BA chief warns airlines will collapse as fuel costs rise

Surging fuel prices could trigger the collapse of a number of airlines this year, the chief executive of British Airways, Rod Eddington, said yesterday.

Surging fuel prices could trigger the collapse of a number of airlines this year, the chief executive of British Airways, Rod Eddington, said yesterday.

The warning came as BA reported a 70 per cent rise in profits last year but cautioned that its performance this year would be hit by a £150m increase in its fuel bill, taking it to more than £1bn for the first time.

Mr Eddington said he was sure that some airlines would not survive the winter and indicated that full-service carriers were as much at risk as their low-cost rivals. His comments echo a similar warning made recently by the chief executive of Ryanair, Michael O'Leary. "There are 54 no-frills carriers in Europe and the number is growing. I have no doubt it will be a very tough winter for everyone in the industry and not just the no-frills carriers," Mr Eddington said.

The £2.50-a-flight surcharge introduced last week by BA will raise £75m, covering half the increase in fuel charges. BA has also hedged about half of its fuel purchases for the coming year at an oil price of $28.50 a barrel. But the recent strengthening of the dollar ­ the currency in which aviation fuel is priced ­ will push up BA's purchasing costs.

The jitters over oil prices overshadowed a better-than-expected set of results and helped send BA's shares down 3.5p to 243.25p. For the year to April, pre-tax profits increased from £135m to £230m on sales of £7.6bn, despite a 2 million reduction in passengers carried to 36 million and a 1.7 per cent drop in revenues.

The improvement was driven by a cost-cutting programme which produced annualised savings of £869m against a target of £650m, since September 2001.

In particular, the turnaround continued in BA's short-haul European network which cut losses for the year from £117m to £60m. It is now breaking even on an ongoing basis, having been losing £310m three years ago.

But BA's profits were also flattered by £50m of one-off items. In the final quarter of the year, it booked an extra £35m because of improvements in the way it calculates revenues. There was also a revaluation of the airline's yen-denominated debt which cut £15m from BA's interest bill.

Mr Eddington said he expected revenues to rise by 2 to 3 per cent this year, more than offsetting a small decline in yields. However, he said it was too early in the year to say whether the dividend would be restored, pointing to the uncertainties BA faced, not least volatile oil prices.

BA's aircraft flew 73 per cent full on average last year ­ its best load factor since 1997 ­ while net debt, at £2.3bn, was the lowest in seven years. Passenger yields ­ the profit made for each kilometre flown ­ were down 4.3 per cent for the year but in the final quarter from January to March they were up by 3.9 per cent.

BA said continued cost reduction remained the key to long-term profitability but Mr Eddington said there were no plans for further cutbacks on top of the £300m efficiency plan announced in January. It is expected to result in about 3,000 job losses. Staff numbers now stand at 46,500 ­ down 7.5 per cent of their level a year ago.