Regulators circle British Airways in price-fixing inquiry

British Airways is under investigation by competition watchdogs on both sides of the Atlantic for allegedly colluding with other airlines to fix fuel surcharges on tickets for long-haul flights to and from the UK.

The country's flagship airline yesterday put its commercial director, Martin George, and Iain Burns, the head of communications, on a leave of absence for the duration of the inquiry by the Office of Fair Trading and the United States Department of Justice.

Should the civil investigation find BA guilty of engaging in "cartel activity" to fix prices, the OFT can impose a fine of up to 10 per cent of the airline's worldwide annual sales, which amounted to £8.5bn for the year to the end of March.

Unusually, the OFT simultaneously launched a criminal investigation into unnamed individuals suspected of direct involvement in price fixing.

If found guilty at a trial, they face an unlimited fine and up to five years in prison.

The names of the airlines with which BA allegedly colluded remain unclear.

Three other carriers are assisting with the investigation: Virgin Atlantic, American Airlines and United Airlines.

The two American companies were yesterday subpoenaed to appear before a federal grand jury as part of an inquiry that may drag on for months.

BA, Virgin, United and American are the only airlines permitted to fly transatlantic routes from London Heathrow under the long-standing Bermuda Two agreement signed by the British and American governments. Industry experts pointed out that BA and American also lead the Oneworld international airlines alliance.

In the past year, it was said, the pair has raised fuel surcharges twice by similar amounts within days of each other.

After a total of seven increases in two years, BA's long-haul passengers now pay a £35 surcharge on a one-way flight and £70 on a return ticket.

American charges a £35 fuel surcharge for a one-way ticket to the US from Heathrow.

BA, whose premises were raided last week, has consistently argued that its fuel surcharge has grown only to keep pace with surging oil prices.

The OFT stressed that its investigation was in its infancy, and it was too soon to say whether the law had been infringed.

In a short statement to the stock exchange, British Airways confirmed that it is under investigation and said it is assisting the OFT and DoJ.

"British Airways' policy is to conduct its business in full compliance with all applicable competition laws," it added.

Not surprisingly, rival airlines were quick to support the investigation. Peter Sherrard, the head of communications at Ryanair, said: "It is about time that British Airways' rapacious fuel surcharges were investigated. It is ridiculous that, as the price of oil has doubled from $35 to $70 a barrel, BA has increased its fuel surcharge 14-fold."

A spokesman for Stelios Haji-Ioannou's no-frills carrier easyJet said, referring to the Bermuda Two agreement: "This is what happens when governments restrict consumer choice."

Yesterday's announcement came just four months after BA became embroiled in a separate investigation into suspected price fixing for cargo transport. That focused on surcharges that airlines have imposed for fuel and extra security in the wake of the September 11 attacks.

British Airways already faces more than a dozen class action lawsuits from lawyers representing customers of its cargo division, alleging price fixing.

Michael Hausfeld, of the Washington law firm Cohen Milstein Hausfeld & Toll, which named BA and other airlines in its class action suit, said he was unsurprised by the new twist to the latest regulatory investigation, and predicted further raids and subpoenas.

His firm's own inquiries suggested that signals were sent between airlines via communications officers, he said. "It mirrors what we have learnt from talking to other airlines. The regulators are beginning to come across a variety of cartels.

"I think you will see an over-arching cartel ... and regional cartels involving passenger fares as well as cargo."

BA shares fell 21.75p to 346p, on news of the investigation, the steepest decline by any company in the FTSE 100 index.

Leave of absence

Martin George

Mr George started his career as a marketing trainee at Cadbury after graduating from Loughborough University in 1984. He joined BA in 1987 as a brand manager and was appointed head of marketing in 1997 by Bob Ayling, BA's former chief executive. Surviving the fallout from the failure of the airline's "ethnic tail-fins" rebranding, he was appointed to BA's board in 2004 as the commercial director with responsibility for worldwide cargo, global public relations, marketing and pricing.

Married with three daughters, Mr George, 44, was tipped by some to replace Rod Eddington as chief executive last year, but his lack of main board experience is said to have counted against him. Last year, he received a salary of £276,000, but this rose to £425,000 after cash and share bonuses.

Iain Burns

Mr Burns's contacts in the airline industry are said to be "second to none". Although he started his career in public relations more than 20 years ago working for British Nuclear Fuels, his involvement with the airline sector began in 1985 when he joined BAA's press office. Following a spell at American Airlines, he joined BA in 1996. After a four-year stint, he moved to the public relations agency Bell Pottinger where he continued to advise airlines.

He was parachuted in again at BA on the day after the 9/11 attacks. There he headed a 40-strong team covering all communications until yesterday. Sector analysts were puzzled to see the 47-year-old given leave of absence following the price-fixing allegations. One said: "Iain Burns is not even on the board of BA. He is just their PR guy."