BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.
Complaint of Benjamin Edelman, Esq. Docket DOT-OST-2013-0025

BRITISH AIRWAYS PLC ANSWER TO COMPLAINT

Communications with respect to th is document should be sent to:

Richard Mendles General Counsel, Americas James B. Blaney Senior Counsel, Americas British Airways Plc 2 Park Avenue, Suite 1100 New York, NY 10016 richard.mendles@ba.com jim.blaney@ba.com Richard F. Hans Keara M. Gordon Colleen M. Carey DLA Piper LLP 1251 Avenue of the Americas New York, NY 10020 keara.gordon@dlapiper.com richard.hans@dlapiper.com colleen.carey@dlapiper.com

Don H. Hainbach Erin M. Tallardy Garofalo Goerlich Hainbach PC 1200 New Hampshire Avenue NW Washington, DC 20036 Phone: (202) 776-3970 dhainbach@ggh-airlaw.com etallardy@ggh-airlaw.com April 5, 2013BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.
Complaint of Benjamin Edelman, Esq. Docket DOT-OST-2013-0025

BRITISH AIRWAYS PLC ANSWER TO COMPLAINT British Airways Plc (“British Airways” or “BA”) hereby answers the complaint (the “Complaint”) filed by Benjamin Edelman (“Mr. Ed elman” or “Complainant”) alleging that BA misrepresented airline-imposed fuel surcharges as taxes in violation of 49 U.S.C. § 41712 and that BA’s fuel surcharges exceeded actual fuel co sts. Except as otherwise stated below, BA denies the allegations of the Complaint and re spectfully requests that the Department of Transportation (the “Department”) dismiss the Co mplaint without further investigation or order pursuant to 14 C.F.R. § 302.406(a)(2). The struct ure of the Complaint, the failure to number paragraphs, and the assertion of legal and other conclusions do not lend themselves to precise responsive pleading. To the extent that there is any factual statement or allegation that is not specifically admitted or denied herein, it should be deemed to have been denied. Introduction BA respectfully urges the Department to decl ine to commence an investigation or formal enforcement proceeding. There is no basis to do so. BA’s fuel surcharge is appropriately set and applied. In an attempt to suggest otherwise, Mr. Edelman engages in speculation and hypothesi s. Moreover, his hypothetical computations are predicated upon erroneous information a nd incorrect assumptions. Specifically, Mr. Edelman compares inapposite fuel surcharge figures to what he incorrectly characterizes as theBritish Airways Answer April 5, 2013 Page 2 “actual cost of fuel” to BA and, compounding the e rrors, relies on a series of deeply flawed assumptions. As a result, his analysis is irrelevant and proves nothing. BA has not committed any violations rela ted to price advertising, whether under 14 C.F.R. § 399.84(a) or 49 U.S.C. § 41712, and Mr . Edelman’s Complaint does not establish otherwise. The Department’s February 21, 2012 Guidance (“February 2012 Guidance”) 1 specifies that a cost component described as a fuel surcharge “must actua lly reflect a reasonable estimate of the per-passenger fuel costs incurred by the carrier above some baseline calculated based on such factors as the length of the trip , varying costs of fuel, and number of flight segments involved.” As demonstrated below, BA complies with that requirement. When consumers access the BA website to purch ase a ticket, they are provided the entire price to be paid. In the intere st of increasing transparency, consumers are also provided with a breakdown of government imposed taxes and fees as well as carrier charge s and surcharges that collectively comprise the total price to be paid by the consumer. It is clear from the Complaint that Mr. Edelman was not confused, much le ss deceived, by anything he viewed on the BA website, and the Complaint does not provide any evidence that any other consumer was either confused or deceived. Under those circumstances, the Complaint must be dismissed. Finally, the relief that Mr. Edelman seeks is both unwarranted and unavailable. For the reasons summarized above and set forth in more detail below, sanctions of any sort are not warranted here. Mr. Edelman’s suggestion that the Department refer this matter to U.S. and foreign tax collection agencies fo r investigation of possible tax fr aud or other violations of tax law strays far afield from the alleged “facts” and is meritless and inappropriate. Moreover, as there is no private right of action under 49 U. S.C. § 41712, Mr. Edelman may not seek – and he

