BA hit with £270m fines for price fixing

British Airways was hit with almost £270 million in fines yesterday as it reached settlements with US and UK authorities for price fixing on fuel surcharges.

Archrival Virgin Atlantic Airways blew the whistle on BA last year after individuals at the two carriers discussed proposed changes to fuel surcharges for long flights.

Virgin won immunity in the UK, where the Office of Fair Trading (OFT) fined BA £121.5 million in the OFT's biggest-ever civil penalty.

The US Department of Justice fined BA £148 million as part of a wider investigation that also resulted in a fine for Korean Air Lines and notice that Virgin and Germany's Lufthansa would have to pay restitution to customers.

"This resolves the OFT's and the DoJ's (U.S. Department of Justice) investigation of British Airways," BA said in a statement to the London Stock Exchange.

Virgin was not available for immediate comment.

The fines, already the biggest in BA's history, could have been higher if the airline had not admitted wrongdoing.

"Had BA not made admissions and cooperated from the outset, they would have been fined many millions of pounds more... tens of millions of pounds," OFT director of cartel operations Simon Williams said in a telephone interview. "This is the largest civil fine ever imposed by the OFT," he said, adding that he hoped it would serve as a deterrent and encourage businesses to come forth with information before their rivals do. "Businesses up and down Britain have to ask themselves some very hard questions."

Two senior BA executives quit last October after being linked to the investigation and in May BA set aside £350 million as a provision for possible fines.

BA said it expected that provision to cover the fines and any impact from a separate, widespread probe of the airline industry regarding cargo fuel surcharges which also involve authorities in Europe, Canada, Australia, South Africa and New Zealand.

Analysts said the UK fine was in line with expectations, given the provision already taken, and noted BA could have fared far worse.

"The fine is less than the maximum 10 per cent of revenue (£850 million) that could have been imposed," said Citigroup analyst Andrew Light in a research note that carried a 580 pence target price for BA and a "Buy/High Risk" investment rating. "This news is already fully priced in," he said.

The price fixing related to surcharge increases which took place from 2004 until 2006.