British Airways is facing penalties and claims running into hundreds of millions of pounds in connection with cargo and passenger fuel surcharge competition investigations.

It admitted staff had breached the airline’s competition compliance policy "in relation to discussions about these surcharges with competitors".

The carrier has set aside £350m (US$660m), as its "best estimate of the amounts that could be required to settle all known claims in relation to these matters".

The provision related to potential government fines over cargo fuel surcharges in the US, Europe, Australia, Canada, New Zealand and South Africa and longhaul passenger fuel surcharges in the US and UK, as well as civil claims in the US, Australia and Canada.

A spokeswoman said the airline would not disclose any further information while the investigations by the Department of Justice in the US, the European Commission and the UK Office of Fair Trading into anticompetitive activity were continuing. But British Airways has completed the information gathering required by these authorities.

Fellow European carrier Lufthansa has already paid around US$90m to settle civil suits in the US and Canada, which followed investigations by competition authorities in the US, the EU and Asia last February into possible air cargo surcharge price-fixing by around 15 international airlines.

Lufthansa has also applied for leniency in the competition authority investigations. A source close to the airline said it was hopeful of avoiding penalties from the various authorities as a result.

Air France KLM made no mention of the probe in its full-year report last week, although it is known to have been visited several times by competition investigators.

A spokesman said Air France KLM had cooperated with the investigation, providing access to computers, archives and other information sources, and claimed it had nothing to hide.

Full-year figures just published by BA reveal a "challenging" year for cargo and a tough second half, affected by soft market conditions out of Japan and Europe.

Total volumes were down 4.7% on the previous year, with yields up 1.7%, including exchange effects. In its final quarter, volumes were down 12.4%, with yields falling 5.1%.

BAWC financial controller Sean Doyle told IFW the challenges faced by the carrier in the second half were largely outside its control.

He said: "The change in the security regime at Heathrow in August 2006 reduced the amount of capacity available to cargo because of increases in baggage and the movement of freight around LHR was disrupted by delays at control posts." But he added that there were signs things were improving.

"Quarter one of our new financial year has seen a recovery in volumes and we are trending closer to volumes seen in the same quarter last year, " said Doyle.

"We are also seeing more stability in our traffic flows."