BA warns of short-haul loss and increases fuel surcharge

British Airways warned yesterday that its short-haul operations are likely to remain in loss this year as the airline is buffeted by soaring fuel costs and fierce price competition.

British Airways warned yesterday that its short-haul operations are likely to remain in loss this year as the airline is buffeted by soaring fuel costs and fierce price competition.

The warning came as Rod Eddington, BA's chief executive, sought to "squash" speculation that he is preparing to leave the airline. "I still have a number of laps left in me," he said.

BA returned to the black in the first quarter of the year, making a pre-tax profit of £115m against a £45m loss in the same period last year.

It had hoped to make a profit on its domestic and European services this year after cutting losses from £244m two years ago to £60m in 2003-04 but it is resigned to a further loss. BA shares fell 3 per cent to close 7.5p lower at 205.5p.

News of the bounce back into profit was accompanied by confirmation that BA is increasing the fuel surcharge on long-haul flights to £12 for a return journey as from tomorrow. The surcharge on short-haul flights will remain at £5 for a return fare or £2.50 single. Virgin Atlantic followed suit, also raising its surcharge to £6 each way from Wednesday. The low-cost airlines Ryanair and easyJet ruled out a fuel levy on passengers.

BA said its fuel bill would rise by £225m this year - £70m of which would be recovered through surcharges. In total, the airline's fuel costs are expected to reach £1.14bn - some £75m more than when it first imposed the surcharge in May.

Although Mr Eddington, who joined BA four years ago, succeeded in dousing speculation about an imminent departure, it is far from clear whether he will be at BA beyond the end of next year, when he will still only be 56.

He has a Korean wife and two young children, 10 and eight, and is understood to be keen to return to his native Australia so they can complete their secondary education there.

"I haven't got a firm date in the diary, there are a whole bunch of issues which will decide when I leave," Mr Eddington said, adding that he planned to be with BA "this year and next year".

When he does leave, it will not be to run another airline. "This is the only job I want and it will be my last job in aviation," he added.

Internal candidates to succeed Mr Eddington include BA's highly regarded finance director, John Rishton, and its director of operations, Mike Street. Although he is not a member of the board, some see Martin George, BA's director of marketing and commercial development, as a potential future chief executive.

The return to profit prompted calls from the Transport and General Workers' Union for BA to accede to the pay claim submitted on behalf of 8,300 ground staff who are now being balloted on strike action. Brendan Gold, the T&G union's national secretary for civil aviation, said: "These profits have been achieved with significant efforts from the workforce. Now is the time for the BA board to stop insulting them and agree their modest and reasonable claim to secure the future."

Mr Eddington responded by saying that he hoped staff would understand it was important for BA to make "reasonable" profits in order to reduce its debt levels and its pension fund deficit.

"If we don't make profits we are not viable. Profitability is our salvation," he added.

He also said it was misleading to make direct comparisons with BA's first-quarter performance last year because that was a period when the airline was badly affected by the Iraq war and the Sars epidemic.