British Airways said today it expected its annual fuel bill to increase by a fifth to £2.5 billion in the next financial year. The UK's flag carrier reckons fuel costs will increase by some £450 million.

The news, which translates into a reduction in the company's operating margin from an internal projection of 10% to 7%, was, however, largely expected by analysts.

Stephen Furlong from independent broker Davy, said: 'We had assumed operating margins of 6.5% and earnings per share of 32.2 pence, which would leave some upside if British Airways' revenue forecasts come to pass.'

Shares only came off 8.5p, or 3% in early trade to 256.5 pence. BA paid a total of £900 million for fuel in 2002, but with oil at more than $100 a barrel, this figure is expected to be around £2.1 billion in the 2007/2008 financial year.

Chief financial officer Keith Williams said the outlook for next year is consistent with the economic slowdown, the impact of higher fuel costs and the company's one-off Terminal Five transition costs.

Heathrow Terminal Five is due to open at the end of this month. Last month, BA increased its fuel surcharge, adding £10 to a return long-haul flight of less than nine hours to £106. The surcharge on flights of more than nine hours lifted from £116 to £128.

BA announced pre-tax profits of £788 million for the nine months to December, leaving it on track for its biggest ever annual profits haul.

Today's guidance from BA also showed that it expected non-fuel costs to rise by between 3% and 3.5% in the 2008/2009 financial year. Revenues are forecast to improve by 4% to 4.5% to more than £9.1 billion, the airline added.