As petroleum prices began a period of sharp and sustained increase in 2004, both Virgin Atlantic Airways (VAA) and British Airways (BA) introduced fuel surcharges on passenger tickets sold for trans-Atlantic travel. In 2006, VAA entered the leniency programs of the US Department of Justice and the British Office of Fair Trading and admitted to communication between employees at VAA and BA regarding fuel surcharges. As information about an investigation by UK and US competition authorities became public, multiple class actions were filed in the United States and consolidated into In re International Air Transportation Surcharge Antitrust Litigation. Plaintiffs alleged that collusion between VAA and BA on fuel surcharges had led to inflated air fares and proposed a class of US ticket purchasers and a class of UK ticket purchasers.
Cornerstone Research was retained by Simpson Thacher & Bartlett to provide analytic support for VAA in its submissions to the competition authorities in both countries and to support Professor Peter Reiss of Stanford University who testified on damages at mediation in the civil action. Professor Reiss explained that economic theory showed that colluding on only one component of the fare could not lead to a sustained increase in prices. If, as alleged, the communication between the firms had led to a fuel surcharge higher than it would otherwise have been, competition on the base fare would have led to a ticket price (base fare plus surcharge) no higher than the normal, non-collusive fare on the route in question.
To test this theory, Cornerstone Research and Professor Reiss analyzed VAA’s ticket database and cost data for its US-UK flights. An analysis comparing margins (ticket price minus fuel cost) showed that margins were lower in the period in which the firms were in communication because fuel costs increased more than fares, suggesting that ticket prices had not risen as a result of the communication. A regression analysis of changes in fares controlling for changes in fuel costs, exchange rates, and demand indices confirmed that ticket prices were not higher in the communication period. Both analyses led to the conclusion that there were no damages from the communication on fuel surcharges.
Following mediation, a settlement agreement in the civil case was reached in 2008 and granted final approval in April 2009.