1 Additional Guidance on Airfare/Air Tour Price Advertisements , February 21, 2012.British Airways Answer April 5, 2013 Page 3 may not ask the Department to pursue – refunds on his own behalf or an yone else’s behalf. See,
e.g. , Statland v. American Airlines, Inc. , 998 F.2d 539, 541 (7th Cir. 1993); Polansky v. Trans World Airlines, Inc. , 523 F.2d 332, 338-40 (3d Cir. 1975); Wolf v. Trans World Airlines, Inc. , 544 F.2d 134, 136-37 (3d Cir. 1976). I. BACKGROUND The cost of jet fuel to BA has risen nearly continuously since 2003 and the percentage of fuel costs to total expenses has risen as well. As BA has discussed in numerous public statements, including its annual re ports and investor materials:

 In fiscal year 2004, BA paid a 9.5 percent incr ease in fuel and oi l costs over the prior year (for a total of £922 million).

 By March 2005, fuel prices were at “record highs”; the cost of fuel was up 75 percent from early December 2003, which resulted in a “heavy hit to the bottom line.” Fuel was “the major cost issue” for BA at that time.

 During fiscal year 2005 alone, th e price of fuel rose 44.4 per cent, which resulted in an increased cost of fuel to BA of 22.5 percen t (for a total of £1.128 billion in fuel and oil costs).

 In fiscal year 2006, fuel costs continued to soar; brent crude reached a then all-time high of $72 a barrel in May 2005.

 Fuel prices were up 38 percent in Marc h 2006 over the prior fiscal year. The resulting cost to BA for fuel and oil rose 44.7 percent, to £1.6 billion at March 31, 2006. BA reported that fuel prices “continue to stalk the industry and there is no sign this will change.” At that time, BA an ticipated an additional significant cost for 2006/2007.

 In 2007, fuel continued to be a “major cost ” – BA’s second largest cost, and it rose 22.1 percent to £1.931 billion.

 Fuel prices continued to increase; by Ma rch 2008, fuel costs rose to £2.055 billion, a 28.4 percent increase from 2006.

 In March 2008, BA anticipated that the following year’s fuel bill would be up an additional £1 billion to a whopping £3 billion.

 Record oil prices continued in fiscal year 2009. “The year saw unprecedented volatility in oil prices , climbing at one point to $146 a ba rrel and falling to as low asBritish Airways Answer April 5, 2013 Page 4 $37 a barrel.” At $146 a barrel, fuel cost s were at “unprecedented levels.” BA remained concerned about the “prospect of renewed volatility.”

 By the end of 2009, fuel costs had risen another staggering 44.5 percent to £2.969 billion. In 2010, jet fuel costs recovered, bu t they rose again by more than 33 percent in 2011.

 As BA noted in its 2011 Annual Report, “[ i]t has been a difficu lt few years for the aviation industry; 2011 was no exception with significant increases in fuel prices against the backdrop of a sluggish global economic recovery.”

 In 2012, fuel costs again incr eased, this time by 14.4 per cent, to more than £3.7 billion. In sum, with limited exceptions, the cost of jet fuel has risen significantly and nearly continuously since 2003. As a result, in 2004, BA began to impose a fuel surcharge. BA was not unique or an outlier – many airlines began to impose a fuel surcharge in this same period. And, fuel surcharges are not limited to airl ines – they are impos ed by numerous other transportation-related industries. II. MR. EDELMAN’S COMPLAINT HAS NO MERIT.
1. Mr. Edelman’s Analysis is Flawed And Do es Not Support His Conclusory Assertions. Mr. Edelman’s claim that the fuel surc harge must precisely track some undefined relationship to the cost of fuel on a particular day is meritless. What Mr. Edelman seeks — an exact, statistical correlation between fuel surcharg e and the actual cost of fuel actually expended on a particular flight — is impossible. Mr. Edelman alleges that “to the best of [his] knowledge,” fuel surcharges do not represent a reasonable estim ate of per passenger costs, and offe rs a rough calculation of what he believes per passenger costs and aggregate fuel su rcharges to be. As addressed below, Mr. Edelman’s estimates are built on a series of incorre ct assumptions. In reality, fuel surcharges have never recouped the entire cost of fuel. To the contrary, th ey have generally recouped farBritish Airways Answer April 5, 2013 Page 5 less than the annual increas es in jet fuel costs to BA. A demonstrable co mparison of the price of jet fuel and fuel surcharge for economy long haul flights between the UK and U.S. in pounds sterling is provided below.

