High oil prices are hurting airlines

As British Airways blames high fuel costs for a 40% drop in quarterly profits, BBC News takes a closer look at how the company is continuing to perform in an ever-tougher airline industry.

Is British Airways (BA) alone among the major airlines in putting a drop in profits down to higher fuel costs?

Far from it, a great many of its competitors have also blamed higher fuel costs for a fall in profits.

Ireland's Ryanair and a number of European and US carriers including American Airlines and Southwest, the carrier that became the budget airline industry's blueprint, have all done so.

Last month Ryanair said soaring fuel costs had sliced 26% from its quarterly profits.

So far, only a few airlines have proved able to continue increasing their profits in the face of the sky high price of fuel.

Easyjet is one of them. In its most recent results back in November, Easyjet thanked the "resilience" of its business model for a 21% rise in annual profits.

BA last year introduced a fuel surcharge to try and compensate. Is this common?

Yes very. Everyone from Virgin Atlantic to BMI, Air France and most of the North American carriers have also introduced fuel surcharges.

BRITISH AIRWAYS - RECENT HISTORY September 2001 - BA says it is to cut 7,000 jobs as the air industry is hit by the September 11 terror attacks February 2002 - BA says it is to cut a further 5,800 jobs May 2002 - reports a loss of �200m, its worst since the firm was privatised in 1987 May 2003 - returns to the black with a profit of �135m July 2003 - a wildcat strike by ground staff causes massive disruption and costs BA �40m May 2004 - BA introduces surcharge on ticket prices as soaring oil prices push up the cost of fuel May 2004 - reports a surge in profits to �230m August 2004 - unions threaten strike action by ground staff over pay deal November 2004 - reports quarterly profits of �220m

BA's surcharge now stands at �10 ($18.84) each way on a long-haul flight and �4 for a short-haul journey.

The airline estimates that in its financial year to 31 March 2005, its fuel bills will rise by 12% costing �250m more than in the previous 12 months.

A minority of airlines have resisted the pressures to introduce a fuel surcharge, such as Ryanair and Easyjet.

In addition to the fuel surcharges, BA has also sought to shield itself from any future fuel price rises by pre-ordering 80% of its fuel needs until the end of this financial year at a set price.

Is BA still feeling the effects of the post - September 11 world?

Realising that air travel would plummet after the September 11 attacks, BA was one of the first to cut costs, trimming thousands of jobs and cancelling some routes in its drive for great efficiency under a programme called Future Size and Shape.

BA saw a shortage of check-in staff last summer

BA has also responded to the challenge of the low-cost carriers such as Ryanair and Easyjet by cutting ticket prices and advertising widely.

While this has inevitably reduced BA's average revenues per passenger, it has managed to increase passenger numbers as a result.

For January 2005 it said numbers rose 8.1% over the same month last year.

What other factors have affected BA?

The airline made the headlines for all the wrong reasons back in the summer after long delays to its Heathrow flights over the August bank holiday weekend due to staffing shortages.

Some analysts speculated that the company's staff cutting programme had been too severe, and that some of the remaining staff had decided to "pull a sickie" because they felt they were being overworked.

BA ultimately took on an extra 200 employees at Heathrow.

The airline's staff also threatened strikes over pay deals back in the summer.

Yet BA has not since been hit by any such large scale delays or any strike action.

It remains confident that its turnover will increase for the current year as a whole.