British Airways is to pay its first dividend since before the 9/11 terrorist attacks but warned that soaring fuel prices could wipe out much of this year's profits.

The flag carrier said pre-tax profits of £883 million for last year will spark a £35 million bonus bonanza for staff and a £58 million payout for shareholders who will receive a 5p a share dividend.

However, the airline warned that current trading is “particularly difficult” in the teeth of rises in fuel prices — which have doubled in a year — and this will lead to a new round of costcutting.
As many as 2000 jobs will disappear at Heathrow and next winter's flying schedule will be significantly pared back.

Analysts are factoring in substantial falls in earnings in the current year with Citigroup predicting an 80% crash in profits to around £165 million and profit margins to no better than 2% against the 10% achieved last year.

Chief executive Willie Walsh, who has had a torrid time since BA sleepwalked into the disaster of the botched Terminal 5 opening in March, was triumphant over the 45% leap in profits in the year to 31 March.

“This is an outstanding financial result for the company despite rising fuel prices and significant economic slowdown in the last six months,” he said. “Delivering 10% [profit margins]
has not been easy, but we have achieved it by remaining focused on our strategy for the last six years.”

However, Walsh warned of a “progressively tougher trading environment” in a “volatile market” with trading in the current quarter to the end of
June “particularly dificult.”

BA today warned that profit levels in the first quarter are under immense pressure.

Some analysts reckon the flag carrier is doing no better than breaking even in current trading.

The airline said increasing fares and larger fuel surcharges on tickets will enable revenue to grow at 4% this year. On top of £200 million of extra costs including the delays at Terminal 5, the airline warned of the effect of the oil price.

In March, BA said it expected that its kerosene bill would rise by £450 million to £2.5 billion in the current financial year. Today the airline said if fuel prices continue at the current levels of $120 a barrel the bill will actually exceed £3 billion.

Every time the price of oil goes up by $1 a barrel, said BA, that takes another £16 million off its bottom line.

“The full year will be challenging,” the airline said in a statement. “As a result we have reduced capital expenditure and are reviewing our capacity, costs and network in the context of the
economic pressures and high fuel prices.”