BA warns on fuel surcharges amid turmoil in oil market

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The Independent Online

International Airlines Group (IAG) – created by the merger of British Airways and Spain's Iberia – is keeping its fuel surcharges under review in the light of the oil price spike caused by the unrest in the Middle East.

Willie Walsh, the company's chief executive, said yesterday that soaring fuel costs are a challenge for airlines as the company published its first quarterly results, showing profits of €6m (£5m), compared with a €114m loss the previous year.

IAG's short-term fuel requirements are largely hedged against sudden oil price fluctuations but continuing high prices will feed through, and the surcharges are under review, Mr Walsh added. "The oil price is an issue for the industry as a whole," he said. "Everybody needs to understand that high input prices from oil do ultimately find a way through to consumers, not just from airlines but from other businesses as well."

Mr Walsh's comments came as the global oil price dipped slightly to around $111 per barrel, having spiralled to a two-and-a-half year high of $120 on Thursday over concerns about the restriction of supply from Libya and the potential for unrest to spread to other large oil producers in the region. The dropping price came as Saudi Arabia, the world's biggest oil supplier, indicated it could raise production to make up for any shortfall from Libya, if necessary. There is enough spare capacity in the Saudi system to meet more than twice Libya's commitments.

The recent uprisings across the Arab world are not the only factor affecting oil prices. The benchmark price was already rising strongly at the start of the year, driven by global economic recovery. Yesterday Mr Walsh blamed the increase for a fall of almost 20 per cent in the IAG share price since the combined stock started trading in late January.

IAG reported that revenue for the quarter to the end of December had risen by 13 per cent to €21m. Profits were dragged down by a string of one-off charges including Iberia's restructuring costs and the impairment charges associated with scrapping two 747s. Stripped of non-recurring items, profits would have been $196m, the company said. Fuel costs for the quarter rose by 5.2 per cent to €989m. The combined airline is on track to meet its first-year expectations, IAG said.