Easyjet says airlines at the mercy of oil prices

EasyJet warned that the high cost of fuel will force more airlines to the wall this year as it admitted that profits are at the mercy of the global oil price.

The low-budget carrier reported a 14.7% increase in passengers but admitted that the cost of carrying them had risen by £4 a customer due to the accelerating cost of fuel. Andy Harrison, easyJet chief executive, said the airline was weathering weak consumer spending but the oil price posed a severe threat to its profitability.

"The fuel price is clearly a big issue and is highly unpredictable. The profits we make in the full year depend on what happens to oil in the second half of the year. Your guess is as good as mine," he said. EasyJet, which generates its profits over the spring and summer, reported a trebling of its first half pre-tax loss to £57.5m - driven in part by higher fuel costs and the integration of a recent acquisition.

With the summer holiday season approaching, the group is still confident of making a "very substantial" profit for the full year. Its forward bookings are slightly up on last year, and Harrison said it was not seeing any decline in demand despite the economic uncertainty.

Analysts expect the Luton-based carrier to make a full-year profit of £150m but that number is predicated on the oil price staying between $115 and $120 a barrel. Oil reached a new record of $122 (£62.43) a barrel yesterday as analysts at Goldman Sachs, the investment bank, warned that the possibility of $150-$200 a barrel is "increasingly likely" over the two years.

EasyJet's first half loss, which was expected following its profit warning in March, was primarily caused by dearer jet fuel, which costs 80% more than a year ago.

Hedged at $75 a barrel

Rival airline Aer Lingus yesterday blamed fuel costs for an increase in its baggage charges. From tomorrow, it will cost £12 to check in a bag at the airport.

For EasyJet, every $1 increase in the cost of a barrel of oil cuts around £2.5m off its profits. Harrison claims the company's relatively young fleet - its 157 planes are three years old on average - give it an edge.

"A quarter of Europe's short-haul aircraft are at least 15 years old, so they burn 20% more fuel than our planes," he said.