The joint business agreement between BA, American and Iberia will require anti-trust immunity and Virgin Atlantic wasted no time in firing the first shots against. In fact, it fired a volley - with letters to the leading US presidential hopefuls and almost daily press releases. Given the carriers' previous, this could be a fight fit for Madison Square Garden.

Richard Branson labelled the proposed alliance "a monster monopoly" that would cut competition and push up fares. BA's Willie Walsh would expect nothing less. Naturally, Virgin fears being squeezed. But if Branson is right, the regulators could be expected to give the proposal short shrift.

BA has been here before - although not with Iberia in tow - in 1997 and 2001. The second of these applications would have succeeded if the pair had been prepared to give up 16 daily departures at Heathrow. BA balked at that and probably would do so again.

There is no reason to suppose the competition regulators will rule out the partnership this time - the question will be the price.

Walsh believes the situation has changed enough for him to win this time or he would not have applied for immunity. He has already said a third failure would rule out a further application.

So what has changed?

First, the regulatory position - flights between Heathrow and the US were tightly restricted for decades up to the end of March. Where previously only four carriers could cross the Atlantic to and from Heathrow, now any US or European airline can do so - at least in theory. Four US airlines have begun services into Heathrow since March, along with Air France-KLM.

Second, regulators have granted anti-trust immunity to rival alliances. Air France-KLM and Delta Air Lines have had it since 2002. Lufthansa and United Airlines have enjoyed it even longer, although with some restrictions. Northwest Airlines was brought into the Air France-KLM partnership with regulatory approval earlier this year.

Approval has typically followed "open-skies" deals to de-regulate services between the US and individual European governments. The US and the Netherlands concluded such a deal in 1993, the US and Germany in 1996 and the US and France in 2002. Europe's open-skies deal with the US last year cleared the way for BA and American to try again.

Third, the need for consolidation has become urgent owing to the price of oil and the developing recession on both sides of the Atlantic. Airlines need to cut back an anti-trust immunity allows consolidation in an industry in which formal mergers or takeovers are frequently prohibited.

Immunity would allow BA, American and Iberia to coordinate fares and schedules and share revenues on fights between Europe, the US and Mexico. Obviously, the trio would rationalise services and an increased share of the market would give them greater control of fares.

Walsh insists there is no reason for fares to rise because of the tie up and claims consumers would benefit from better connections and access to a larger network - allowing them to pick and mix the cheapest fares.

However, the sole aim of BA and its partners will be to protect their own revenue and profits at the expense of rivals. So Branson has a strong case in some respects.

Virgin points out BA has 42% of the take-off and landing slots at Heathrow, and with American and Iberia will have almost 47%. It suggests BA and American will account for 63% of seats between Heathrow and New York JFK, 66% between Heathrow and Chicago, 72% between Heathrow and Miami, 82% on Heathrow-Boston routes and so on.

Walsh responds that Heathrow is now open to other carriers so there is nothing to step the launch of rival services. "Anybody can come in and compete," he says. Helpfully, the carrier and its partners have set up a website with the title Moretravelchoices to ensure we get the message.

Virgin suggests this freedom is largely theoretical since Heathrow is full. Slots come up seldom and at huge cost, although there is scope for trading as the launch of services by Air France and others this year demonstrates.

BA can point out rivals Air France-KLM and Lufthansa have anti-trust immunity for their alliances, and that each is more dominant at its own hub than BA is at Heathrow.

Yes, says Virgin, but Paris Charles de Gaulle, Amsterdam Schiphol and Frankfurt airports have capacity to spare, allowing rival airlines to add services if they wish. Heathrow does not - so there is no scope to compete.

Expect this to be fought out fiercely, with Virgin seeking to enlist public support.

What will the regulators make of the arguments?

Clearance from Brussels appears a formality. The outcome in the US is more difficult to call.

The reaction of rival US airlines has been muted - presumably because they already have immunity or seek it. That does not mean opinion in the US will be wholly favourable.

Virgin can present a good case - but while its concerns may interest US regulators, its interests will not. The regulators' view of the outcome for US carriers and consumers, and how it will play to the public, will be key. And though the arguments will be couched in terms of competitive markets, there will be a political dimension to the decision.

US political opposition continues to thwart European hopes of a relaxation of American airline-ownership rules, overrules attempts by foreign investors to buy into other sectors of US industry and supports subsidies for agriculture and industries that draw condemnation from Washington when they occur elsewhere.

Left to the mercies of the market, in a recession of uncertain depth and with credit hard to come by, some US airlines probably will not survive the current crisis. Therefore, a crucial question could be the attitude of US authorities to a proposal that may contibute to pushing a rival US airline under.

The present US administration opted for protecting services in the last airline crisis triggered by September 11 and made cash available to shore up the industry.

An incoming administration may act differently, but any decision may depend on a host of competing political factors at the time it is made.

Of course the US Department of Transportation could demand concessions from BA at Heathrow. At least one UK newspaper has reported BA is willing to give up a substantial number of slots at the airport. Why would it do that? A small trade off may be possible, but Heathrow is the jewel in BA's crown.

So the outcome in the US is tough to call.

I share the view of one senior industry figure on this side of the Atlantic who observes: "It would take a very smart young lawyer to stop this.

"But then America is full of smart, young lawyers."

The first thing to be aware of is that this is the silly season, so even stories that are not of the "Freddie Star ate my UFO" variety can take up more column inches than they might otherwise deserve.

