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Last Updated: Wednesday, 1 August 2007, 14:33 GMT 15:33 UK
Q&A: BA price-fixing investigation
BA aircraft
Fuel surcharges are designed to help pay for rising jet fuel costs
British Airways (BA) has been fined about 270m by the Office of Fair Trading and the US Department of Justice (DoJ) after it admitted breaking competition law.

The OFT delivered a 121.5m fine while the US DoJ has recommended a $300m (148m) punishment - though this must be approved by a court.

What did BA do?

The Office of Fair Trading in the UK and the US Department of Justice have been investigating allegations of price fixing by BA in relation to fuel surcharges on long-haul passenger and cargo flights.

The airline's chief executive, Willie Walsh, has admitted that members of staff breached company rules - and had contacted a competitor, Virgin Atlantic, over the level at which fuel surcharges were to be set.

This, he said, was "entirely unacceptable" and was condemned "unreservedly".

What is wrong with doing this?

Under competition law, tipping off a rival about a price change is illegal.

Competition law bans firms from agreeing prices. Competition between companies is supposed to lead to cheaper goods and services for customers.

Colluding with rivals also goes against what BA describes as its "long-standing, clear and comprehensive competition compliance policy".

How long has this inquiry been going on for?

The BA-Virgin investigations began in June 2006, with two members of staff - commercial director Martin George and communications chief Iain Burns - being put on leave of absence. The two left the company in October.

The probe looked at the period between August 2004 and January 2006, during which fuel surcharges rose from 5 per long-haul flight to 60.

But the US inquiry into allegations of cargo price-fixing started earlier, in February 2006.

How did competition watchdogs hear about the competition breaches?

Virgin Atlantic tipped off the OFT and helped with the investigation. In return, it has been given immunity and is not expected to be fined.

Under the OFT's leniency policy, a company which has been involved in cartel conduct and is the first to give full details about it will qualify for immunity from penalties.

So was it all BA's fault?

No. It seems that Virgin Atlantic was, by the very nature of collusion, complicit in what went on.

And while its decision to turn whistleblower may mean that it escapes a fine, its reputation is likely to be tarnished, say analysts.

According to the version of events given by BA, on three of the six occasions that the firms colluded, it was Virgin which approached BA about plans to change its fuel surcharge.

BBC business editor Robert Peston argues that if only BA is punished, it makes for rough justice.

"Virgin was a willing participant in this shameful attempt to rig the market," he said.

What were the potential punishments for BA?

BA could have been fined up to 10% of its worldwide sales, which came in at 8.5bn for the year to 31 March 2007.

In May, it said it was setting aside 350m to cover the fines and the costs of any legal action.

Mr Walsh still believes this will be enough to cover the costs.

Is this the end of the matter?

No. There is still the possibility of criminal action against individuals involved.

The OFT is still considering whether to bring charges, but said that just because BA had admitted breaching civil competition law, it did not mean that individuals had necessarily broken criminal law.

What are fuel surcharges and will this ruling have any impact on them?

Passenger fuel surcharges were introduced to help the airlines with the rising cost of jet fuel and have come to make up a significant part of the price of an airline ticket.

When introduced in May 2004, the charge was 5 return for long-haul flights, but soared to as much as 70 for a return flight as companies tried to pass on rising costs to consumers.

The DoJ said that during the air cargo conspiracy, BA's fuel surcharge on shipments to and from the US changed more than 20 times and increased from four cents (2p) per kilogram of cargo shipped to as high as 72 cents (about 36p) per kilogram.

Most airlines lowered the surcharges as oil prices came down from record highs, but they have since risen again.

BA insists that passengers had not been overcharged, because fuel surcharges were "a legitimate way of recovering costs".

The hefty fine for BA does not mean that fuel surcharges will come down. In fact, as the price of oil rapidly heads towards $80 a barrel, they are more likely to increase.


VIDEO AND AUDIO NEWS
Background to the price fixing case



SEE ALSO
BA's price-fix fine reaches 270m
01 Aug 07 |  Business
BA may face 350m collusion bill
18 May 07 |  Business
BA ups long-haul fuel surcharge
27 Apr 07 |  Business
BA pair quit amid surcharge probe
09 Oct 06 |  Business
BA investigated on fuel surcharge
22 Jun 06 |  Business

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