Soaring fuel prices cause British Airway's profits to nose dive

BA profits drop 88% but potential merger with Iberia would be good for investors.

Commenting on the 88% drop in BA profits Nick Raynor, Investment Adviser at The Share Centre said: "BA has been hit hard by the soaring cost of fuel prices. Whilst consumers at the pumps are undoubtedly feeling the pinch, the aviation industry has been hit harder still with fuel costs rising by over 50%. This means BA only made a pre-tax profit of £37m ($73.3m) in the first three months to the end of June compared with £298m for the same period.

"BA anticipates its total fuel bill for the year will come in at around £3 billion. If this is the case it is unlikely the carrier will be able to absorb all of these costs, inevitably some of this will have to be passed onto passengers.

"Despite the nose dive in profits, BA still has one of the strongest business models when compared to its European competitors. And talk is still ongoing about a merger with Spanish carrier, Iberia. A successful merger would create Europe's second largest airline, and bring with it a reduction in back office costs and the ability for the airline to streamline its destination routes.

"Current investors in BA should continue to hold while merger talks are ongoing. However, those investors considering buying BA could probably find better value elsewhere given the current economic climate and rising fuel charges".