However, the facts here appear straightforward. Ryanair insists it can, will and has cancelled passengers' bookings made through screen-scraping websites - including sites the BBC identified as "internet travel agents".

This could affect up to 1,000 passengers a day across Europe - Ryanair admits that. We can guess how those affected feel about it. If I was among them I certainly would not conclude that next time a direct booking with Ryanair was the way to go.

Strangely, on Tuesday a Ryanair spokeswoman told me no passenger had, in fact, been turned back from check in. However, the following day a different spokeswoman refused to confirm this, insisting only: "Cancellations have been made. Cancellations have been made."

Anyway, agents expressed outrage and ABTA reacted by writing to the Office of Fair Trading.

God knows Ryanair is fair game for a bashing. Chief executive Michael O'Leary makes no secret of his contempt for agents - why shouldn't the feeling be mutual? And no one cracks more heads than the Irish carrier. Poor Harry Bush at the Civil Aviation Authority could launch more libel cases than George Galloway if he had a mind to. The CAA should employ lawyers to trawl through the transcripts of O'Leary press conferences and Ryanair releases.

ABTA will have written to the OFT more in hope than expectation, of course. There is no cause to expect a dynamic intervention from the OFT unless collusion is involved.

The source of the story was Ryanair itself, with a press release on August 5 announcing it would cancel all bookings made through screen-scraping websites from the following Monday (August 11). Screen scraping allows price comparison sites to do what they do, which is not a problem for Ryanair so long as the sites don't then sell the Ryanair seat they have highlighted.

Ryanair argues it is within its rights - and, fair play to the airline, it has given plenty of warning of the crackdown. Its denunciations of screen scrapers have become almost as routine as those directed at Harry Bush.

However, at least one specialist travel lawyer, Stephen Mason, believes a passenger turned away at check in because Ryanair has cancelled their booking would have a good case for compensation under the European Commission's regulations on denied boarding.

These protect passengers from being denied access to a flight so long as they have a valid ticket, are at the airport in time for the flight and there are no safety reasons for excluding them.

The crucial question here is whether the passengers in question have a valid ticket.

Ryanair's terms and conditions for use of its website make clear that only tickets booked on and issued by that website are valid. The Air Transport Users Council (AUC) and, I suspect, the CAA believe this would lead a court to rule in Ryanair's favour.

Mason thinks not. He suggests Ryanair is perfectly entitled to refuse new bookings through screen-scraping sites, but should honour existing bookings.

He points out: "Ryanair has been perfectly happy to accept bookings for years from some well-known and reputable companies, and happy to accept payment from company credit cards."

In other words, the airline has systematically ignored its own terms and conditions.

"The law is clear," says Mason. "Where you have a set of terms, but persistently waive these terms, they cease to have effect. Ryanair waived its right to rely on these terms and conditions."

However, as Simon Evans of the AUC points out: "You won't get anywhere by banging your fist on a Ryanair desk. It would take a court case to get anywhere, and it might not work."

So who is prepared to go to court?

Incidentally, I counted 33 separate press releases from Ryanair in July. Could the OFT, CAA, SOMEBODY do something about that?

It is bad news for the individuals because they could go to jail - lawyers say for up to five years. The OFT appears keen to make an example of senior company figures following a spate of high-profile investigations into alleged cartels across a series of industries - tobacco, construction, supermarket retailing.

Of course, being charged is not the same as being found guilty. It provides an opportunity to establish innocence. But there is a sizeable risk. Careers and personal lives are on the line as well as liberty.

It is bad news for the airline because mud sticks and because the current head of sales is among those charged, not just those who left in the immediate aftermath of exposure. It is bad news because a line that had been drawn under the affair has been erased.

BA boss Willie Walsh acted swiftly when the collusion with Virgin Atlantic on fuel surcharges first became public. The carrier admitted the offence and paid its fines - totalling £270 million here and in the US - while maintaining a thinly veiled hostility towards Virgin for spilling the beans.

The collusion, between 2004 and February 2006, began before Walsh's time. But he was shadowing outgoing chief executive Rod Eddington from May 2005 and took over as head in September that year. The acts of collusion only ended five months later and were made public in June 2006 after Virgin went to the OFT.

So a trial could be painful - although it could also clear the air by bringing more details into the public domain.

The one silver lining for the four facing charges is that a trial in the UK should preclude them entering the dock in the US where the Department of Justice could also bring proceedings. The DoJ has refused immunity of prosecution to eight former and serving BA executives as well as two at Virgin Atlantic.

Two senior figures at other airlines have already been jailed in the US after pleading guilty to colluding with rivals in setting the surcharges on cargo - one while at Qantas and the other at SAS Scandinavian Airlines - an indication the authorities are determined to extract their pound of flesh.

Obviously, there are questions to answer at both BA and Virgin - primarily, what on earth were they thinking of? But also who knew of the collusion? Who sanctioned it? And how high did that knowledge extend?

The collusion - if confined to that admitted - was small. There were half-a-dozen phone calls between the airlines over 18 months or so, not all returned, in which fuel surcharges were discussed. The conversations appear to have amounted to - "We are thinking of increasing our fuel surcharge. Are you?" or "We will increase our fuel surcharge by X from such-and-such date. OK."

