs if targets are not met, (ii) BARs, and (iii) mixed bundling of URDs across a number of routes.
The OFT has not reached a concluded view on these issues. Similarly, the OFT has not reached a concluded view on the definition of the relevant market(s) in this case, nor on whether BA is dominant on any relevant market. In order to do so, significant additional work would be required.
The OFT has assessed whether this case currently constitutes an administrative priority and therefore should have further resources allocated to it. In terms of its prioritisation criteria, the OFT considered there to be a lack of consumer benefit in taking this case forward. This was primarily because of a lack of evidence indicating that BA's corporate deals were likely to have a substantial foreclosure effect. As regards the other criteria, the OFT did not identify anything to suggest this investigation should receive administrative priority. The OFT has therefore decided, after consulting with the relevant parties, to close its file on this case as it no longer constitutes an administrative priority.
Case reference: CE/4875/04
- See OFT press release 146/06, OFT publishes criteria for competition casework, 12 October 2006.
- Sometimes a corporate deal will include only URDs and sometimes only BARs.