Court set to uphold fine in British Airways v Virgin

British Airways’ (BA) long-running battle against rival Virgin Atlantic will draw to a close next week (15 March) at the European Court of Justice (ECJ). The Luxembourg-based court is expected to uphold a 2003 Court of First Instance ruling supporting a €6.8 million fine imposed on BA by the European Commission.

The simmering rivalry between the two companies was taken to a new level in 1998 when Virgin complained to then competition commissioner Karel van Miert about loyalty rebates granted to travel agents by BA. The Commission held in 1999 that the rebate, offered on top of a flat 7% commission rate to agents selling more tickets, was anti-competitive and fined BA.

The Commission’s precedent-setting ruling, based on article 82 of the EC treaty on abuse of a dominant market position, forced the airline company (which had, at that time, a 38% share of the UK market) to abolish the extra rebate. The company complained that it had been unfairly singled out and challenged the competence of a Commission whose members had collectively resigned only four months before the ruling.

In 2004, the Commission’s decision was upheld by the European Court of First Instance. The following year, BA went on to take its fight to the ECJ, which is also expected to uphold the decision, according to sources. "We argue that case law as applied by the Commission and the Court of First Instance is restrictive," said Romano Subiotto, a partner at the Brussels office of Cleary Gottlieb, who is representing BA.

"The Commission said this was abusive under the EC treaty. We say it is against the treaty’s objective of creating a free market based on competition."

Subiotto argued that BA’s tactics contributed to "lowering prices for consumers", a key objective of EU competition law. "Virgin complained that the practices were intended to squeeze it out of the market. The fact is that Virgin’s market share actually increased during that time," he said.

The Commission took issue over BA’s supplementary rebate of 1-3% over the usual 7% rate despite the fact that it otherwise permits flat commission rates of up to 50%, said Subiotto. BA was penalised for commission rates of no more than 11% because the Commission considered its conduct to be discriminatory.

The court’s ruling, said an ECJ spokesperson, could set precedents for future cases in which rebates are given for the sale of products.

This week, however, BA and Virgin found common cause. The Commission’s announcement on Friday (2 March) that an open skies deal with the US is set to be concluded dealt both companies a severe blow.

The monopoly that the two airlines share with two other airlines over flights between Heathrow and the US would be broken by an open skies deal.

British Airways’ (BA) long-running battle against rival Virgin Atlantic will draw to a close next week (15 March) at the European Court of Justice (ECJ). The Luxembourg-based court is expected to uphold a 2003 Court of First Instance ruling supporting a €6.8 million fine imposed on BA by the European Commission.