British Airways raises fuel surcharge for third time in four months

British Airways said Tuesday it will raise fuel surcharges for the third time in less than four months as the airline looks to recoup some of the cost of rising oil prices.

The levy, which comes into effect Friday, will be imposed only on international routes, mirroring previous hikes Feb. 8 and Dec. 16.

"As customers will know from the price at the petrol pumps, the cost of fuel has continued to rise significantly over the past three months. For us, fuel now represents over one-third of our costs and particularly affects our long-haul flights," British Airways Chief Financial Officer Nick Swift said.

He added the airline was "very aware" of the wider economic pressures on customers at the moment and "we will bear the vast majority of the recent fuel price rise ourselves to keep this increase in surcharge to a minimum."

BA and Iberia are part of International Consolidated Airlines Group SA (IAG.LN), which has previously warned soaring oil prices could force it to cut capacity.

BA plans to increase fuel duty by GBP10 on a single journey to GBP85 on flights less than nine hours and to GBP98 for longer flights. Premium economy will increase to GBP85 for flights less than nine hours but will rise to GBP106.50 on longer trips.

That increase will rise proportionately for first and business class travel, by GBP20 to either GBP125 or GBP145 on a single journey.

Iberia didn't immediately comment whether it has similar plans to increase the fuel duty it charges passengers.

IAG plans to recoup about 50% of increased fuel bills through higher fares and fuel surcharges, and IAG CEO Willie Walsh said it would cut capacity if it couldn't pass on more of the cost rise.

IAG's fuel costs rose 5.2% on the year to EUR989 million in the three months to end-December and Walsh said the group faced a bill of EUR5.1 billion this year, up from EUR3.9 billion in 2010.

Beyond current spot prices, airlines' decisions to raise or lower prices is dependent on fuel hedging strategies.

There is concern that high oil prices could lead to another wave of insolvencies after many airlines and tour operators went out of business when oil prices surged in 2008 and the economic downturn crimped demand.

The International Air Transport Association has estimated that for every dollar increase in the average price of a barrel of oil over the year, airlines face an additional $1.6 billion in costs overall.

Source: Wall Street Journal