British Airways Warns of Downturn, Shares Fall


British Airways warned that airlines were entering a downward cycle due to global economic weakness and said rising fuel costs would stop it short of next year's target of 10 percent margins.

"To some degree, we've started the down-cycle, particularly in the U.S.," Finance Director Keith Williams told reporters. "We're well placed to deal with a down-cycle. We're going into the downturn from a position of real financial strength."

BA shares fell 7.6 percent to 245 pence by the close, continuing a five-week downward streak.

Europe's third largest airline said revenue was expected to rise by 4 to 4.5 percent to more than 9.1 billion pounds in the year to March 2009, but the operating margin would fall to around 7 percent.

The statement ahead of an investor day follows a warning last month that rising oil prices were becoming increasingly difficult to handle.

Williams noted that oil was currently trading at around $100 a barrel, compared to around $62 at the time of last year's investor day.

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"That's going to have an impact ultimately on all of the industry," he said. "Fuel will become our single largest cost next year."

Fuel costs are expected to rise by about 450 million pounds to 2.5 billion, an increase of 20 per cent. Non-fuel costs are expected to rise 3 to 3.5 percent.

BA said on Wednesday that passenger traffic had risen 5.3 percent in February, although the figures were blurred by last February's poor performance when premium bookings were severely dented by the threat of striking cabin crew.

But Williams said the airline's key business and first-class customers were still flying. "Premium traffic is still very strong, and if you look into our forecasts for next year, you see it continues to be strong," he said.