It said both airlines had agreed to plead guilty to price fixing.

In addition to the fuel surcharge fixing, US officials said BA and Korean Air Lines were involved in a conspiracy with German carrier Lufthansa AG to fix charges for international cargo shipments.

Virgin and Lufthansa let off

The US justice department said Virgin and Lufthansa would not face sanctions because they had come forward to the authorities.

General William Mercer, acting associate attorney, said: "When British Airways, Korean Air and their co-conspirators got together and agreed to raise prices for passenger and air cargo fares, American consumers and businesses ended up picking up the tab for their illegal conduct."

BA said it accepted the penalties. In May, it set aside £350 million (US$710 million) to pay for any possible fines as a result of the investigations.

BA admitted that between August 2004 and January 2006 it colluded with Virgin Atlantic over the surcharges, which were added to fares in response to rising oil prices.

Under the UK office of fair trading's (OFT) leniency policy, Virgin Atlantic is not expected to face a fine because it reported the alleged misconduct to authorities.

In a statement, Virgin said it had informed regulators "as soon as our legal team was made aware of the nature of contacts that had occurred between some individuals at British Airways and Virgin Atlantic."

Deborah Jones, deputy director of cartel investigation at the OFT, said it was fair to treat Virgin differently because it had come forward first. She said that did not mean Virgin was getting off scot-free.

"Virgin are still facing the censure, the publicity that they have engaged in this behavior," she said. "They are not immune from customers who may seek some form of compensation."

BA defence

Willie Walsh, BA's chief executive, said passengers had not been overcharged, but acknowledged that a "limited number of individuals" in the company had broken competition rules.

BA has not made many friends lately [AFP]
"Anticompetitive behavior is entirely unacceptable and we condemn it unreservedly," he said.

Authorities in the UK and US have been investigating allegations of price-fixing on fuel surcharges since June 2006.

Over that time, fuel surcharges rose from about £5 (US$10) to about £60 (US$120) per ticket for a round-trip long-haul flight on BA or Virgin.

Martin George, BA's commercial director and Iain Burns, BA's head of communications resigned shortly after the inquiry began.

Philip Collins, the OFT Chairman  said the fine - the largest ever imposed by Britain's competition watchdog - "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 behavior."

The office found that BA and Virgin discussed proposed fuel surcharges on at least six occasions over the year and a half to January 2006. Soon after that, Virgin went to the authorities.