This is collusion and companies are not allowed to do it. But airlines were struggling with a soaring fuel price and the behaviour appears to have stemmed less from a desire to cheat passengers than from a fear of losing business by raising fares ahead of competitors doing the same.

In reality, other airlines added similar surcharges on the same routes within days of BA and Virgin Atlantic without any suggestion of collusion. They simply saw what rivals were doing and, sooner or later, decided to do the same

BA and Virgin Atlantic's fuel surcharges did not go above £30 per sector on long-haul fares during the period in question. Fares themselves were not discussed. The sums were relatively small - an increase of £1.50 here and £8 there on fares costing many, many times that amount.

The collusion seems small-scale and ham-fisted - the product of hubris and habit more than Enron-style corporate criminality. But we may learn otherwise.

What is an Australian group to do with these fickle UK agency consortia?

Advantage has refused to confirm courtship was even in the air, let alone called off this week. But the sighs - sorry, signs - have been unmistakeable.

Without wanting to be brutal and reduce a relationship to economics, there were sound reasons for the pair to get together - yet possibly sounder ones for not doing.

Stella has travel products - but not as many UK retail outlets as it needs to sell them - and Advantage has 400 members with 700 high-street travel agencies.

In addition, Advantage fears being squeezed in a difficult market between the big two travel groups - TUI Travel and Thomas Cook - and its independent agency-consortium rival Worldchoice, which is poised to merge with the Travel Trust Association.

Worldchoice-TTA will supplant Advantage as the country's biggest agency consortium, assuming the deal goes through as expected in September.

But what might have been a simple tale of industry consolidation was complicated by Stella's parentage. This is a vertically integrated travel group, owning tour operators and retailers in its biggest markets. Its business model may not mirror TUI's and Thomas Cook's, but vertical integration is anathema to independent travel agents.

Whatever guarantees Stella may have offered, Advantage members were likely to fear a takeover would result in pressure to sell Stella products, put their existing deals and relationships at risk, and compromise their independence.

As a marriage it was always going to prove tricky.

Where does this leave Triton Travel Group? The commercial tie-up between Advantage, Worldchoice and what used to be the Global Travel Group of agencies - now part of Stella - was supposed to develop into a super-consortium.

In reality, the writing has long been on the wall for what is merely a set of joint commercial agreements between rivals. Advantage made clear it would not be part of such a consortium more than a year ago. Global's takeover by Stella last autumn drove a nail in the Triton coffin. Worldchoice's anticipated merger with the TTA, on the cards since February, confirms the diagnosis.

It is conceivable Triton may have been resuscitated by Advantage getting together with Stella. But Triton appears to be an alliance held together by the string of soon-to-expire commercial deals.

Or am I wrong?

This is not a form of Tupperware or handy rain apparel, but the Air Travel Insolvency Protection Advisory Committee.

Let's get the other acronyms out of the way. ATIPAC advises the consumer protection group of the Civil Aviation Authority (CAA), the aviation regulator which also oversees the Air Tour Operator Licence (ATOL) system.

A UK tour operator cannot do business without an ATOL and, until April this year, was required to provide a bond - its size determined by the number of people the company sent on holiday. The bond covered the cost of repaying clients or repatriating them in the event of the company - or any other supplier of the holiday - going bust.

The Air Travel Trust Fund, with a £30-million overdraft facility guaranteed by the government, provided a back up if a bond did not cover the number of advance bookings or a company collapsed in peak season. Some years it was needed more than others.

It was needed more than others two years ago when, in August 2006, Tapestry Holidays failed. The tour operator's bond covered £1.7 million of the resulting costs, but the fund had to pay out a further £2.5 million. This came close to bankrupting the scheme. The government had to extend its guarantee of the fund's overdraft from £18 million to £30 million.

Fast forward to this year and 25 travel company failures in the 12 months to the end of March resulted in a bill to the fund of just £374,000, despite the total payout to consumers reaching more than £5.3 million. That is because the bonds broadly covered everything. The system worked.

So in April it was scrapped.

The new system is funded by a £1 levy or ATOL Protection Contribution (APC) added to package-holiday prices and some seat-only sales on charter airlines - sales that are ATOL-protected.

The requirement for bonds disappeared for all but a handful of companies - those that have modified their business or reported problems and new entrants to the industry.

The tour operators were happy - bonds generally cost them more than £1 per passenger to put in place.

The government was happy - it wants the trust fund overdraft paid off and the APC payments should do that over the next three years.

ATIPAC was happy - it has argued for a levy on holidays to provide funds for consumer protection for 15 years.

Everyone was broadly happy, except for the fact that scheduled airlines remain outside the scheme at their own insistence - a fact that galls the tour operators, the CAA, ATIPAC and almost everybody but government ministers and the airlines.

Anyway, the point about the ATIPAC report is that interest payments on the overdrawn fund were at least two-and-a-half times the total pay out for company failures.

We won't know the total interest payments for another week or so, upon release of the annual accounts. But the fund paid £900,000 in interest on an overdraft of £20.1 million in the year to March 2007, and last year's overdraft will have been greater.

No wonder ATIPAC wanted a levy to cut the overdraft and replenish a fund that has been in debt for more than decade.

But what a shame ministers waited for the industry to be on the cusp of an economic crisis to act - leaving us to hope the replacement scheme is up to the rigorous testing it is likely to undergo over the coming months.

