British Airways: alleged predation on the London City to Edinburgh route
Office of Fair Trading (OFT) closed Competition Act 1998 case.
Party: British Airways
Issue: Alleged predation on the London City to Edinburgh route
Relevant provision: Chapter II prohibition, Competition Act 1998 and Article 82, EC Treaty
Outline of case
This case concerns an allegation that British Airways (BA) was predating following its entry onto the London City to Edinburgh (LCY-EDI) route in October 2003. The OFT launched a formal investigation into the allegation in September 2005.
The OFT considered BA’s conduct on the route in two time periods:
- Period A: from October 2003 to the end of April 2006. Following its investigation, the OFT considers that BA’s conduct during Period A did not infringe the Chapter II prohibition of the Competition Act 1998 (CA98).
- Period B: from May 2006, when BA increased the number of rotations it flies on the route from 5 to 7 per day (this increase in rotations was announced by BA on 14 March 2006). The view of the OFT, in the context of the OFT’s casework priorities, is that it would not be appropriate to proceed with the further work that would be needed to determine whether BA’s conduct during Period B infringed the CA98.
The OFT assessed BA’s conduct by examining whether its revenues covered avoidable costs during the two relevant time periods, taking into account relevant internal documents and information provided on BA’s decisions at various points in time. The OFT applied three formulations of the predation test to BA’s costs and revenues:
- whether revenue covered avoidable cost at the route level of LCY-EDI,
- whether additional revenue from changes to the number of rotations on the route covered additional avoidable costs associated with the changes (that is, whether a change in strategy was incrementally profitable for the route), and
- whether there were wider effects on BA’s profitability such that a change in strategy was incrementally profitable for BA as a whole.
It was not necessary to determine which formulation(s) of the cost test were critical in this case. In Period A, BA’s conduct passed all three of the formulations. This indicates that BA’s conduct in this period was not predatory.
The OFT applied its casework prioritisation criteria to determine whether to continue with its investigation into BA’s conduct in Period B. Key factors in the OFT’s assessment included:
- low potential consumer detriment relative to some of the other ongoing investigations which the OFT wishes to continue, and
- the significant resources that would be required to reach a concluded view on BA’s conduct in Period B. For example, quite aside from the consideration of whether BA’s conduct in this period should be considered abusive, to reach an infringement decision the OFT would need to carry out a substantial amount of further work in relation to market definition and dominance.
Having considered the evidence in the round, consulted the parties, and considered its administrative priority criteria, the OFT reached the view that:
- BA’s conduct in Period A did not infringe the Chapter II prohibition of the CA98, and
- as a matter of administrative priorities, it would be appropriate to close the investigation into BA’s conduct in Period B.
Therefore, the OFT has closed this case.
Case reference: CE/4424-04