Middle East chaos could mean fuel surcharge rise warns British Airways

Published on Thursday 24 February 2011 21:58

PASSENGERS flying with British Airways and its new partner Iberia are likely to face further fuel surcharges amid rising oil prices, the new parent company warned yesterday.

Willie Walsh, chief executive of the International Airlines Group which brought the two European carriers together in January, said both airlines were watching the Middle East situation closely for its impact on fuel prices.

"We are keeping the situation under review and we will adjust the fuel surcharge if we think it's necessary. There has been an increase in the volatility of the fuel prices over the last few weeks. It is likely that increases will be seen in the market and this will affect all airlines and will be a challenge to the industry."

Walsh, formerly chief executive of British Airways before the Iberia merger, was speaking as IAG announced its maiden financial figures. The combined group posted pre-tax profits of €21 million (18 million) for the three months to 31 December, compared with losses of €208m a year earlier. The figures assume that the two airlines had operated as a single entity over the past 12 months.

Walsh said IAG's long-haul business remained strong, particularly in the first-class and business class sectors, but the short-haul European market "continues to be highly competitive".

The return to the black came despite severe weather in the UK and a Spanish air traffic controllers' strike which disrupted the airlines' operations and reduced revenues by €71m. IAG said revenues for the three months rose by 13.4 per cent after capacity growth of 2.7 per cent and improved yields.

The return to profit came on the back of a recovery in premium travel, but analysts fear rising oil prices and weakening consumer confidence in Europe could trigger another slowdown.

Societe Generale analyst Jonathan Wober said :"If economies globally remain broadly healthy, demand for air travel will remain broadly healthy and some of the increased fuel costs can be passed on.

"But if we have a significant weakening of the global economy, it becomes a lot more difficult, and depends on how high the oil price goes."

Fuel costs were up 5.2 per cent to €989m and other operating costs lifted 11.1 per cent at €2.82bn. Walsh said the IAG annual fuel bill for 2010 was €3.9bn and this could rise in 2011 to €5.1bn. To add to British Airway's fuel-cost problems, the airline faces another possible strike in the long-running cabin crew dispute.

The Unite union has said voting in a fresh ballot for industrial action will start on 1 March, with the result due on 28 March. Depending on the result, BA could face disruption to flights over Easter.

Earlier this month the International Air Transport Association said rising oil prices could wipe out profitability and hinder the industry's recovery.x