Oil price surge hits BA hard

BRITISH Airways, Europe's second-biggest airline, has been hit harder than expected by rising fuel costs. The company raised its forecast for fuel costs as oil prices soar and warned declines in average revenues per passenger would continue.

Announcing half-year results, Rod Eddington, chief executive said operating profits rose 23% thanks in part to a recovery in long-haul travel, but he added: 'Rising fuel costs, however, are expected to continue and remain a challenge along with employee costs.'

He now expects fuel costs of £245m this year, £20m higher than its previous estimate although some costs will be offset by fuel surcharges. Last month, BA announced passengers would have to pay a £20 excess on flights to the US and Asia, up from £12.

The surcharges have been prompted by a surge in crude oil, which is now trading in excess of $50 a barrel. The whole airline sector has been hit by rising oil prices. BA has used markets to hedge against rising costs although not all airlines have protected themselves. Ryanair, for example has failed to do so and its shares have slumped 30% in the past year.

BA's staff costs also increased, up 7.7%, due to pay rises and increased pension contributions.

However, the airline made an operating profit for the three months to end-September of £240m compared with £195m in the same period last year.

The result also beat analysts' expectations of £210m. But despite the profits recovery investors will not be paid a half-year dividend.

Revenues for the period were £2.026bn, ahead of the average forecast of £2.043bn and £1.983bn last year. The airline also said October passenger traffic rose 1.8% and that 74.2% of seats were filled.

BA shares fell 1/2p to 224p in early trading. The stock has lost 3.4% this year, coming off highs of 328p in March mainly due to oil price surges.

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SINGAPORE Airlines (SIA) announced today that it would raise its fuel surcharge to offset rising jet fuel costs for the third time.

SIA, the world's second-largest carrier by market capitalisation, has passed on its rising fuel bill to its customers since June.

'The price of jet fuel has risen 37% from when Singapore Airlines first introduced a fuel surcharge in June,' the airline said in a statement.

SIA will up its fuel surcharge from US$7 (£3.95) to US$12 for most Southeast Asian destinations from Singapore. Passengers flying other routes will pay US$22 more per ticket, an increase from its previous surcharge of US$12.

Fuel accounts for nearly a quarter of SIA's costs.