Branson: Behind the Mask Read online

  Virgin Atlantic’s lawyers in America had asked the company’s executives whether other types of price-fixing had been discussed with any rival airline. In reply, Willy Boulter, the director of sales, admitted a secret relationship with Alan Burnett, BA’s sales director. Starting in 2004, explained Boulter, directors at Virgin and BA had discussed the Passenger Fuel Surcharge – an additional fee each passenger paid to cover rising fuel prices. Both airlines, according to Boulter, had secretly agreed to avoid mutually damaging competition by imposing the identical surcharge on passengers on the same date. The arrangement, said Boulter, had ended in early 2006. Virgin’s lawyers concluded that the discussions amounted to a criminal conspiracy to fix prices.

  Considering the appalling relationship between the airlines since Virgin Atlantic’s creation in 1984, few would have imagined that the two corporations might have conspired together. But the information the lawyers received was unambiguous. Steve Ridgway, Virgin Atlantic’s chief executive since 2001, had approved the secret discussions with BA’s executives and, according to the prosecution in the subsequent trial, ‘Ridgway did reveal to Sir Richard Branson at some stage that he had some sort of contact at British Airways.’ That allegation would be repeated by a defence lawyer, who would tell the jury that while Branson’s ethos for his airline was ‘fierce competition’, Branson ‘knew about’ the secret discussions with BA about fixing the surcharge. As the prosecutor would tell the jury in 2010, ‘You may conclude as you look at the documents and you hear from the witnesses that he [Branson] certainly had an interest in the pricing policy of the airline, Virgin.’ Or, as another defence lawyer alleged, ‘Sir Richard Branson was kept informed of any information or discussion regarding the Passenger Fuel Surcharge. He knew about it.’

  Four years earlier, in 2006, Branson was told by his lawyers, who were still unaware that the airline had been excluded from the US Department of Justice’s investigation, that discovery of the discussions about the fuel surcharge with BA could trigger a second ruinous fine. Escape was possible, his lawyers advised. Under American law, the whistleblower of a crime received immunity from prosecution. If Virgin was the first to confess to the Department of Justice, the airline and its executives could avoid fines and imprisonment. The lawyers recorded interviews with three Virgin directors. All three admitted discussions with BA’s executives but denied knowing that their conversations and agreements were criminal. Soon after, with Branson’s approval, Virgin’s lawyer approached the Department of Justice.

  Scott Hammond, the department’s liaison officer, had not expected the lawyer’s telephone call. Until that moment, investigators were unaware of any conversations between Virgin and BA about the surcharge. Nor, they subsequently admitted, would they ever have found any trace of that secret. If Virgin’s executives, with Branson’s agreement, had not initiated the confession, their agreements with BA would not have been exposed.

  ‘Virgin wants to put down a marker about fixing the Passenger Fuel Surcharge with British Airways,’ said the Virgin lawyer. ‘Are we the first?’

  ‘Yes’, replied Hammond, disguising his surprise.

  ‘I want you to hold our place in the amnesty,’ said the lawyer.

  ‘You’re the first. You’ve got thirty days to perfect your marker and tell us if you’ve got something or not.’

  Before the end of that period, Virgin Atlantic and its three senior executives formally confessed to the crime, and in exchange were granted immunity from prosecution and any punishment. The agreement was kept secret until, on 10 March 2007, Virgin’s lawyers approached the Office of Fair Trading (OFT) in London to admit the company’s involvement in a criminal cartel with BA and again ask for immunity from prosecution.

  According to Virgin’s confession, the conspiracy with BA had started with a telephone call in August 2004 between Paul Moore, Virgin Atlantic’s director of communications, and Iain Burns, his counterpart at BA. Who initiated the call was disputed, but the content of the conversation was agreed. The two men discussed the time and date both airlines would announce the increase of a Passenger Fuel Surcharge to £6. After both referred their discussion to their superiors, the first of several secret agreements was implemented: both airlines would announce their own surcharge on the same day. The background to that first conversation reflected Branson’s financial problems over the previous years.