Mr. Edelman’s analysis is flawed because he incorrectly assumes that the cost of fuel to BA on a given day is the same as the quoted market price of jet fuel and crude oil on that day. Not so. There are a number of reasons why the actu al cost of jet fuel to BA may differ from the market price of jet fuel and crude oil.

 BA purchases refined jet fuel , not crude oil, a nd does so (in part) pursuant to forward contracts. Forward contracts are “over th e counter” agreements between two parties whereby one purchases fuel from the other at a fixed price at a future date.

 BA employs a hedging strategy in an attemp t to temper the relationship between the daily, more volatile market price for je t fuel and BA’s cost of fuel.

 BA pays for fuel in dollars, but accounts for it in pounds sterling, and thus its cost of fuel is affected by currency exchange rates.British Airways Answer April 5, 2013 Page 6 Similarly, there are a myriad of reasons w hy there will not be, a nd cannot be, a direct correlation between BA’s fuel surcharge imposed on a particular flight, and the actual cost of fuel to BA on that flight. For example:

 BA assesses its fuel costs periodically and sets its fuel surcharge accordingly; it does not adjust the fuel surcharge daily. BA changes the fuel surcharge periodically based upon a variety of factors including significant swings in the price of jet fuel that are not perceived to be short-term. As a result, the fuel surcharge does not move every time that the price of oil moves.

 Most travelers book their flight in advance. At the time of booking, the exact cost of fuel on a future travel date is a future, unknowable event th at BA cannot predict with certainty. BA applies the fuel surcharge a pplicable on the date one books a flight.

 It is not possible for BA (or a ny airline) to assign a fuel surcharge that will exactly match the actual per passenger cost of fuel on a spec ific flight on which a specific passenger may travel months in advance. There ar e too many variables, such as: the future movement of jet fuel prices (and BA’s hedging positions); weather; seat density; type and age of the aircraft; the size of the aircraft; the percentage of the plane that will be filled (versus vacant); excess baggage; the existence (or lack of) headwinds; taxi times; or long waits circling to land (holding patterns).

 BA flies over 750 flights per day to 70 countri es on 240 planes, and in the last 12 months, transported more than 34 million passengers, which common sense dictates administratively would make a particularized fuel surcharge calcu lation impossible. For all of these reasons, BA does not se t and assign a unique fuel surcharge to an individual flight on a particular da y, but rather sets the surcharge ba sed on sector, length of flight and class of ticket purchased. In addition, air lines operate in a competitive environment. BA will take into account the competitive landscape in al l of its pricing, including fuel surcharges. Presumably in an attempt to argue that th e fuel surcharge amount should be stagnant or easily calculable, Mr. Edelman claims that fuel prices have stabilized and have not increased over “recent years.” In support, he offers his A ttachment 5 as supposed proof of price stability but with no analysis. But a review of Attachment 5 as well as the attached chart of the spot priceBritish Airways Answer April 5, 2013 Page 7 of U.S. Gulf Coast Kerosene-Type Jet Fuel over th e last 18-24 months, prove s that in fact it has been a highly volatile period in the jet fuel market. ( See Exhibit 1). For example:

 On Monday, January 3, 2011, the spot price of U.S. Gulf Coast Kerosene-Type Jet Fuel was $2.528 per gallon.

 On Monday, January 9, 2012 – a little over one y ear later – the spot price had risen to $3.124 per gallon, an increase of more than 23 percent.

 Five months later, on June 4, 2012, the sp ot price had dropped to $2.673 per gallon, a decrease of more than 14 percent.