That is quite a statement. But it is not mine. The words are BA chairman Martin Broughton's, from his address to shareholders at the airline's annual general meeting last week.

Broughton told the AGM the rapid rise in fuel costs had forced not just one but three revisions of the airline's business plan in the past four months. He warned it would be a "considerable achievement" to avoid reporting a loss this year.

It rather sounds as though BA shareholders, having recently received their first dividend payment in eight years, should expect to wait a while for another. At least one analyst believes the airline's payment of that dividend - equivalent to about a week's fuel costs - was "daft".

But how serious is the crisis?

Press reports focus on planned cutbacks by BA - a capacity reduction of up to 5% this winter and a partial freeze on recruitment. BA chief executive Willie Walsh was pretty explicit about the limits to this last week although details will not be announced until next month.

According to the Financial Times, "Walsh made clear BA would not be grounding any aircraft." Instead, the airline will "trim capacity by cutting the frequency on some short-haul routes". This week, head of corporate sales Richard Tams insisted: "The cuts will not have a significant impact on the business schedule. Any cuts will be where we have multiple services."

Walsh intends to keep operations broadly as they are instead of expanding by 2.5% or so in the current financial year as originally planned. "Given that expansion will not take place, we don't need to recruit people for the winter," he said. That is unfortunate for those hoping to get a job and will mean BA workers have to cover for departing colleagues, but it does not sound like the actions of a man reacting to the greatest crisis in aviation's history.

BA has been conducting a review of its operations under the codename Project Columbus. The title could be considered unfortunate. Columbus may be commemorated for stumbling upon the Americas, but his transatlantic ventures led to a good deal of destruction - well, genocide, actually. Let us hope that is not an omen.

Officials of the union Unite are concerned about impending job cuts. Walsh has played down their fears, saying there are no plans to cut jobs - although that could change.

He did warn again last week that fares will rise, but Walsh has consistently said that. In fact, BA raised most of its long-haul fares by 5% last month on top of a succession of increases in fuel surcharges. Walsh obviously means they have some way to rise yet.

The BA boss also repeated that fare rises "will have an impact on demand". He just thinks BA will be less affected than other carriers because half its passengers are business travellers who are generally less sensitive to price rises, particularly on long-haul routes.

If BA fails to match the "considerable achievement" Broughton spoke of, it will mean the high oil price wipes out a record profit of £883 million for the year to March.

But Broughton is right despite the strong position of BA - this probably is the biggest crisis the airline industry has faced.

Consider its rivals. We can rule out the crisis of 1929 and the hungry thirties when commercial flight was in its infancy. The Second World War wasn't a great time for commercial carriers, but the comparison does not help us.

Flying was big business by the time oil quadrupled in price in 1973-74, but the era of mass-market leisure travel was just beginning. When oil doubled in price in 1979-80 and the UK then suffered its worst post-war recession, some of the world's biggest economies - Germany, Japan - were barely affected. By the time recession hit again in the early 1990s the oil price had lowered. Airlines largely flew on through.

The attacks of September 11 2001 triggered a fall in demand in the US and a crisis for the country's airlines. But with the exception of Swissair and Sabena, Europe's major airlines carried on.

The situation is worse this time. In essence, there are two economic crises - a recession with its roots in the US and an inflationary crisis driven by rapid growth primarily in China. Hence we see economic downturn and rising inflation - or good, old stagflation to use the 1970s term. God forbid bell bottoms return, too.

For airlines, the oil price is a killer. BA has said it cannot make money with oil at $125 a barrel. Ryanair has said similar. Neither expect oil to remain at its current price, but no one knows what the future price will be.

At the same time, most airlines have cut close to the bone already - mainly in reaction to the low-cost carriers. There is not a lot of slack to take in.

Of course, BA is not buying most of its oil at $125 a barrel. It is paying nearer $84 for most of its fuel. So it should still be making money. The key will be what happens as the hedging deals - the advance agreements to buy oil at a cheaper price - run out.

No doubt there will still be bargains for some consumers, but average fares will have to rise in line with the fuel price. If fuel now comprises one third to half of airline operating costs and the oil price has doubled in a year, fares will broadly have to rise by between one-sixth and one-quarter. OK, I have vastly over-simplified the maths - but the general point stands.

Rather than hike prices to that extent in one hit, carriers will ground aircraft, conserve cash and hope rivals go bust.

Be ready for a bleak October when winter schedules kick in.

Take the airline's view - and that of most commentators - and it is a hard negotiating ploy. Airports everywhere take note - fail to bow to Michael O'Leary's demands and his aircraft will sit on the ground rather than fly tourists into and duty-free shoppers out of your terminals.

The contrary view is that Ryanair has been caught out. O'Leary banked on the oil price going down and did not hedge. Now he is paying the market rate - $128 a barrel last week for crude, $147 the week before - while British Airways pays $84 a barrel. When fuel makes up half your costs that hurts.

What do you do, especially when you have enough aircraft ordered to double the size of your fleet by 2012 and you know you won't fill the seats even at £1 a time? You ground some aircraft - and make someone else responsible.

When Ryanair announced it was cutting services at Stansted by 14% this winter it blamed airport operator BAA for increasing charges, declaring Stansted was the most expensive airport it uses. Well it would be. Stansted is a major London airport. If BAA wanted to take the same line it might suggest, "Fly off somewhere else then."

