Market News

BY Christopher Jasper

British Airways’ business class customers face higher fares as the airline seeks to offset a massive increase in its fuel bill sparked by the Iran war. BA’s parent company, International Airlines Group (IAG), said it will attempt to pass on around 60pc of the €2bn (£1.7bn) in extra fuel costs expected this year as a result of the closure of the Strait of Hormuz.

Luis Gallego, IAG’s chief executive, said he was particularly confident in the ability of passengers on premium flights – such as British Airways’ services to the US – to soak up fare rises. The comments suggest business class passengers will be targeted for price rises.

Virgin Atlantic added a £360 fuel surcharge to its most expensive fares last month.

Even after lifting fares, IAG faces an €800m hit from fuel costs that it will not be able to pass on. As a result, the airline group expects annual profits to tumble below previous forecasts. IAG warned of a deepening crisis if the strait, which normally accounts for a fifth of all oil and gas shipments, remains blocked by fighting, with “potential for supplies of jet fuel to be restricted on a global basis”.

The International Air Transport Association said it was also becoming increasingly concerned and urged European authorities to allow the use of US-grade jet fuel to ease supply pressure.

Stuart Fox, the trade body’s director for flight and technical operations, said: “If the war continues, it won’t be long before we see fuel shortfalls in parts of the world. European fuel supply could come under pressure.”

Aviation safety agency Easa said it would have no concerns about the use of US Jet A fuel, which freezes at higher temperatures than the Jet A-1 traditionally used in Europe.

IAG said it was confident in summer fuel supplies in its main markets and at hubs such as Heathrow. However, there are growing concerns across the industry about the ability of aircraft to refill their tanks following flights to cities in Asia and Africa that are reliant on fuel shipped from the Gulf.

BA rival Lufthansa revealed this week that one of its South African services had to divert to Namibia to take on fuel after Cape Town airport ran out of kerosene.

Jets operated by BA and Spanish sister airline Iberia are meanwhile taking on more fuel in North and South America, where supplies remain plentiful and prices lower, while Mr Gallego said IAG had also built up its own reserves.

He said: “We have a problem in the Strait of Hormuz, but you can have the supply to replace it. We have, for example, regular supplies now from the US.

“In the last 10 years, we have been investing to have a backup plan in a situation like this. We have our own supply of fuel, our own inventory in the UK and Ireland for example, and this is going to help in case it’s needed.”

That includes shipments to a dedicated BA depot on the Isle of Grain in the Thames Estuary, from where two trains a day carry fuel directly to Heathrow. Fuel can also be sent from the UK to Spain and Ireland, where IAG owns Aer Lingus, as required.

IAG said its overall fuel bill for the year would be about €9bn, up from earlier guidance of €7bn before the closure of the key Gulf waterway.

The comments came as oil prices climbed back above $100 on Friday after Donald Trump confirmed the US had fired on several Iranian facilities in response to attacks on US Navy ships.

Jet fuel prices have roughly doubled since the US began strikes on Iran in February, which prompted Iran to close the Strait of Hormuz to tanker traffic. Average global jet fuel prices were around $181 per barrel this week, according to IATA data.

BA has already been forced to cancel many of its popular routes to the Middle East, including Dubai and Abu Dhabi, as the United Arab Emirates and its Gulf neighbours come under missile and drone attack from Tehran. IAG said it expected total passenger capacity to be lower than previously forecast. The airline group has put on alternative flights to destinations in India and Africa. Sean Doyle, the chief executive of BA, said a further shake-up was likely once the Government finalised plans to allow airlines to mothball some airport slots to conserve fuel without losing future rights over them. He said: “A chunk of what we’re hoping to unlock with the slot consultation is the ability to redeploy capacity. “Right now we’re not able to fully effectively redeploy capacity out of markets where people aren’t travelling to, such as the Middle East, into markets where people want to travel to.” Airline bosses have warned that some carriers could go bankrupt later this year if they are forced to cancel flights because of fuel challenges or if holidaymakers abandon their plans.

Michael O’Leary, the boss of Ryanair, warned last month that he was expecting to see “two or three European airlines in October or November” going bankrupt if jet fuel prices do not fall.

Jet2, Britain’s biggest tour operator, said fears around flight cancellations had triggered a surge in bookings for package holidays, which offer greater consumer protection. It said packages now account for 51pc of holidays, up five percentage points since the start of the war.