 However, by February 11, 2013, the spot pric e had again risen almost 19 percent to $3.299 per gallon. Thus, it is clear that the rise and fall of fuel prices is hardly linear.
2. Mr. Edelman’s Calculations are Flawed. On pages two to three of his Complaint, Mr. Edelman makes a series of incorrect assumptions regarding fuel surcharges, the cost of fuel, fuel consumption, and passenger and cargo load factors. These incorrect assumptions result in Mr. Edelman significantly overstating the maximum recoverable fuel surcharges whil e understating the true co sts of fuel. When corrected, it becomes clear that BA’s costs of fuel exceed recoverable fuel surcharges.

a. Mr. Edelman’s Fuel Consumpti on Assumptions Are Wrong. Mr. Edelman’s computations are based on his in accurate estimates of the cost of the fuel consumed during two hypothetical flights. Mr. Edelman’s presentation demonstrates a fundamental lack of understanding of airline operations. Airlines have complex formulas that dictate the fuel necessary for a particular flight, which account for a host of unexpected events, such as diversions for mechanical problems, medi cal emergencies, weather, or traffic delays. The amount of fuel that will actually be expende d on any given flight varies for a multitude of reasons, including the type and age of the aircraft flown; taxi ti me, gate time, weather; seatBritish Airways Answer April 5, 2013 Page 8 density; the size of the aircraft; the number of ac tual passengers on board; the percentage of the plane that is filled (versus vacant); excess bagg age; the existence (or lack of) headwinds; long waits circling to land; diverted flights, etc. BA will carry more than the precise amount of fuel correlating exactly to the scheduled travel time from runway to runw ay with no margin for diversion; all of the above factors and pot ential exigencies must be considered. The 747-400 aircraft employed by BA has a fuel capacity of 216,902 litres. Using Mr. Edelman’s assumed price of jet fuel (with whic h BA disagrees), $0.766/litr e, the cost of fully fueling the 747-400 would be $166,146.93. The fuel capacity of the 777 aircraft is 168,090 litres. 2 Again assuming $0.766/litre, the cost of fully fueling the 777 aircraft would be $128,756.94. Thus, to the extent that more fuel, up to capacity, is used on a particular flight, Mr. Edelman understates the fuel cost. b. Mr. Edelman Overstates Passenger and Cargo Load Factors. Mr. Edelman incorrectly initially assume s passenger and cargo load factors of 100 percent. Mr. Edelman eventually concedes that the Passenger Load Factor (“PLF”) may actually be closer to 83 percent and the Cargo Load Factor (“CLF”) even lower at 73.9 percent, but states that he has “not fully evaluated that argument.” (C omplaint at 3). In fact, as set forth in BA’s 2012 Annual Report, the PLF is closer to 79 percent. Perhaps because of his incomplete analysis , Mr. Edelman wrongly dismisses the effect of his overstatement as inconsequential. To the contrary, it is quite consequential and, as Mr. Edelman admits, can affect the maximum aggr egate fuel surcharge per flight by $20,000 or

more.

2 The data for both models is based on BA’s published 2007 factbook, which is available on the Internet.British Airways Answer April 5, 2013 Page 9 c. Mr. Edelman Overstates Revenue that Could be Charged. In addition to his failure properly to cons ider cargo load factors, Mr. Edelman vastly overstates the available cargo cap acity of the 777 and 747-400 aircra ft, as configured by BA, and as a result, materially overstates the potential cargo fuel surcharge BA may apply. For example, the actual cargo capacity of BA’s 777 is 20,184 kg. 3 Taking into account the 9,062 kg set aside for passenger baggage, there is a billable cargo capacity of only 11,122 kg. Assuming 100 percent utilization of the bi llable cargo capacity would re turn only $12,901.52 – more than $27,000 less than the amount ($40,600) computed by Mr. Edelman. Mr. Edelman similarly overestimates the billable cargo space available on the 747 by more than 26,000 kg. Again, this results in an ove rstatement of the maximum potential aggregate cargo surcharge by more than $30,000.
d. Mr. Edelman Understates Fuel Consumption on the BA 777. Mr. Edelman understates the fuel consumption on BA’s 777 service by almost 10 percent. The fuel consumption fo r the 777 is actually 8,290 litres per hour 4 or approximately 700 litres per hour greater than the 7,600 litres per hour figure used by Mr. Edelman. Even assuming the accuracy of his remaining assu mptions, for purposes of argument only, this understates the fuel expense by nearly $3,400 per flight. e. Mr. Edelman Employs Incorrect Seating Density Information. Mr. Edelman also misstates the amount of available First Class s eats on BA’s 777 service — BA provides 777 service through its 777-200 (772). As reflected in BA’s site and seat map