Ryanair also raged against the Civil Aviation Authority and "the total failure of the CAA regulatory regime to control unjustified cost increases". At a press conference, O'Leary reportedly referred to the CAA as "twats" and Stansted as "rapists" (The Guardian, July 18). Leave aside the trivialisation of sexual violence, O'Leary's press conferences are generally entertaining in a Richard Littlejohn kind of way. But might he be rattled?

The carrier's announcements of cutbacks at Dublin and elsewhere were similarly bullish. A 12% reduction in weekly services at Dublin, where Ryanair will base four fewer aircraft than last winter, is the consequence of Dublin being "the second-most expensive of Ryanair's base airports" and Ireland's equivalent of the CAA being a "hopeless aviation regulator".

In both cases, the carrier had sought reductions in charges and been rebuffed. O'Leary told reporters BAA had dismissed Ryanair's "reasonable" request to cancel its fees. "We asked BAA for a 100% reduction in landing fees and we a received a two-word response, the second being 'off'," he said.

One analyst suggested the cuts represent "a new level of assertiveness in airport charges negotiations" - true at one level, but not the whole truth.

In announcing the temporary closure of seven bases in continental Europe, including Palma, Valencia, Salzburg and Budapest, Ryanair hinted at the real reason for the capacity reductions and fiery justifications. It argued: "Costs at these airports are among the most expensive in Europe and far outweigh the potential revenue passengers are prepared to pay."

In other words, Ryanair is struggling to maintain its business model with oil at the current price. O'Leary came close to being explicit on this point when he told reporters: "We are clearly not going to be selling millions of £1 fares on flights from Stansted if we are over-paying Stansted by £10 per passenger."

BAA took exception to the figures. A spokesman said: "Numbers and statistics have been banded around, many of which we simply don't recognise."

The figures are troublesome. The Ryanair release on Stansted refers both to a 25% reduction in aircraft and a 22% reduction. It says the number of aircraft will be reduced from 36 last winter to 28 this. However, the Financial Times, quoting O'Leary, reported 15 aircraft would be withdrawn. The Guardian decided 12 would be grounded.

Perhaps in exasperation, BAA suggested: "Surely this is a time for our industry to pull together, not spat by press release." Clearly, the airport operator has not been reading Ryanair's previous communications or paying attention to the way the airline is run.

Of course, Ryanair will seek to batter down airport charges. It will no doubt have some success. At Stansted, BAA hinted a compromise might be possible, revealing: "We have met with Ryanair to discuss how best to help each other and look forward to continuing to do so." That may or may not please rival carriers.

However, Ryanair may struggle to get its way at Stansted and Dublin - which are core to its operations, remember - since both are subject to regulatory bodies that are required by law not to listen solely to a chief executive in a rugby shirt.

If Ryanair were to extend its logic and withdraw from these airports, how would it pick up the traffic it requires to ferry millions around Europe to airfields most have seldom heard of and which therefore charge it nothing?

Why should airports served by other carriers slash charges to Ryanair to subsidise the give-away offers that may put rivals out of business?

Ah, the give-aways. There is no let up in the bargain basement. Last Wednesday Ryanair announced a three-day fire sale of one million seats at £1, including tax and charges, for travel between September 1 and the end of October.

Referring to the European Commission's recent announcement that all fares in Europe will have to include non-optional charges from next year, Ryanair said: "The European Union fat cats claim their decision on airline advertising marks the demise of £1 airfares. This is Rubbish."

Yes. It is.

Even those parts regularly consigned to the historical bin bag by commentators refuse to be taken away. Travel agents are used to hearing they are finished, but there are more on the high street now than in the early 1980s.

Yet there are times when optimism shades into whistling in the dark. Give me a pound for every time I have heard someone express concern about "talking the industry down" and I would be up there with Peter Long.

So a survey of the optimism among small and medium-sized companies makes interesting reading. The Entrepreneurs' Index compiled on behalf of Bowmark, a private-equity firm, aims to track how positive directors of companies in various sectors feel about their businesses.

It finds the confidence of travel company heads in their own business has fallen 10 percentage points in the last six months and confidence in the future of the sector as a whole has fallen by 16 points.

That leaves 62% of travel company directors still positive about their own business and 47% positive about the industry. But as Bowmark managing partner Charles Ind points out: "These are entrepreneurial firms and they tend to be bullish." The results are worse then expected, he says.

The contrast with other sectors - business services, manufacturing, healthcare and publishing and media - is revealing.

Travel and leisure has the lowest optimism ratings and only publishing and media suffered a greater fall in confidence over the past half year. The media is taking a hiding from cuts in advertising, but companies in the sector still appear more optimistic than those in travel. Remarkably, the survey suggests 42% of media firms expect revenue to grow by 20% or more over the next year. A mere 17% of travel companies expect similar growth.

A few words of caution - first, I do not have the full results of the survey, just six pages of highlights, so it is difficult to judge the findings. However, let us assume a private-equity company knows how to assess business confidence.

Second, the survey sample is small - involving only 163 small and medium-sized companies - of which 30 are travel and leisure firms.

Third, bracketing travel and leisure together is normal in the City, but is not entirely helpful here. The leisure sector includes hotel groups, which form part of the travel industry, and restaurants, bars and casinos which generally do not.

That said, at least two other findings are telling. Four out of five of the travel and leisure companies surveyed believe government intervention is damaging their business - up from 68% six months ago. The same four out of five say taxes are a burden, almost double the percentage last time out. In other sectors, government legislation is a problem to 70% and taxes an obstacle to two-thirds.

