British Airways admitted breaking price-fixing laws and set aside a surprise 350 million pounds ($692 million) to pay potential fines. BA shares fell 3.7 percent by 1157 GMT as the provision - more than half the year's profit - accompanied a 13 percent decline in operating profit.
New taxes, strike threats and tighter security measures ate into passenger traffic during the year. BA, Europe's third biggest airline, is being investigated by the UK and the United States for alleged price fixing on fuel surcharges, after British investigators were tipped off by rival Virgin Atlantic.
In the results statement, BA admitted staff had broken competition laws over fuel surcharges - hikes to airline ticket prices imposed to pass on rising fuel costs.
"BA has a long-standing, clear and comprehensive competition compliance policy," its statement said. "This policy requires all staff to comply with the law at all times. It has become apparent that there have been breaches of this policy in relation to discussions about these surcharges with competitors."
BA said it had made no final decision about how it would use its 10 per cent shareholding in Spanish carrier Iberia, but reiterated it would not make an independent bid for the airline. It has already approached private equity companies about making a consortium offer.
Chief Executive Willie Walsh said BA had encountered some weakness in non-premium travel on the North Atlantic. The group said it expected to come in at the lower end of its 2008 guidance of 5 to 6 percent revenue growth.
"There's definitely an element of the weak dollar," Walsh told reporters. "But the premium market remains quite strong." He said: "The domestic non-premium market is another area where we've seen weakness, particularly since the changes in security arrangements."
Operating profit was 602 million pounds in the year to March 31, compared to 694 million a year earlier. Pretax profit was down 0.8 percent to 611 million. Net profit fell to 438 million pounds from 464 million. "This was not a bad result given the August security disruption, December fog and January labour disruption," said analyst Andrew Fitchie at Collins Stewart.
The airline suffered from disruption at Heathrow as security was tightened when police said they had foiled a plot to bomb transatlantic airliners using liquid explosives.
BA estimated the upheaval cost it around 100 million pounds, while the threat of cabin crew strikes in January cut 80 million off revenues. "In total there was a 231 million pounds hit as a result of all the issues we faced during the year," said Walsh.
Analysts at Davy stockbrokers said the results were in line with expectations, but described the provision for price fixing as a "negative surprise". Two senior BA executives quit last October after being linked to the investigation into alleged price-fixing of fuel surcharges. BA also said it had ordered eight new Airbus A320 family aircraft for delivery in 2008-2010.