British Airways was fined a total of £269 million for conspiring to fix the price of air fares yesterday but the airline could be forced to pay out millions more to passengers seeking compensation.

The Office of Fair Trading (OFT) fined BA £121.5 million for anti-competitive behaviour, the largest penalty it has levied against a single company. The US Department of Justice (DOJ) fined the airline a further $300 million (£147 million), the second largest anti-trust penalty it has levied.

These fines could be dwarfed by compensation demands from passengers and companies who have paid higher fares because of BA’s actions. British passengers are understood to have signed up to a class-action lawsuit that has been filed in the US and a further legal demand for restitution is expected to be filed in a London court this year.

The charges against BA relate to two instances of price fixing. In the first, BA and Virgin Atlantic discussed the amount they would charge customers to cover increases in the price of fuel. These “fuel surcharges” were introduced in 2004 and, over a period of 18 months until early last year, the two airlines colluded on the level and timing of increases to their surcharges.

Virgin’s lawyers blew the whistle on the illegal arrangement last June and police raided BA’s Heathrow headquarters. Through its actions, Virgin has escaped prosecution in Britain and the US and saved itself hundreds of millions of pounds in fines.

Martin George, BA’s commercial director, and Iain Burns, the communications director, resigned last year over the affair. Both are under criminal investigation by the OFT and US Department of Justice and could face prison sentences if found guilty.

Although BA has now settled with government regulators it still faces the anger of passengers who feel the airline defrauded them. BA and Virgin insist that customers did not financially lose out. The airlines say that the fuel surcharges rose because of increases in oil prices and the illegal discussions they had were only on the timing of announcements. The OFT and DOJ rejected that argument. Simon Williams, director of cartel investigations at the OFT, said: “The law is built on the assumption that all cartels have an anticompetitive effect and operate at the detriment to consumers.”

Scott Hammond, the Deputy Assistant Attorney-General of the United States, said: “Would a company risk these sorts of fines and continue to participate in a conspiracy that had no beneficial effect? I suggest that defies common sense.”

Lawyers are preparing class-action lawsuits against BA and Virgin to demand compensation. Cohen, Milstein, Hausfeld & Toll, a Washington DC-based law firm, has lodged a lawsuit in a San Francisco court and is preparing to bring a similar claim to London.

Virgin admitted yesterday that it had received a passenger lawsuit in the US and was in talks to settle it.

The second case of price-fixing relates to fuel surcharges for carrying cargo. This is a far wider investigation that covers about a dozen airlines in the US, Europe, Asia and Australia.

Willie Walsh, chief executive of BA, said: “Fuel surcharges are a legitimate way of recovering costs and when set independently do not breach competition law. I want to reassure our passengers that they have not been overcharged. However, this does not in any way excuse the anticompetitive conduct. This . . . is unacceptable and we condemn it unreservedly.”

BA was also revealed last night to be the worst large European airline for losing bags and is forecast to lose 1.3 million bags this year, according to new figures.

Research by the Association of European Airlines showed that the airline lost 28 bags per 1,000 between April and June compared with an average of 16 for other operators. The figure is nearly double the number lost by the airline in the same period last year.

Air passenger groups suggested that the problem would get worse as the summer holiday season continued. Andrew Dodgson, a spokesman for the Transport and General Workers’ Union, said that part of the problem was that the airline was taking its workers off duty to train for the new baggage systems at Terminal 5, which is due to open in March.

Up, up and away

2004
May BA and Virgin introduce a £2.50 passenger fuel surcharge (PFS) on long-haul flights
August BA tells Virgin it will increase surcharge to £6
October 8 BA announces increase to £10, Virgin the same

2005
March BA tells Virgin it plans to increase PFS to £16. Virgin confirms to BA matching increase
June BA tells Virgin its PFS will rise to £24. Virgin announces identical increase
September Virgin informs BA it “is likely” to increase its PFS to £30. BA matches it
November 18 Virgin informs BA it is about to announce a cut to £25

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