Tough times ahead for man of honour

News that Willie Walsh is deferring his bonus of £700,000 for the year despite hitting his long-pledged target of a 10% profit margin for British Airways shows there is at least one man of honour in the boardrooms of British companies.

It's rough for Walsh. He delivers what he promises - BA's best figures for a decade - but the outcry over the Terminal 5 fiasco forces him to give up a bonus the size of which would make most FTSE 100 company chief executives snigger.

The City, however, is uninterested in Walsh's personal finances. It is more concerned about how he managed to avoid issuing a profit warning today.

In March, Walsh told analysts that profit margins would slide to 7% this year, taking around £250 million off the bottom line. As BA is widely believed to be doing no better than breaking even in current trading, many believed a second profit within three months was on its way.

But following the fashion for airlines - easyJet did the same earlier this month - BA essentially said it has no real idea what its profits might be this year and that the City, analysts and investors can make up their own minds.

The problem, as Walsh admits today, is that no one knows where the oil price is going this year. Kerosene will this year be the airline's single largest cost - outstripping employee costs for the first time - and without a crystal ball on crude prices BA simply does not know how badly it will be hit.

Its guidance is that if the price of crude stays at $120 a barrel this year, it will add £1 billion to its annual fuel bill. Put another way, its largest source of costs will rise 50% year-on-year.

Those, like Goldman Sachs, who believe oil is actually on the way to $150 a barrel and perhaps beyond, will note that BA states that a $1 a barrel rise in oil wipes £16 million off profits. If the oil price continues to rise that gets on for wiping out much of the airline's profit for the year.

Walsh is a cost-cutter by nature and he is now pledging to cut further. BA has a history of industrial unrest. Walsh's toughest times may just be beginning.