BA makes £350m provision over competition probe – STORY UPDATED

British Airways has made a £350 million provision to cover any potential outcome from an ongoing investigation into alleged collusion over long haul fuel surcharges.

BA said it has a “clear and comprehensive” competition compliance policy. 

But a statement as part of the airline’s annual results said: “It has become apparent that there have been breaches in this policy in relation to discussions about these surcharges with competitors. As a result it is now appropriate to make a provision of £350 million in its annual accounts.

“The provision represents the best estimate of the amount to settle all competition authority and civil claims but recognises that the final amount is subject to uncertainty.” 

The amount set aside relates to potential government fines in a number of countries, BA added. 

The US Department of Justice, European Commission and Office of Fair Trading are probing anti-competitive activity on long haul passenger and fuel surcharges. BA said it had completed the information gathering required by the authorities.

BA recorded a pre-tax profit of £611 million in the last financial year, down from £616 million the previous 12 months. The results include the £350 million provision.

The operating profit was £602 million, £92 million down on the previous year. Turnover was up to £8,492 million from £8,213 million.

Savings on commissions paid to agents together with a favourable impact of exchange rates helped reduce selling and marketing costs by 0.8%, although this was partially offset by increased promotional spend, the airline said.

Chief executive Willie Walsh admitted that it had been a “challenging year” for passengers caused by disruption and “overly restrictive” UK security measures on hand baggage.

He revealed that BA had applied to US authorities to fly from anywhere in America to any point in the European Union to take advantage of new transatlantic open skies rules “to enable us to grow the most profitable part of our business”. The treaty created “new and exciting opportunities,” Walsh said.

He added that BA would be making an order for 34 new long haul aircraft in the next few months. An order for eight Airbus A320s for the shorthaul fleet has also been made (see separate story).

BA said it had not made a final decision about the future of its 10% shareholding in Iberia “and continues to examine its options including full disposal”.

The airline said the outlook showed some weakness in economy carryings notably on the North Atlantic.

“To some degree, complete visibility is hampered by the ongoing baggage restrictions which impact all cabins but particularly premium,” BA said.

“Our revenue guidance of 5%-6% increase is still unchanged but we now expect to be at the lower end of this range.”

The full year fuel bill is expected to be £100 million higher at just over £2 billion.

“Cost control remains a key focus and full year costs, excluding fuel, are still expected to be some £50 million higher than the year just reported,” a statement said.

The airline is on schedule to begin operational testing of Heathrow Terminal 5 in September, prior to its opening next spring. 

by Phil Davies