British Airways' profit collapsed in the first quarter as high oil prices, an economic slowdown and weak consumer confidence combined in what the airline called the worst trading conditions it had ever experienced.
The British carrier reduced its annual revenue target to three per cent from four per cent previously and said it was focused on "achieving a small profit in the current financial year" and sustainable profitability in the medium and long-term.
BA now plans to raise ticket prices to recoup losses from a planned three per cent reduction in winter capacity and spiraling oil prices.
Although BA said it had "mitigated the impact" of rising bills, its fuel costs rose 49 per cent to £706 million during the period as the price of a barrel of London Brent crude continues to hover around the $123 mark. BA said its annual fuel bill would likely top £3 billion.
BA said it is now spending upwards of £8 million a day to keep its planes in the air and will axe routes and raise fares to cope with the economic turmoil hitting the industry.
"This is the worst trading environment the industry has ever faced and fares are likely to go up as we reduce some winter capacity and cope with unprecedented oil prices but we won't be grounding any aircraft," CEO Willie Walsh told reporters on a conference call.
Profit before tax for the three months to end-June plunged by 88 per cent to £37 million from £298 million in Q1 last year, missing an average forecast of £49 million supplied by BA.
Analysts' forecasts for pre-tax profit ranged from £16 million to £87 million.
The group's operating profit fell to £35 million from £255 million during the same period last year, missing the average analyst forecast of £51 million.
Shares in BA, which have fallen almost 20 per cent since the start of the year, were down 1.1 per cent at 253 pence at 0805 GMT, valuing the company at around £2.87 billion.
Blue Oar Securities analyst Douglas McNeill said BA had delivered "awful numbers" and a "grim" outlook, adding he would likely reduce his forecasts on the airline.
Mr Walsh confirmed talks with Spanish carrier Iberia about a potential all-share merger are underway but said it was "too early to say what impact it will have on the business in terms of jobs".
The results are the first full quarter to include operations at Heathrow's new BA-only Terminal Five.
BA said that more than six million passengers had travelled through the terminal since it opened for business in late March and that it was going "from strength to strength".