  The terrorist attacks on New York and Washington in September 2001 had cost Virgin Atlantic about £100 million over the following year. Despite Branson’s confident prediction that his airline would recover within three years, he had postponed the delivery of the new Airbus A380 double-deckers, saying some airports were not ready for the planes. The excuse was denied by Airbus’s spokesman, who added that no other airline had delayed delivery. To protect Branson from embarrassment, nothing more was said, but Virgin abruptly terminated publicity of Branson’s colourful promises about parties in the sky in the new plane’s bars and mile-high sex in its double beds. To conceal Virgin’s financial reality – and the airline is still not flying an A380 – Branson resorted to gimmicks to embarrass BA.

  His first machination followed Concorde’s crash in Paris in 2000, which killed 113 people. In the aftermath, Air France and BA decided, on the manufacturer’s recommendation, to abandon the loss-making and unserviceable supersonic plane. Branson criticised that decision. Virgin Atlantic, he said, wanted to buy and fly Concorde. In 2003, he offered BA £1 for the aircraft, the price he said the airline had originally paid. When BA refused, Branson demanded that they should repay £600 million to the government in compensation for what Branson called the ‘hoodwink’ in the early 1980s. Next, he demanded that Tony Blair, the prime minister, save Concorde. Many were puzzled by his sustained attack. Concorde usually flew half full, lacked spare parts, cost a fortune in fuel and damaged the environment. Yet Branson, despite his financial problems, insisted that Virgin wanted to inherit the plane. The government refused. ‘Branson’s just looking for publicity,’ was BA’s comment.

  His next wheeze occurred during Virgin Atlantic’s inaugural flight to Australia. Branson offered his passengers sick bags decorated with the ill-fated ethnic designs which BA had painted on the tails of its aircraft. BA had discarded the designs amid ridicule.

  The third ploy reflected Branson’s habit of enjoying a competitor’s discomfort. In the aftermath of 9/11, Branson pointedly mentioned BA’s financial difficulties, especially as a result of rising fuel prices. Most dismissed his jibes as irrelevant. Virgin Atlantic was a minnow, ranking tenth in terms of passengers carried on the transatlantic routes, and his airline was weakened by his refusal to join a code-sharing alliance with other airlines. But his biting comments did affect BA’s struggle to survive.

  To compete against the two major alliances created by other European airlines with two American giants – Delta and United – BA wanted to forge an alliance with American Airlines. Branson deemed BA’s survival plan a threat to Virgin Atlantic’s independent existence, and in 1996 he had orchestrated a blockbuster campaign in London and Washington to persuade the two governments to prevent BA’s alliance with AA. In 2004, the circumstances changed, when the EU and the US government annulled all restrictions on transatlantic travel. Among the casualties was the Bermuda Agreement of 1976, which had limited access for flights from America to Heathrow to two American and two British airlines, one of which became Virgin. Overnight, Virgin’s lucrative protection at Heathrow disappeared. Branson, as the champion of competition, should have welcomed the benefits to travellers but, since his profits were threatened, he protested.

  He railed against BA’s new bid for an alliance with AA, yet approached Sheikh Ahmed Al Maktoum of Dubai to discuss co-operation between Virgin Atlantic and Emirates airways. Branson’s good fortune was that the public ignored his contradictions. Few ever quite understood his undisguised fears about fuel prices. In public speeches, he often mentioned that ‘I am building bioethanol factories to get an alternative to oil a
nd cut Virgin Atlantic’s fuel bill.’ He would even repeat his mantra during a visit to Dubai while opening a Megastore.

  In early August 2004, alarmed that Virgin Atlantic’s finances were being jeopardised by rising fuel prices, Branson began speculating with his executives about BA’s reaction to the increases. Would BA levy a higher fuel surcharge? For Branson, BA was the elephant threatening his survival, but his obsession was not reciprocated. BA regarded Virgin Atlantic as one of many small competitors, albeit an unreliable irritant. Considering the historic enmity between Virgin and BA, the likelihood of BA executives inviting Branson to join a conspiracy to fix the surcharge was low. But the evidence presented by the prosecutors in Washington and later London, based on the information supplied by Virgin, suggested the opposite.