Is travel more heavily taxed than other sectors? It has not been subject to tax increases above those on other industries in the past six months - unless a higher proportion of travel directors are non-domiciles in the UK or were planning to cash in on the previous rate of Capital Gains Tax.

Could the explanation be that travel companies are hurting more than average and increasingly resentful of costs they cannot avoid or control?

A second point of note is that two-thirds of travel and leisure companies complain of a skills shortage - up from 45% six months ago.

Can there truly have been such a decline in skills in six months, or are the demands of a rapidly changing situation exposing the limitations of a workforce - and managers - schooled in ways of operating that fit an expanding industry? I'm only asking.

Second, because it will suck up consumer spending on necessities, leaving less money for travel - whatever the industry says to the contrary.

Third, because it nails the idea of a cut in interest rates - rising rates are more likely - and means an overall tightening in the economy.

The Consumer Price Index for June shows prices up 3.8% year on year following a 3.3% rise in May. The monthly increase is greater than the 3.3% to 3.7% economists were predicting. But the real picture is worse, since the CPI does not include the cost of housing. The more useful Retail Price Index shows a 4.6% rise last month.

If the price increases were on flat-screen televisions, gourmet meals, Burberry coats or stiletto heels it might be less of a problem. But the biggest rise was in the cost of food - up 9.5% on June 2007.

Unpick the increases and the figures are even more alarming. Price-comparison site mysupermarket led the Times to report pasta up 85% over 12 months, rice up 76%, bread 39%, eggs 36%, cheese 35%, tea 26% and milk also 26%. There is not much in that list that could be deemed discretionary.

The government is trying to enforce a 2.5% cap on pay rises in the public sector, remember - which no doubt includes a lot of people who book holidays and may be less likely to do so if they do not earn more - leading 650,000 council workers to strike tomorrow and Thursday.

Further price increases are on the way. The prices UK manufacturers charge for goods rose 10% in the year to June - the highest for 20 years. Strip out food and the increase was still 6.4%. This is not yet Zimbabwe, but you see where we are heading.

Latest figures from the British Retail Consortium reveal a 2.1% year-on-year increase in sales by revenue - less than half the RPI inflation rate - suggesting retailers are making less money when inflation is factored in.

The pain may not yet have reached the travel sector - the usual quota of "Bad weather sends travel bookings soaring" stories abound. But analyst Ernst & Young warns travel is not immune. Its latest quarterly report on UK quoted companies makes some important points.

First, profit warnings among general retailers are at record levels and clothing sales - largely discretionary spending - show the biggest decline since the early 1980s.

Second, fuel hedging has seen many travel companies through till now but, "If the oil price remains high beyond the life of the hedges, failures look inevitable."

Third, tour operators say they have learned the lessons of past downturns, but the industry is not immune to falling consumer confidence.

Fourth, the new players in travel have no experience of a downturn. Fifth, retailers may drive sales by discounting only at the risk of "crippling effects on profits".

Ernst & Young describes the combination of factors facing the industry as "exceptionally toxic". Pick your poison.

Chris Skrebowski, consulting editor to Petroleum Review, told a seminar organised by the Travel Foundation last week that the world will reach peak oil in 2011 - although he noted it could be earlier - and this is the major reason for the high oil price.

Skrebowski's argument is laid out in the current Travel Weekly and can be found at www.Travelweekly.co.uk. In essence, 25 of the world's major producers are already in decline, oilfields are depleting at a rate of 4.5% a year or more and there is little oil left to discover. This is reflected in the escalating costs of production and increasing delays in development.

Of additional concern to airlines, the greatest shortfall is in middle distillate or light, sweet crude oil - the type from which jet fuel and diesel are refined. According to Skrebowski, "We may already be at the peak for light, sweet crude."

The implications for travel are profound. Fuel prices may stabilise at some new level, but no one knows how high that will be.

Let's deal with alternative fuels another time. At this moment the world depends on oil. Why has peak oil come to the fore now? Oil was $20 a barrel in 2003 and $10 not long before that. Surely, if peak oil in 2011 was a realistic prospect it would have affected the price earlier?

Richard Miller, who retired from his job as a geochemist for British Petroleum this year and also addressed the Travel Foundation, can explain.

Oil reserves are included in oil company financial reports and listed among their assets. Their share prices and future profits depend on the amount of extractable oil in the ground.

As a consequence, says Miller, the oil giants do not give an accurate picture of what is there. "The oil companies' agenda is to maximise revenue and increase shareholder value and when they speak [of reserves] they do it to influence markets and governments," he says. "If they said peak oil is coming, what would happen to their stock price?"

So they conceal the depletion of fields in the way they report reserves. "The companies talk about 'barrel-of-oil equivalents', which means oil and gas," he says. "But gas supplies are in good shape, so it obscures how bad the oil situation is. Or they talk about the reserves-to-production ratio and say there is 40 years of supply. It is entirely misleading. Oil fields decline soon after they come into production. It does not matter what is in the ground, but how quickly you can get it out."

Oil can be tricky to extract. Depending on the field, extraction may not easily be increased without compromising future production. It may even destroy a field, despite oil remaining in the ground. Miller points out the oil companies acknowledge this while avoiding drawing the consequences. For example, Shell has said the era of "easy-to-access oil" is over. "That implies difficult-to-access oil can replace existing supplies," says Miller. "But it cannot."

