Soaring fuel bill hits BA profits

British Airways has blamed a doubling of fuel costs for a sharp profits fall, saying the airline industry faced the "worst trading environment ever".

The carrier made pre-tax profit of £37m ($73.3m) in the three months to the end of June compared with £298m a year earlier - an 88% drop.

It also said it would cut 3% of flights this winter to reduce overheads.

Earlier this week BA announced that it was in merger talks with Spanish airline Iberia.

'Unprecedented' prices

BA said its fuel bill was expected to be £3bn in the year to the end of March - the equivalent of £8m per day.

However, it insisted it was "well prepared" with a focus on controlling costs.

"We are in the worst trading environment the industry has ever faced," said BA chief executive Willie Walsh.

"The combination of unprecedented oil prices, economic slowdown and weaker consumer confidence has led to substantially lower first quarter profits."

He added that the airline had managed to hedge some of its fuel costs in the quarter which "mitigated the impact" of rising bills, although they still rose by 49%.

The reduction in flights over winter would not "compromise its network", BA said.

The airline added that the proposed merger with Iberia would take months to finalise.

The deal is being seen as an attractive proposition for BA as it would allow it to reduce costs.

Terminal Five

The results are the first full quarter to include operations at Heathrow Airport's Terminal Five - used exclusively by BA.

BA said that more than six million passengers had gone through the terminal since 27 March and that it was going "from strength to strength".

When Terminal Five opened, problems with its operations led to hundreds of flights being cancelled and the loss of thousands of bags.

The embarrassment resulted in some executives leaving both BA and the Heathrow operator, BAA.

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