  In the first days of August, Virgin executives decided to increase the fuel surcharge by £5. Soon after the decision was taken, Branson asked Paul Moore to discover from journalists whether BA intended to levy a higher surcharge than Virgin. Moore reported to Branson that BA was briefing selected journalists that their surcharge would increase.

  Soon after, Branson telephoned David Parsley, a sympathetic financial journalist employed by Express Newspapers. ‘British Airways’, said Branson, ‘are going to increase their surcharge.’ Branson was hoping that Parsley would discover the amount. After thanking Branson for the tip, Parsley called Iain Burns, who confirmed that BA’s surcharge would increase from £2.50 to £6, or possibly £8. The newspaper would publish Parsley’s discovery three days later. According to the defence lawyers in the subsequent trial, the timetable laid suspicion at Branson’s door. After speaking to Parsley, stated BA’s lawyers, Branson told Moore to call Burns. Branson, it was alleged, did not want Virgin to take the lead and make the announcement alone.

  If that scenario was true, then Moore would appear to have made the first call. However, supported by Virgin’s executives, Moore emphatically denied taking the initiative and starting the conspiracy. After all, that admission would have cast Virgin as the architect of the crime. The obfuscation benefited Virgin because, from the outset of the Department of Justice’s investigation, the American lawyers appeared not to have sought evidence to contradict Moore’s version of how the subsequent discussions between Virgin and BA about further increases in the fuel surcharge occurred.

  ‘This is a conversation we’re not having,’ were the undisputed opening words of the telephone conversation on 6 August 2004 between Moore and Iain Burns. To establish BA as the villain behind the alleged conspiracy, the prosecutors in America and Britain relied on statements signed by Moore alleging that Burns had called him first, thus casting Burns and BA as responsible for initiating the conspiracy. Burns would deny the accusation. His lawyers would say that Virgin’s attempt to incriminate BA was a distortion of the truth.

  The two men did, however, agree about the content of the first telephone call: Burns revealed that BA was planning to impose a surcharge of £6, while Moore disclosed Virgin Atlantic’s agreement to impose a £5 surcharge on long-distance flights. Moore’s testimony about the events that followed was critical to the prosecution. He would say that after Burns called him ‘out of the blue’, he went immediately to see Steve Ridgway, who in turn summoned Willy Boulter, Virgin Atlantic’s commercial director. Moore told them, ‘You won’t believe the call I’ve just had from British Airways,’ and then read his recollection of the exchange from his notebook. Virgin’s two executives decided that the airline should agree with BA on the timing of the announcement and match the amount of the surcharge.

  The economics of pricing airline tickets is complex. Airlines continuously change their prices without notice. Passengers in any Boeing 777 would be paying about sixty different fares, based on constant recalculations by sophisticated computer programs. A conspiracy between airlines to fix all those prices would be difficult. Fuel surcharges, however, have always been publicly announced. Ridgway knew that Branson was nervous about the mechanics of publicising a surcharge. Some inside Virgin would even say that Branson was ‘obsessed’ by the actual words used in Virgin’s announcement. In particular, he wanted the context of the surcharge – the rising oil prices – to be properly explained.

  On 6 August, Branson was satisfied by the statement drafted by Moore, and Moore was told to confirm his agreement about the timing of the announcement with Burns. BA, everyone agreed, would make the first announcement of a £6 increase, and Virgin would follow hours later. This was the conspiracy to which Virgin pleaded guilty, wilfully incriminating BA. There was, however, another version.

  Weeks after the £6 surcharge was announced, Branson, according to prosecutors, ‘emailed Boulter and suggested that Virgin should consider again increasing its Passenger Fuel Surcharge’. The following day, Boulter discussed a further increase with Alan Burnett, BA’s sales director. Boulter reported his agreement with Burnett to Ridgway, and two months after agreeing the £6 surcharge, BA and Virgin Atlantic simultaneously announced that their respective Passenger Fuel Surcharges would go up to £10.