Peak oil has been predicted before - 1995 was once touted as a turning point and the prediction proved wrong. But the increasing number of experts convinced peak oil is imminent is striking.

Jeremy Leggett is a former seismologist who worked in the oil industry, advising companies on where to drill and training their personnel, before leaving to write a series of books exposing the workings of the industry and the coming of peak oil. Anyone who wants to know more could do worse than read Leggett's book Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis, published in 2005, or The Carbon War (1999) - an expose of the oil industry's extensive efforts to deny the connection between carbon fuel and climate change.

By chance, at a recent industry lunch I sat next to a seismologist who works with an oil company in Houston advising on where to drill. I asked if he was aware of Leggett? "Yes, I've heard him speak." What did he think of Leggett's arguments? "Well, he is right." And is he right about peak oil? "Oh yes."

On Wednesday (July 9), the Financial Times reported: "Total and Eni, two of Europe's biggest oil and gas companies, plan to bring nuclear power to countries in the Middle East." The story referred to the United Arab Emirates and another unspecified country.

Read that again. Oil companies are to sell nuclear power to the world's greatest oil producers at a time when the oil price is at a record and they claim reserves are plentiful. Think about it.

Lawyers can argue about anything, but they agree on the importance of precedents - and in that light, it was unlikely the Lord Justices would decide the Treasury should repay £50 million in tax to anyone. Think where it might lead.

The FTO argued its members' human rights had been breached by having £50 million taken from them after Chancellor Gordon Brown, as he was, suddenly announced a doubling of air passenger duty in December 2006.

The rise was introduced within seven weeks, forcing tour operators to pick up the bill on holidays booked prior to the announcement. Airlines could simply surcharge passengers for the money, but tour operators were largely prohibited from doing so by the Package Travel Regulations.

The FTO's appeal rested on five points following the dismissal of an earlier challenge in the High Court last year.

First, the Treasury was ignorant of the impact on tour operators when it decided to double APD at short notice. Second, there could be no environmental justification for increasing tax on bookings already made.

Third, the government had previously delayed increases in APD out of recognition of the restraints on tour operators. Fourth, it would have been easy to exempt existing bookings and, fifth, the increase was retrospective.

The Treasury countered with five arguments of its own. First, that it took the impact on tour operators into account after this was pointed out and ministers decided to proceed anyway.

Second, the 'environmental benefit', whatever that might be, was not the only reason for the tax increase. It also aimed to raise revenue - and excluding pre-booked flights would have cost the Treasury £50 million.

Third, the previous postponements were not comparable. Fourth, the nature of a tour operator's business meant an increase in APD was always a risk. And fifth, governments have a right to determine tax measures.

In keeping with this legal-case-by-numbers approach, the FTO's case was dismissed on four counts.

First, the Lord Justices decided: "A postponement [of the tax rise] for tour operators alone would have been difficult to justify."

Second, postponement across the board would have involved 'substantial loss of revenue'.

Third, tour operators were not uniquely disadvantaged. "Airlines took a commercial risk in passing on the increase to passengers, and one [British Airways] chose not to."

Fourth, tour operators "were not unable to absorb the impact" - note the lawyerly double negative. They could mitigate the effect by increasing charges for passengers who booked subsequently, and at least one did.

So basically, this sudden rise in tax was justifiable because that is what it was. But I'm no lawyer.

Even a relatively minor fraud may be enough to push a small business under. So a report by accountants BDO Stoy Hayward, released this week under the headline 'As the credit crunch bites so do the fraudsters', makes alarming reading.

UK business fraud is booming, with reported fraud in the first half of the year up 74% over 2007 to a total of £705 million. April alone saw £317 million swiped.

Bankers and insurers bore the brunt of the first-half losses, to the tune of £636 million - which I at least find heartening, although I guess the cost will only be passed on. BDO reports this was a 15-fold increase on reported fraud in the sector during the same period last year.

The BDO fraud services team points out: "When you add in the fraud that has not yet been uncovered or which businesses have discovered but do not wish to expose, the real cost could be much, much higher." It is the known-knowns that get you as much as the unknown-unknowns, as Donald Rumsfeld would appreciate.

Some aspects of most reports should be taken with a pinch of salt. BDO Stoy Hayward's is no exception. We can dismiss its excitement at the fact that this is the biggest increase in fraud since the BDO FraudTrack service began, since we are talking about something that dates from 2005 here.

Other findings stand out, however. The biggest threat to businesses comes not from organised gangs but from their own management and those they do business with every day.

Management fraud accounted for 46% of the total and third-party fraud, usually involving suppliers, accounted for 32%. Employee fraud amounted to barely one-quarter of that perpetrated by management.

In the words of BDO fraud services team head Simon Bevan: "Management are robbing you blind and suppliers are ripping you off. My team has never been so busy."

The results are interesting in light of ABTA's long-running campaign to make members more aware of the danger of fraudsters, since the greatest danger lies within - as unfortunately ABTA should be only too aware.

In this respect, fraud is a bit like violence toward the person or the risks to children. Read the papers and you will be convinced the greatest risk comes from strangers. Look at the statistics and you will know otherwise.

BA paid out £121.5 million to the UK's Office of Fair Trading after being fingered by Virgin, and a further $300 million to the US Department of Justice after admitting price-fixing in both its passenger and cargo operations.

