BA prepared for multi-million pound finesAirline braced for action over fuel surcharges

18 May 2007

 

A plane in the sky

British Airways was braced today for multi-million pound fines and legal action after admitting it broke competition rules.

The airline said it had set aside £350 million as its ‘best estimate’ to cover potential claims stemming from the discovery last year that senior staff had discussed long-haul fuel surcharges with rivals.

The UK's Office of Fair Trading and the US Department of Justice have been investigating alleged price fixing on long-haul fuel surcharges since June.

If found guilty of operating a price-fixing or market-sharing cartel, an airline can expect to be fined as much as 10 per cent of its worldwide sales.

Annual results

The £350 million charge was taken in annual results today, which showed profits of £611 million against £616 million a year earlier. At an operating level, profits for the year were down 13 per cent at £602 million.

The fall came after a £350 million hike in fuel costs, as well as the impact on revenues caused by increased security measures, fog and cabin crew disputes.

Profits were down by 68 per cent to £31 million in the final quarter of the year after threatened industrial action caused passengers to switch to other airlines.

Chief executive Willie Walsh admitted it had been a challenging year for both the airline and passengers.

He said: ‘We know at times it has been a frustrating year for our customers, caused by disruption and overly restrictive UK government security measures on hand baggage.’

Competition law

In October, BA's Commercial Director Martin George and Communications Chief Iain Burns quit the company. Mr George admitted that within his department ‘there may have been inappropriate conversations’ in violation of company policy in relation to long-haul fuel surcharges.

BA admitted in its full-year results that it had broken competition law.

It said: ‘BA has a long-standing, clear and comprehensive competition compliance policy. This policy requires all staff to comply with the law at all times. It has become apparent that there have been breaches of this policy in relation to discussions about these surcharges with competitors.

‘As a result it is now appropriate for the company to make a provision of £350 million in its full-year accounts, which represents the company's best estimate of the amounts that could be required to settle all known claims in relation to these matters.’

© The Press Association, All rights reserved.