British Airways surprised no one yesterday by pushing through another fuel surcharge – the second in as many months – in an effort to stave off a precipitous drop in its profitability.
Analysts are forecasting a massive slump for the airline industry this year as the economies in Europe and America slow sharply and the ever-rising price of petrol takes its toll. BA has been one of the most aggressive in passing on its increasing bills to its customers – the latest hike will push the fuel fee for its longest flights to an astonishing £218 return. Douglas McNeill, an analyst at Blue Oar Securities, said he nonetheless expects BA's profit this year to fall by roughly 80 per cent, from the record £875m it made last year to around £200m this year.
BA's chief executive, Willie Walsh, has already warned the carrier's 10 per cent operating margin could fall to 7 per cent. After oil hit a new record of more than $135 last week, that figure is looking increasingly ambitious.
Standard & Poor's said in a note on the airline industry yesterday that it "expects BA's operating profit margins to be at significant risk of declining well below 7 per cent." It added: "The continued rise in the price of fuel above $120 per barrel, a major cost component for all airlines, makes it certain that 2007 will have represented the peak of the profit cycle for most European players."
BA's latest increase will from 3 June add £6 to short-haul flights to take it to £32 return, £30 to long-haul flights of less than nine hours (£156 return), and £60 to its longest flights (£218 return).
The carrier is walking a fine line by aggressively foisting costs on to passengers on the assumption the extra revenue per seat it can glean by doing so will offset a drop in bookings as fares become too dear for some travellers. Mr Walsh said he expects to ground some parts of the fleet as that occurs.
The oil price weakened slightly yesterday, dropping below $129 per barrel on growing evidence that the world's largest consumers, namely America, have begun cutting their fuel consumption in response to the record price.Reuse content