Merged BA warns over oil prices

IAG, which started operations on January 24 and is hedged for 53 per cent of its fuel requirements in 2011, said its pro-forma fuel costs rose 5.2 per cent or 49 million euros in the last quarter.

“The current political instability in the Middle East and its impact on fuel prices is being monitored closely,” said chief executive Willie Walsh.

“We are reasonably hedged for the short term but the price of oil will clearly be a challenge to the market in the short term.”

BA recently raised the fuel surcharge on its longhaul flights because of the rising cost of jet fuel.

Reporting proforma results for 2010, IAG said it made a pretax profit last year of 84 million euros, which compared with a loss of 1.15 billion euros in 2009, on revenues 10 per cent higher at 14.79 billion euros.

The combined numbers assume that the two airlines had operated as a single entity for the last 12 months, while year-ago comparisons have been calculated by IAG.

Profits in the final quarter of 2010 were affected by severe weather in the UK and a Spanish air traffic controllers’ strike which disrupted the airlines’ operations and reduced revenue by 71 million euros, the company said.

The return to profit comes 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.

Rising oil prices could wipe out airline profitability in 2011 and hinder the industry’s recovery, airline body IATA said earlier this month. 2010 was a year of major disruption for BA and Iberia, who lost millions of pounds from last year’s big freeze, which closed runways around Europe in the week before Christmas. That came on top of disruption caused by strikes and volcanic ash.

Earlier this month Air France-KLM sent shivers through the aviation sector by issuing a profit warning triggered by snow, strikes and most recently African riots.

Europe’s second biggest airline group by value behind Lufthansa, said its longhaul business remained strong, particularly in the premium sector, but that the shorthaul European market continued to be highly competitive.