  Over the following months, oil prices continued to rise and Virgin’s finances were squeezed. In March 2005, after intense discussions within BA and by Virgin’s executives, Moore and Burns spoke again. Acting as messengers, they agreed about the timing of their respective announcements that the surcharge would be raised by a further £6, to £16 each way. On 24 June, after more discussions between Boulter and Burnett, both airlines increased their surcharge to £24. In anticipation of the announcement, Moore sent Burns a copy of Virgin’s press release. On the same day, Branson appeared on TV to say that he was opposed to fuel surcharges. No one at BA’s headquarters was surprised by Branson’s inconsistency, but everyone knew that Virgin Atlantic’s finances had deteriorated. They would get worse after Hurricane Katrina hit the US. In the aftermath, oil prices soared, almost doubling in one year.

  On 1 September, Steve Ridgway told Paul Moore, ‘I want you to have another of your conversations with British Airways.’ Moore called Branson, and immediately afterwards rang Burns. The two men were messengers of a further increase in the surcharge, but with a twist. Branson had discussed imposing a higher surcharge on first-class passengers with Ridgway, and Moore mentioned that possibility to Burns.

  Pertinently, the senior executives of the two airlines were due to meet on Sunday 4 September at Branson’s Oxfordshire home. Branson was hosting a cricket match to mark the retirement of Rod Eddington, BA’s chief executive, and to celebrate their improved relationship. To repair the damage of the airlines’ vicious war, a prosecutor would say, Eddington had ‘not so much offered an olive branch; more like an olive tree’.

  In the subsequent trial of Burns and three other BA executives, Richard Latham QC, the prosecutor, described events leading up to the cricket match. Branson, said Latham, had told Boulter to ‘sound out his contact at British Airways about a potential surcharge increase’. Branson wanted to know BA’s reaction if Virgin increased the surcharge again. In particular, Branson wanted Boulter to check with his BA contact ‘to see if they would follow if Virgin was to lead with a variable Passenger Fuel Surcharge’. Latham based his allegation on Boulter’s own admission to the Department of Justice. Initially, Boulter explained, he was ‘reluctant’ to fall in with Branson’s suggestion because the conversation needed to be ‘more sophisticated’ and, around the time of the cricket match, several parallel discussions between Virgin and BA were under way. Nevertheless, before the game, Boulter did speak to Alan Burnett, apparently laying the ground for a conversation between Branson and Eddington when they met.

  During that hot Sunday, the two men were seen to be engaged in a lengthy conversation, in which they agreed that surviving in the airline business was tough. Neither could recall, when subsequently questioned, whether the surcharge had been mentioned. They parted on good terms, although BA won the cricket match. Two days later, Virgin increased its one-way surcharge across the Atlantic from £24 to £30/$55. In an email
sent to Virgin Atlantic staff on the same day as he announced the surcharge, in a statement vetted by Branson, Paul Moore warned that any photographs of the match should be kept private. ‘Please don’t put anything up on the intranet [sic]!!!!!!!’ he wrote. ‘If British Airways follow our surcharge it might not look too clever to show us fraternising two days before.’ Two days later, BA imposed the same surcharge. Pertinently, the prosecution would decide not to mention the conversation between Branson and Eddington.

  Five months later, the US Department of Justice launched its St Valentine’s Day raids to find evidence of a cartel fixing cargo prices. Despite the turmoil, in April 2006 Moore and Burns spoke once more about surcharges, but their relationship ended abruptly once Virgin’s lawyers became involved.

  Virgin’s immunity agreement with the Department of Justice and the OFT included an obligation to hand over all the relevant documents, emails and telephone records to the investigators. To comply, Virgin’s lawyers commissioned experts to download data from the company’s computers. At the same time, Ridgway and two other executives gave formal interviews and statements to the Department of Justice. Those early declarations described their discussions with BA, but they professed ignorance that they could be criminal. Moore, for example, while implicating Branson in the discussions within Virgin, told the lawyers, ‘We all felt that however dodgy the conversations might have felt, they weren’t price-fixing … The surcharge was different to the price.’ In his early statements, he always referred to ‘price-matching’ rather than ‘price-fixing’. Those statements were unhelpful to the prosecution: the immunity agreement had been granted only in exchange for Virgin’s confession to a crime. ‘Other interests’, a Department of Justice lawyer sighed, ‘are coming into play’ – not least, the lawyers suspected, to protect Branson’s reputation.