British Airways (BA) warned yesterday that it expected its fuel bill to rise by about £300 million (€430 million) in the next financial year to close to £1.5 billion due to ongoing high oil prices.

The airline told investors, however, that its markets were gradually recovering and it forecast an end in 2005-2006 to several years of declining yields helped by growing traffic volumes, particularly in lucrative premium long-haul passengers.

"We are very careful not to be over optimistic on revenues, but maybe we have reached the bottom for yields," said chief executive Rod Eddington, who announced this week that he would leave the airline at the end of September. He will be succeeded by former Aer Lingus chief executive Willie Walsh.

John Rishton, BA's chief financial officer, forecast a 3-4 per cent rise in revenues in the year to March 2006, following a rise of 3-3.5 per cent in the current year to March 31st, which has halted three successive years of decline.

Revenues fell by 20 per cent from 2000-2001. Mr Rishton said yields were expected to be flat in the next 12 months.

BA was planning to increase capacity by 3 per cent in 2005-2006, mainly through the improved utilisation of its fleet. The airline is also examining plans to upgrade its flat beds in long-haul business class.

It set a new standard with the introduction of the seats in 2000 but other airlines have since caught up. Some senior BA executives admit privately that its beds have been overtaken by Virgin Atlantic's business-class beds.

Mr Eddington said that BA had become the most profitable airline in the world last year (2003-2004) - measured by absolute operating profits, not profit margins - up from 21st place in 2000. However, he warned there was no room for complacency in a global industry which, overall, was still in loss last year.

Several of the airlines in the top 21 for profits in 2000 such as United Airlines and Swissair are now in bankruptcy or liquidation.

For the current year, net of hedging, fuel costs are expected to have risen by £225 million to close to £1.2 billion, although part of the increase is being clawed back through fuel surcharges. - (Financial Times Service)