In addition, the US Department of Justice fined the airline $300m (£148m) for colluding on how much extra to charge on passenger and cargo flights, to cover fuel costs.

The penalty will be the highest ever imposed by the OFT for infringements of competition law, and demonstrates the determination of the OFT to deal vigorously with anti-competitive behaviour.

British Airways has admitted that between August 2004 and January 2006, it colluded with Virgin Atlantic over the surcharges which were added to ticket prices in response to rising oil prices. Over that period, the surcharges rose from £5 to £60 per ticket for a typical BA or Virgin Atlantic long-haul return flight.

Virgin Atlantic is not expected to pay any penalty as it qualifies in principle for full immunity under the OFT's leniency policy. Under this policy, a company which has been involved in cartel conduct and which is the first to give full details about it to the OFT will qualify for immunity from penalties in relation to that conduct. In addition, any company staff involved in the price fixing disclosed will qualify for immunity from criminal prosecution in relation to that conduct. The OFT's investigation was prompted after Virgin Atlantic came forward with information about price fixing with BA over the surcharges. British Airways has also provided full co-operation with the OFT's investigation under the leniency programme and this is reflected in the penalty announced today.

British Airways accepts the OFT's finding that on at least six occasions the two companies discussed and/or informed each other about proposed changes to the level of the surcharges, rather than setting levels independently as required under clear and well-established competition law principles.

The OFT's investigation was conducted in parallel with a similar case brought by the United States Department of Justice (DoJ). The investigations by the OFT and DoJ were separate but the two agencies have consulted each other closely throughout.

In addition to the investigation into British Airways' corporate conduct under civil competition law, the OFT is also conducting a criminal investigation into whether any individuals dishonestly fixed the levels of the surcharges - an offence under the Enterprise Act. The corporate admission by British Airways that it infringed civil competition law does not imply that any individuals dishonestly fixed prices contrary to the Enterprise Act. The criminal investigation is ongoing and no conclusions have been reached as to whether criminal proceedings against individuals can or should be brought.

The OFT's infringement decision against BA will be taken and published in due course. It will record the full findings in this case and the basis for the calculation of the penalty to be imposed on British Airways.

Philip Collins, OFT Chairman said: "This case, and the substantial penalty imposed, will send an important message to corporate boards and business leaders about our intention to enforce the law, and serves to remind companies of the substantial risks involved if they are found to engage in such behaviour. It also illustrates how the OFT's leniency programme enables companies to eliminate or reduce their exposure to penalties by taking prompt and effective action. On a broader front, the OFT is committed to strong and effective competition law enforcement, especially in relation to price fixing and other hardcore infringements. Our commitment to enforcement emphasises the importance of effective and comprehensive competition law compliance led by boards and senior management and supported by effective risk management systems and corporate governance."

British Airways said the sum of the combined fine is consistent with the firm's guidance and provision of £350 million.

British Airways' chief executive, Willie Walsh said, "I want to reassure our passengers that they were not overcharged.  Fuel surcharges are a legitimate way of recovering costs. However this does not in any way excuse the anti competitive conduct by a very limited number of individuals within British Airways." 

"Anti-competitive behaviour is entirely unacceptable and we condemn it unreservedly. We have a long standing competition compliance policy which requires all staff to comply with the law at all times.  I am satisfied that we have the right controls in place. However, it is deeply regrettable that some individuals ignored our policy."

The OFT's investigation turned on conversations between individuals at Virgin Atlantic and British Airways' during which information was exchanged on proposed changes to their respective longhaul passenger fuel surcharges in response to fluctuating oil prices. In 2006 Virgin Atlantic went to the OFT and revealed its part in these conversations.

As the first applicant under the terms of the OFT's leniency policy, Virgin Atlantic qualified for conditional immunity and as a result has not been required to pay any penalty. British Airways said it responded swiftly to the investigation co-operating fully with the OFT and the penalty has been reduced to reflect this.
      
Fines for breaches of UK competition law are calculated in accordance with the OFT's Fining Guidelines, and may be up to 10 per cent of a company's worldwide turnover. The fine based on these Guidelines, represents just over one per cent of British Airways' group turnover. 

In parallel, the US plea agreement with the DOJ brings to an end their investigations of British Airways with respect to its long haul passenger and cargo businesses. The OFT and DoJ continue with their criminal investigation into the conduct of individuals.