BA predicts 'challenging' year ahead for aviation industry

The ensuing problems of the global credit crunch are causing trouble for consumers and businesses alike, and it seems that the aviation industry is not going to escape without experiencing some difficulty.

With fuel prices continuing to rise and the US economy teetering on the verge of a recession, the coming year looks set to be a bumpy ride for airlines.

That is according to British Airways, which has asserted that the current economic climate is going to make the next few months rather difficult for a number of carriers, least of all BA itself.

Chief executive Willie Walsh made his comments earlier this week at an investor presentation in New York, indicating that he believes there will continue to be mergers and bankruptcies this year.

Walsh suggested that there are "many airlines out there that struggled when fuel was less than $100 a barrel which are not going to be able to take the required actions and we will see further failures", Reuters reported.

Earlier this year the aviation industry witness the failure of MAXjet Airways and Eos Airlines, which were both competitors of BA. However, since they have folded BA has not reported a rise in transatlantic business.

Walsh went on to say that the high fuel prices will likely mean that the airline will have to reduce some of its winter services, adding that they could also mean some carriers have to seriously think about consolidation.

"The high oil price combined with the economic slowdown may well have made it an imperative for many [airlines] to consider consolidation. We will see meaningful consolidation, sooner rather than later."

Over the last five months, a total of seven airlines have declared themselves bankrupt or ceased operations.

However, Walsh believes that BA will be able to weather the storm.

"That's one of the key strengths that we have at BA. We are going into a difficult economic environment and high oil prices in a very strong financial position," he told The Guardian last week.

Last week BA reported a 45 per cent increase in annual profit. Despite this, industry experts have predicted that it plans to introduce new fuel surcharges and raise ticket prices to cope with the loss made on its reduced winter schedule.

Blue Oar Securities analyst Douglas McNeill told The Guardian: "They seem to be charting a course which will see them sacrifice volume for price rises. They hope to push through price rises and see the customer base become less price-sensitive as a result. You are then left with customers that have a need to travel. That's a plausible hope but it remains to be seen whether it works in practice," he said.

Despite this, it appears Walsh is keen to steer BA safely through this difficult financial period. He recently turned down a £700,000 bonus for overseeing the airline's impressive pre-tax profits, which stood at more than £880 million. However, whether he will agree to raise the price of tickets remains to be seen.

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