THE chat is gloomy these days on channel 123.45, the radio frequency that lets airline pilots talk to each other as they whizz between Europe and America high above the North Atlantic.

Regular users say that for the past month all the talk between the cockpits has been of how few passengers there are on board.

As well as the chatter over the airwaves, there are other telltale signs that the airline industry is flying into one of its regular slumps.

Pilots are frequently asking air-traffic control for permission to fly high — at 40,000 or 41,000 feet — early in their trips, heights they would normally only be able to attain later in the journey when they had burnt off fuel. “That tells me they are taking off with very light loads,” said one British Airways captain.

Yesterday the anecdotal evidence was given solid backing. British Airways, the biggest carrier on the North Atlantic with a market share estimated at 35%, said rocketing fuel prices and weakening demand could come close to wiping out its earnings in the current financial year.

BA was in no danger of going under, with £1.8 billion of cash and additional loan facilities under its belt, but others might not survive. “This will make it imperative for some in the industry to seek consolidation,” said Willie Walsh, chief executive.

BA’s forecast was another reminder, if it were needed, of the mercurial nature of the airline sector. Walsh’s gloomy prognosis came seconds after he had unveiled record annual results. They were for the 2007-8 financial year, which finished at the end of March.

The airline hit its long-held goal of achieving a 10% operating margin, paid its first dividend in eight years (5p a share), and handed out staff bonuses totalling £35m. Walsh did not take his personal bonus, of about £700,000, as public penance for the botched opening of Heathrow’s terminal 5.

But after lauding their achievements of last year, BA managers were with the next breath warning about the next 12 months.

Keith Williams, finance director, showed analysts an alarming chart that depicted the airline’s operating margin disappearing to zero as oil prices edged up to $120 a barrel — roughly where they have sat for the past fortnight — and warned that fuel costs could increase by £1 billion this year. BA spent £2 billion on fuel in the financial year just ended.

Walsh said he was looking at reducing capacity for the winter, and it was likely planes would be grounded from October onwards. “All airlines are going to have to take serious action to restore profitability,” he said.

Analysts were fulsome in their praise of the 2007-8 results, but warned of what was to come. “Investors need to be very conscious that BA could make a loss for one or both of the next two years if the oil price is much higher \,” said Chris Avery at JP Morgan.

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