Holidaymakers face 40% hike in airfares due to soaring price of fuel

The increase threatens to put holidays abroad out of reach for thousands of families.

It comes on top of fuel surcharges which have already added up to £872 to the cost of a long-haul flight for a family of four.

Airlines are putting up their fares due to the rising cost of fuel and oil

The research, by the investment bank Morgan Stanley, suggests the rising cost of oil will lead to a downturn in the airline industry even worse than that after 9/11.

Oil prices hit a record of just under $140 a barrel this week and some financial analysts predict they could reach $200 a barrel.

To cope with their increased fuel costs, airlines will have to raise their fares by between 30 and 40 per cent.

As a result of the turmoil, the report slashed earning forecasts for several European airlines including British Airways and easyJet.

The study's author, Penelope Butcher, said: 'The unprecedented move in crude and jet fuel prices over the last 12 months means that fundamental valuation methods are no longer valid for the airline sector.

Industry returns are likely to be the lowest we have seen in recent history (including the last global recession and even September 11).'

Earlier this month, passengers were warned of an era of high ticket prices with a host of extras, such as paying £20 to check-in luggage and £10 to dine on board.

Airline bosses at the International Air Transport Association conference in Istanbul reiterated BA chief Willie Walsh's claim that 'the era of cheap flights is over'.

BA this month announced the biggest fuel surcharge increase in its history  -  adding £60 to the cost of its long-distance return flights.

BA imposed its first  £5 return fuel surcharge on May 13, 2004.

Virgin and Air France have also announced higher fuel surcharges.

Last month British Airways' boss Willie Walsh also declared  'the era of very low  fares is behind us'  in the face of rocketing fuel prices.

He said: 'It is clear that there are many airlines out there which are struggling today to survive.'

BA unveiled record annual profits of £883million, but analysts warned that the soaring cost of fuel could wipe out profits this year.

There is already strong evidence that families are giving up their holidays because of the squeeze on their finances and a slump in the value of sterling against the euro.

Experts warn the downturn could be a serious blow to the package holiday sector, where bookings have fallen by 8 per cent over the past five years. The forecasting firm Capital Economics says disposable incomes are at their lowest level for 17 years.

Analyst Vicky Redwood said that as a result, it is doubtful that 'spending on foreign holidays will escape a sharp slowdown'.

• A consumer watchdog has demanded urgent action to sever the 'toxic' link between oil and gas prices that threatens to add more than £400 to annual power bills.

Wholesale gas prices have more than doubled over the past year because they are linked on international markets to the cost of oil.

Energywatch says gas bills would be slashed if the price was driven instead by supply and demand.

It called on the Government to appeal to EU competition authorities to end the link.