Who will survive the storm?

Giovanni Bisignani, head of global aviation association Iata, did not mince his words. Speaking in Istanbul at the annual industry shindig last week, the flamboyant Italian declared: 'The situation is desperate, and potentially more destructive than our recent battles with all the Horsemen of the Apocalypse combined.'

He was referring, of course, to the double whammy facing the industry: soaring fuel costs and weakening demand for air travel. If oil stays at $135 a barrel, the airline industry will lose more than £3bn this year, he estimated. The outlook is indeed bleak.

Joe Gill, an analyst at Goodbody Stockbrokers, part of Allied Irish Banks, says: 'Airlines today are in a worse situation than after the terrorist attacks of 11 September. No one was prepared for oil prices at this level.'

Already airlines are going bust almost on a weekly basis (business class-only Silverjet being the latest British casualty). Passengers, most of whom do not qualify for compensation, have been left stranded. To try to cover their soaring costs, airlines such as British Airways are ratcheting up the fuel surcharges passengers have to pay. BA introduced a fuel surcharge of £5 back in May 2004. This has now risen to £32 on return short-haul flights, and £218 on return long-haul flights of more than nine hours.

Two of the UK's biggest tour operators, Thomson and First Choice, both owned by German group Tui, admitted to The Observer last week that they had just doubled their surcharges to £10 and £20 for short- and mid-haul charter flights respectively, only one month after introducing the extra charge for the first time.

Ryanair, meanwhile, has been cashing in on the PR benefits of promising never to impose fuel surcharges. However the budget airline has consistently increased the price of add-on charges such as those for luggage and airport check-in, and has upped the cost of on-board drinks. At the end of 2006, website cheapflights.co.uk reported that Ryanair charged £4.80 for a large gin and tonic. Last week the airline was charging £6.10 for the same drink, an eye-watering increase of more than 25 per cent in 18 months.

Clearly, flying away on holiday this summer will be much more expensive than last year. The $135-a-barrel question now is: which airlines are best placed to survive the crisis and, beyond higher fares, what does this mean for passengers?