Is British Airways heading for a summer of discontent?

News of a probe into alleged price-fixing couldn't have come at a worse time for British Airways. With sensitive negotiations over Terminal 5 and working practices ahead, it looks like it could be another summer of discontent for BA...

Investors in flight-related stocks are experiencing a great deal of turbulence at the moment.

Last week, aircraft maker Airbus found itself in trouble as the arrival of its much-lauded A380 superjumbo was delayed. Airlines who had queued up to buy the plane were soon queuing up to demand compensation or cancel their orders.

But it's not just the people who make the planes that are having problems. The price of oil is causing all manner of problems for airline companies - though perhaps not quite in the way you would expect...

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The higher oil price should be a serious problem for the airline sector. But the imposition of fuel surcharges has enabled non-budget carriers like British Airways (BAY) to pass on much of their increased costs to customers.

BA passengers currently pay £35 on top of the ticket price to fly from the UK to the US - £70 for a return ticket, in other words. The £35 is meant to cover BA's rising fuel costs.

But now competition regulators on both sides of the Atlantic are probing a number of airlines - including BA - over allegations of price fixing. The probe is thought to centre on airfares and British Airways fuel surcharges imposed on transatlantic flights.

So far BA is the only company that has said it is being investigated. American Airlines, Virgin Atlantic and United Airlines have said they are also involved in the probe, but are not direct targets.

British Airways' fuel surcharge was just £2.50 when it was first introduced in May 2004, and it has been hiked 7 times since then. But BA's not the only one to charge its passengers petrol (or rather jet fuel) money - Virgin introduced a £2.50 charge on its transatlantic flights, also in May 2004.

The Times points out that Virgin and BA have hiked their fuel surcharges almost in tandem since then. The two airlines raised their charges at the same time and by almost exactly the same amount, five times between May 2004 and September 2005. The only difference was the hike in June 2005, where Virgin raised the surcharge from £16 to £25, while BA hiked it from £16 to £24.

The OFT has of course stressed that "no assumption should be made that there has been an infringement of competition law."

But regardless of the outcome of the probe, it is still "a huge blow for British Airways at a critical point in its recovery," said Angela Jameson in The Times.

Chief executive Willie Walsh has enough on his hands already. As Ms Jameson puts it: "With difficult industrial relations to navigate over coming months - over working pattern changes in advance of the move to Terminal 5 and pensions - BA can't afford to let its guard down."

And rivals are already swooping in to score points off BA's woes. Budget carrier Ryanair (RYA) - which is not part of the probe - welcomed the investigation with more than a hint of schadenfreude. Head of communications Peter Sherrard said: 'Since May 2004, the price of oil has doubled from $35 to $70 a barrel and British Airways has increased its fuel surcharge 14-fold.

"When British Airways collected more in fuel surcharges (£470m) than its entire profit after tax last year, something is clearly wrong."

Analysts are also concerned by the fact that BA has given its commercial director, Martin George and its head of communications, Iain Burns leave of absence during the inquiry.

Morgan Stanley analyst Penny Butcher described the situation as sounding "rather seriousGeorge is easily among the top four or five people at the airline."

And Deutsche Bank said: "We would be very surprised if a specific issue relating to BA's pricing has developed. Unfortunately, though, putting key personnel on leave is a difficult signal for the market to interpret."

The Office for Fair Trading could fine BA up to 10% of its turnover on the affected routes if it's found guilty of breaking competition laws. That could be very expensive indeed - up to £315m, according to analysts at UBS.

BA shares fell 6% to close at 346p on the day. But that was from a five-year high. With the potential for industrial action this summer, the distractions of the competition probe, and - of course - high oil prices, all hanging over the company, this is one share we certainly won't be buying on the dips.

Turning to the wider markets...

The FTSE 100 ended up 19 points at 5,684 on Thursday. Housebuilder Persimmon gained 4% to £11.93 as markets were heartened by results from mid-cap peer Crest Nicholson. For a full market report, see: London market close

Over in continental Europe, the Paris Cac 40 gained 28 points to 4,803, while the German Dax rose 30 to close at 5,533.

Across the Atlantic, US stocks headed lower as more economic data suggested the economy is slowing. The index of US leading economic indicators - which is designed to predict economic activity six to nine months in the future - fell 0.6%, more than expected. Investors were also concerned as the yield on a 10-year Treasury hit 5.2%, its highest in more than four years and a sign that markets are pricing in higher interest rates. The Dow Jones Industrial Average fell 60 to 11,019, while the S&P 500 closed 6 points lower at 1,245. The tech-heavy Nasdaq slipped 18 to 2,122.

The sell-off on Wall Street dented Asian stocks, though indices closed well above their mid-session lows. The Nikkei 225 fell 11 points to 15,124 with investors shifting towards domestic stocks from exporters.

This morning, oil was lower in New York, trading at around $70.60 a barrel. But Brent crude was higher, trading at around $69.45.

Meanwhile, spot gold was trading at around $583.50 an ounce while silver eased back, slipping to $10.14 an ounce.

And in the UK this morning, it seems that Goldman Sachs-led bid consortium, Admiral Acquisitions, may have sealed the deal for UK ports operator Associated British Ports. AB Ports has recommended a 910p per share offer from Admiral, 8.3% higher than an earlier bid of 840p a share. But a rival consortium led by Australia's Macquarie has said it is 'considering its position' and has warned shareholders to take no action yet.

And our two recommended articles for today...

Should you avoid investing in emerging economies?

- Emerging markets have been hit hard by this month's market corrections. Do these market falls represent a buying opportunity? Unlikely, says Morgan Stanley's Stephen Roach. Fans of emerging markets say that developing economies have learned their lessons from the 1997/98 Asian currency crisis. But the next crisis is never the same as the last, and the biggest risks to emerging markets now are very different to what they were back in the 90s. To find out what they are, click here: Should you avoid investing in emerging economies?

Has the bear market returned?

- Since the first warning signs of stock market weakness were spotted in Iceland in April, fear has spread across the world. All assets, from stockmarkets to commodities, have fallen simultaneously. But at some point they will uncouple: some will continue to fall, while others will provide major buying opportunities, say Andrew Selsby and John Robson from RH Asset Management. To find out how to spot the next bout of

stockmarket weakness and to learn which markets will be worth keeping an eye on click here: Has the bear market returned?

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.