Turbulence for BA, Iberia as fuel bills rise by a third

The airline formed by the merger of Iberia and British Airways yesterday laid bare the industry's battle to combat soaring oil prices, saying its fuel costs had rocketed by nearly a third in its first quarter.

Concerns about its fuel burden overshadowed the inaugural results from International Airlines Group's (IAG). However, the company more than halved its pro-forma losses and struck an upbeat tone about its prospects, driven by plans to make annual cost savings of €400m (£354m) within five years.

IAG, which was formed in January, said its fuel bill surged by 31.9 per cent, or €266m, to €1.3bn in the quarter to 31 March. Willie Walsh, the chief executive, said: "It is a huge increase in price. [The oil price] is a real challenge not just for BA and Iberia but for the airline industry." IAG expects a fuel bill of €5.2bn for the year, up by €100m from an earlier forecast.

It has absorbed about half of the most recent spike in its fuel bill, but the remainder was passed on to customers. British Airways itself has recovered some of this increase in costs by raising its fuel surcharge three times in the past four months but IAG warned that this will be more difficult to do going forward.

IAG slashed its operating losses to €102m over the three months, compared to €238m last year. It grew revenues by 15.4 per cent to €3.64bn. The group's premium business boasted yields up 4.4 per cent, on volumes higher by 11.9 per cent. Mr Walsh said transatlantic routes had performed "very strongly".