The chief executive of British Airways said yesterday that fares were likely to increase by at least 4 per cent because the airline would have to spend an extra £1 billion on fuel this year.

Willie Walsh, the BA chief executive, said that fare increases were inevitable because soaring fuel costs were contributing to the toughest environment the airline had faced. BA's fuel bill this year will exceed £3 billion.

“Fares will have to go up. We can't save a billion pounds from non-fuel costs,” Mr Walsh said. Fuel surcharges, which BA and other airlines levy, would be applied to increased fares, and Mr Walsh feared that the higher cost of flying could stifle demand.

Martin Broughton, the chairman, told shareholders at the airline's annual meeting that higher costs and the economic downturn meant that it would be an achievement if BA broke even in the current financial year. He said that BA and its peers were “up to our necks in the biggest crisis the aviation industry has ever known”.

The airline plans to cut up to 5per cent of its winter capacity. Mr Walsh indicated that BA would slow recruitment or even freeze it. Last year the company hired 3,000 staff.

Much of BA's AGM focused on the chaos of the airline's move to Heathrow Terminal 5, for which both Mr Walsh and Mr Broughton apologised.

Some small shareholders asked why they should re-elect Mr Walsh to the board. Institutional shareholders were more supportive but noted that BA was not in control of its destiny. “The big danger is that it is not in their hands - it's all in the oil price,” one City fund manager and BA shareholder said.

Meanwhile, higher costs were behind Ryanair's announcement that it would cut weekly flights at its Dublin base by 12per cent this winter. It plans to reveal cuts at Stansted on Thursday.

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