Inside Throttling back

British Airways owner IAG warns fare cutting will end as oil recovery continues

AIRFARES will not fall at the same pace in 2017 as in recent years, according to Willie Walsh, chief executive of British Airways owner IAG, as his company reported a jump in full-year profits.

Mr Walsh, whose International Consolidated Airlines also owns Aer Lingus and Iberia, said consumers witnessed steep reductions in fares in 2015 and 2016, which he expected to “moderate significantly” in 2017.

“Fares may be flat,” he said. “This year will be different to last but it is still going to be competitive.”

Falling airfares in the last few years have been spurred by low oil prices and a rapid growth in seat numbers. This has resulted in some airlines having to lower prices to attract customers.

However the price of Brent crude oil has risen to $56.13, significantly above the 52-week low of $32.37, and Mr Walsh said this could be a factor in preventing large ticket price drops.

Mr Walsh claimed his company would remain competitive thanks to its hedging policy, which should mean its fuel costs fall from €4.9bn (£4.1bn) in the year to Dec 31 to €4.7bn in the current year.

Mr Walsh was speaking as the company released its full-year results to Dec 31. The company saw pre-tax profits rise by a third to €2.36bn, helped by a 10.8pc reduction in cost per available seat kilometre – a key performance metric. This fall was greater than the 10.4pc fall in passenger revenue per available seat kilometre.

A final dividend of 12.5c a share has been announced, bringing the total for the year to 23.5c. The group also announced a €500m share buyback during 2017.

Mr Walsh was speaking as Heathrow Airport also reported a 1pc rise in passenger numbers during 2016 to 75.7m. Revenues rose 1.5pc to £2.80bn, but a £524m loss on financial instruments it holds pushed the company to a pre-tax loss of £213m compared to a £702m profit in 2015.

Heathrow is aiming to gain planning approval for its third runway by 2020 – a timeline Mr Walsh described as “optimistic”.