3 This data is based on BA’s published 2007 factbook, and has been converted from pounds to kilograms.
4 This data is based on BA’s published 2007 factbook. Given the age of the aircraft, this number is likely even higher now.British Airways Answer April 5, 2013 Page 10 for the equipment, there are 14 available First class seats and not the 16 as claimed by Mr. Edelman. This overstates the maximum rec overable fuel surcharge revenues by $900.
Mr. Edelman’s calculations on the 747 service also benefit from his decision to use a configuration of the 747 with great er seating capacity. BA has in its fleet two versions of the 747-400. One model has 299 seats and the other ha s 345 seats. By using the model with 345 seats, Mr. Edelman potentially overstates the ma ximum recoverable fuel surcharge revenues by $6,500. Finally, Mr. Edelman’s calculations do not acc ount for the fact that not all seats are available for sale. Mr. Edelman’s calculations ne glect to account for the fact that on long haul transatlantic flights, certain seats are designated for crew rest and cannot be occupied by
passengers. f. Mr. Edelman Miscalculate s the Price of Jet Fuel. As has already been noted, BA purchases its jet fuel through forwar d contracts. Because BA does not purchase jet fuel on the date of the act ual flight, consideration of jet fuel prices on that date is not approp riate. Even were one to do so, however, Mr. Edelman’s assumed price of jet fuel is based on static and misleading prices that may underestimate, however inadvertently, the base fuel price by as much as $.25 per gallon. g. Mr. Edelman Cherry Picked Data. Mr. Edelman alleges that the fuel surcharges are implausibly high and in his Complaint he calculates the fuel surcharge to be over 70 percent of a $640 r ound-trip transatlantic ticket. However his analysis is skewed by the fact that the fare he selected reflects the lowest end of potential sale fares for the specified routing. The 70 percent ratio is not re flective of the majority of tickets sold by BA. A fully flexible economy fare for the same itinerary would beBritish Airways Answer April 5, 2013 Page 11 approximately $4,500, and in that instance, the fuel surcharge would constitute approximately 10 percent of the ticket price. A $2,600 fare is also available in the market and that fare would result in the fuel surcharge constituting approx imately 17 percent of the fare. These examples demonstrate that the percentage of the ticket allocated to the fuel surcharge will vary based on the range of ticket prices availa ble and the actual ticket amount. It is a gross misstatement to assert that 70 percent of each ticket available for purchase represents the fuel cost above a baseline.
3. BA is Not Required to Provide Calculati ons Supporting the Fuel Surcharge On the Website. Mr. Edelman alleges that BA’s fuel surcharges are not supported by “required calculations.” The Department’s February 2012 Guidance, however, does not require that BA provide substantiation or some form of financia l calculation in support of the fuel surcharge imposed on its website.
4. BA’s On Business Web Pages. The Complaint mischaracterizes the natu re of the British Airways On Business programme. On Business is a business to busi ness (“B2B”) initiative, intended to provide incentives and discounts to small and medium-si zed enterprises (“SMEs”) which do not have corporate discounted travel agreemen ts with BA for employee travel. Participation in the On Business programme is based on terms formally agreed to by the SME, not its individual employees/travelers. Po ints may only be accrued for validated travel by SME employees or consultants; all programme benefits and travel redemptions, including discounts on flights, redemption of On Business points for flight, hotel or other services may only be accessed by the programme administrator or corporate authorizer designated by the SME at the time of enrollment. Travelers on redemp tion awards must be employees, consultants orBritish Airways Answer April 5, 2013 Page 12 guests of the SME and cannot acce ss or book travel or redeem On Business benefits unless the programme administrator authori zes such redemption. SMEs must validate that they are legitimate businesses, not individuals, in order to qualify for participation in the programme. In sum, BA’s On Business web pages are designed for use by commercial participants in the programme, not the general public. 5. BA Does Not Improperly Co-Mingle Govern ment-Imposed Taxes with BA Fees. As with many carriers worldwide, BA’s f lights may be incorporated by prospective passengers into specialized “around-the-world” (RTW) itineraries. One online source of RTW tickets is “rtw.oneworld.com,” a specialized s ite owned and managed by oneworld Management Company, Inc. (“oMC”) and developed by oMC in cooperation with Innovata and Amadeus. oMC offers this “RTW Tool” to book RTW flight s on BA and other oneworld carriers. Fare displays and disclosures provided by the RTW T ool are determined by oMC, not the individual carriers. Mr. Edelman has docketed identical complain ts concerning the RTW Tool against two other oneworld carriers — American Airlines and Cathay Pacific — but BA understands that the RTW Tool may, depending on itinerary, select any of nine active oneworld members to ticket an itinerary. The Complaint here is based on a test conducted by Mr. Edelman of the RTW Tool for an itinerary containing five BA flight segments; the itinerary apparently was composed so that BA would be the ticketing carrier. As has already been documented to the De partment, oMC complete d its remedial action on February 18, 2013. BA has confirmed that th e RTW Tool pricing di splays now show a “Taxes and Carrier Surcharges/F ees” subtotal, and non-tax items are identified, for example, as “Carrier Surcharges/Fees.” Thus, the RTW Tool is consistent with the Department’s FebruaryBritish Airways Answer April 5, 2013 Page 13 2012 Guidance in this area, any unintended confus ion regarding the non-far e portion of the total price has been eliminated, and the subject matter of the Complaint in this regard has been resolved.
6. BA’s Itemization of Costs Properl y Denotes Taxes and Surcharges. Mr. Edelman complains that references to “f uel surcharges” are inherently improper. Mr. Edelman’s suggestion that the sentence, “T he price of your ticket may include a fuel surcharge per flight levied by the carrier” is somehow misleading st rains credulity. As an initial matter, the Department did not issue guidance rega rding the disclosure of fuel surcharge until February 21, 2012, which was not effective until April 22, 2012. Pursuant to the February 2012 Guidance, BA transitioned to th e use of the phrase “carrier ch arges” on its website in nearly every instance. BA did this even though it creates a tension with EU rule s which, in practice, have a much greater bearing on BA than U.S. carriers b ecause of BA's UK domicile and the size of its EU business. The EU rules are set out in Article 23 of EC Regulation 1008/2008 which has direct binding force in all 27 EU Member St ates and applies to the sale of flights to/from an EU airport. The rules require that, in addition to specif ying the final price payable by the consumer, a breakdown of the following items must be included; namely, (i) “taxes,” (ii) “airport charges,” and (iii) “other charges, surcharges or fees, su ch as those related to security or fuel.” In addition, the Consumer Protection fr om Unfair Trading Re gulations 2008 (which implement into UK law the requirements of an EU Directive concerning unfair commercial practices applicable to all EU Member Stat es) prohibit misleading practices in consumer