Four more airlines received fines totalling $504 million in the US last week after agreeing to plead guilty to involvement in a conspiracy to fix surcharges on cargo.

Air France-KLM took the biggest hit - $350 million. Cathay Pacific will pay $60 million, SAS Scandinavian Airlines $52 million and Martinair - a carrier half-owned by Air France-KLM - $42 million.

According to the US justice department, Air France-KLM conspired with other airlines to suppress and eliminate competition by fixing rates for air shipments to and from the US for six years from January 2000.

Lufthansa played the role of Virgin, escaping a heavy US fine by being first to volunteer information to the justice department. No doubt this has not led to cordial relations between Paris and Frankfurt.

Fines so far imposed total $1.2 billion. Korean Air has paid out $300 million, Japan Airlines $110 million and Qantas $61 million. Up to 30 airlines are under the microscope in the US, individuals face criminal prosecutions and investigators in the European Union and elsewhere are at work - so expect further fines.

Qantas claimed the distinction of being the first airline to have a former executive sent to jail last week. Brian McCaffrey, ex-head of freight operations in the US, received an eight-month sentence and a $20,000 fine.

Then there are the class-action lawsuits. BA and Virgin Atlantic agreed a $200 million settlement with US lawyers acting on behalf of passengers in February, and Lufthansa settled a claim by cargo customers for $85 million in March.

None of this is handy going into the biggest aviation downturn in decades. As they say in the US - do the math.

But the most interesting question remains unanswered. How on earth did this come about? The industry was not especially in crisis at the point at which these acts of conspiracy or collusion commenced. The cargo conspiracy allegedly began in 2000. The fuel-surcharge collusion dated from 2004.

Was it due to ignorance of the law on a vast scale? Should we blame collective hubris at a senior level? Or have some of the habits of a generation of airline executives fallen foul of an unexpected zeal among enforcement agencies?

A former chief economist at the World Bank and author of the ground-breaking Stern Review on the Economics of Climate Change, published in October 2006, Stern has been a key figure in presenting the case that global warming can be tackled without damage to the world economy.

Indeed, his report, commissioned by the UK government, argued the costs of not tackling climate change would far outweigh those of acting now. He even calculated the cost of action to avoid the worst effects of warming at 1% of GDP a year.

The Stern Review won admirers in industry and government. EasyJet chief executive Andy Harrison is fond of quoting from the report and urges others to read it. As Stern said at the launch of his study: "The conclusion is essentially optimistic. But the task is urgent."

Less than two years on it has become more so. Last week, Stern warned climate change was occurring faster than previously thought and emissions reductions must be speeded up.

The cost of averting the most disastrous effects of warming has doubled, he said. It would now cost 2% of GDP per year for decades to come.

That is unlikely to be what anyone in this or any other industry wanted to hear, but it could be done.

Unfortunately, there is more. Stern's latest calculation is based on stabilising the amount of carbon dioxide in the atmosphere at a level of 500 parts per million (ppm). The Kyoto Protocol that forms the basis of most climate change forecasts suggests efforts be concentrated on stabilising CO2 at 450ppm. But the consensus among climate scientists is for 350ppm. You see the problem.

There is another. Professor Kevin Anderson, research director at the Tyndall Centre for Climate Change Research, tells me Stern based his calculations on a rise in atmospheric CO2 since 2000 of 0.96% a year. The figures grow exponentially, remember.

In fact, the amount of CO2 in the world's atmosphere rose by 2.8% per year between 2000 and 2006. So Stern - author of the report that informs government policy - was out by close to a factor of three.

If that does not worry you, it should. It sheds an uncomfortable light on Stern's optimism and, one way or another, few of us will escape the consequences.

As ever, BA bore the brunt with more than 50 flights cancelled, 260 delayed and 38,000 passengers inconvenienced.

Not only was a runway closed for the president's exclusive use upon his arrival and departure - a privilege not extended to Britain's prime minister or the Queen - but a practice run by US military helicopters two days before also shut a runway.

Walsh expressed his anger at the "completely unnecessary" disruption in a column in staff newspaper BA News, complaining of knock-on delays of six hours on two of the days.

One wonders why Heathrow was preferred to a US military base. God knows there are enough of them in Britain with an active US Air Force presence - so much so that the country was compared to a US aircraft carrier in the 1980s.

Was the security at Heathrow considered superior? Did the president want some duty free? And why did the helicopter pilots require a dry run two days before Bush arrived - were they rusty?

Walsh was still smarting when he appeared at a conference on sustainable aviation in London on Wednesday. "It was ridiculous," he said. "But it won't happen again."

By all accounts Heathrow operator BAA was not happy either. A spokeswoman conceded the visit, including the "helicopter rehearsal", caused three days of disruption. I suggest the anti-Heathrow expansion group Hacan Clearskies contacts the pilots immediately to take part in future protests.

Indeed, why not go the whole hog and sign up Bush himself. No one else has managed to close a runway three times in as many days and the Texan will be free from January.

Meantime, presumably the Civil Aviation Authority will waive a portion of its monthly fine on BAA for delays to passengers, which ran to £3.1 million in April and May. And we must add a new item to the list of hair-trigger factors - fog, strong winds, cross winds, security alerts - that cause disruption at Heathrow.

Delayed due to the fog of war - I bet it's already on the flight indicators.