British Airways issued a profit warning yesterday, caused by its failure to foresee that the price of oil would hit record levels.

BA told investors that continuing high oil prices meant that its fuel bill would rise 20 per cent this year to £2.5 billion. Oil hit another record high yesterday of $105.97 per barrel.

It is unlikely that there will be any substantial price falls after Opec this week refused to increase supply, meaning that passengers can expect higher ticket prices as it is highly likely that BA will pass some of the extra costs on in the form of fuel surcharges.

BA gave warning that, under its current predictions, the higher cost of fuel would erode profit margins to 7 per cent, wrecking a promise made by Willie Walsh, the chief executive, to achieve double-digit margins.

Concern about the future profitability of the British flag carrier resulted in £250 million being wiped off its value as its shares plunged 20p to 245p.

BA said yesterday that revenue would grow by up to 4.5 per cent in 2008 to £9.1 billion. A margin of 7 per cent indicates profits of about £635 million. This would be 25 per cent lower than the £870 million BA is forecast to report for the 2007 financial year, which ends this month.

The airline is particularly vulnerable to sustained high oil prices because it has not sufficiently hedged its requirements for next year. Airlines use hedging to lock in prices, giving them a degree of certainty about costs.

BA hedged 90 per cent of its fuel requirements for the 2007 financial year but during the first six months of the next financial year the airline hedged only 60 per cent.

The situation is even worse in the second half of 2008, with just 45 per cent hedged so far, which means BA is likely to have to buy the majority of its fuel needs later this year at prevailing market prices.

Keith Williams, finance director, said: “Given the prices we are on everyone wishes they were more hedged. With fuel prices up £450 million it has become 30 per cent of our cost base.”

Analysts said that BA's ability to pass on fuel costs to consumers might be limited compared with previous years because of the introduction this month of the “open skies” agreement.

Open skies will liberalise air travel between Europe and the United States, increasing the level of competition on BA's most profitable routes.

The airline said yesterday that its profitability would also be hit by the move to its new Heathrow base at Terminal 5 this month.

It must also resolve an industrial dispute with pilots over a new European subsidiary and it may be fined if allegations that it conspired to fix cargo rates are proved.

Mr Walsh reiterated his interest in acquiring British rival bmi. Other airlines, including Virgin Atlantic and India's Jet, have also indicated that they would be interested in buying out Sir Michael Bishop, bmi's controlling shareholder.

However, Lufthansa, the German national carrier, has pre-emptive rights on the stake and no decision has been made on whether bmi will change hands.

BA wants control of bmi to gain access to its valuable Heathrow landing slots, but any deal would be scrutinised by competition authorities.

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