# EXHIBIT 1

## PETROLEUM & OTHER LIQUIDS

GLOSSARY › FAQS › OVERVIEW DATA ANALYSIS & PROJECTIONS

View History: Daily Weekly Monthly Annual Download Data (XLS File)

U.S. Gulf Coast Kerosene-Type Jet Fuel Spot Price F OB (Dollars per Gallon) Decade Year-0 Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Yea r-7 Year-8 Year-9 1990's 0.762 0.608 0.572 0.529 0.493 0.494 0.611 0.560 0.403 0.498 2000's 0.850 0.725 0.687 0.824 1.151 1.715 1.923 2.131 2.964 1.664 2010's 2.149 2.998

- = No Data Reported; -- = Not Applicable; NA = Not A vailable; W = Withheld to avoid disclosure of individual company data. Release Date: 2/13/2013 Next Release Date: 2/21/2013 Referring Pages:
■ Spot Prices for Crude Oil and Petroleum Products U.S. Gulf Coast Kerosene-Type Jet Fuel Spot Price F OB

1990 2000 2010

1992 1994 1996 1998 2002 2004 2006 2008 0 1 2 3 4 Dollars per Gallon

Source: Thomson Reuters U.S. Gulf Coast Kerosene-Type Jet Fuel Spot Price FOB Page 1 of 1 U.S. Gulf Coast Kerosene

- Type Jet Fuel Spot Price FOB (Dollars per Gallon)

2/ 14/ 2013 http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=eer_epjk_pf4_rgc_dpg&f =a