Airlines facing the prospect of going bust in coming year

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"Many airlines are going to find themselves in real trouble and that is why with our planned merger with Iberia that we are confident of creating a much stronger airline and one of the real winners to emerge from these the current problems," BA chief executive Willie Walsh said.

Walsh denied the merger is borne out of the economic crisis in the airline industry - soaring fuel costs and weakening consumer confidence - but nonetheless warned European carriers are facing their worst ever crisis.

The effect of BA was revealed today as pre-tax profits plunged 88% to £37 million in its traditionally strong spring trading quarter to the end of June. "This is the toughest trading we have ever seen - worse than 9/11," said Walsh. The effects of 9/11 were a very severe shock to the system but it was against a background of generally strong economic conditions.

"That was a severe hit but the recvoery was relativley quick.

"This time it is different and so to record a profit in the quarter we believe is a very good performance."

The City was not so sure. BA shares which have halved over the last year were 4 "p lower at 250½p.

BA said the spectre of an oil bill totalling £3 billion for the year and wiping out full profits completely is behind the decision to raise air fares, said Walsh.

Dismissing the headline-grabbing Ryanair ploy of announcing price cuts, Walsh said: "This industry has got to reflect high oil prices.

"The fact is this used to be an industry with high fixed costs and low variable costs. Now it is the variable costs like fuel that are high."

Unlike other airlines which have gone as far as announcing the grounding of several aircraft over the winter, Walsh said BA will keep all its planes flying but will cut frequencies, around 25 flights a week, to hold back fuel consumption.