British Airlines is reporting a 92% drop in profit in the first half of its fiscal year despite an increase in revenue of 6.4% to almost £4.8bn. BA’s after-tax profit from April 1 to September 30 fell to £52 million, from £616 million. The drop in profit can again be attributed to the global economic financial crisis and record high fuel prices. The factors have also resulted in the insolvency of some major airlines. British Airways forecasts its fuel costs to top a staggering £3 billion this year despite the falling price of a barrel. However, the price of oil should become favorable as its expected to further decline. BA also plans to scale back flights to busy areas, so there could be a marginal increase in prices to accommodate the demand given the lower supply, but that may not happen because consumers may use substitutes. Another issue that could see lower profits for BA are bad  investments. BA hedged 80% of its fuel risk by buying futures for kerosene that mature in about 6 months at a strike price of about $95 per barrel, the problem is that the price of a barrel is now lower than $95, so the contract is useless. 80% is also a very material investment. The thing is no one could have forecast such steep declines in the price of oil in such a short amount of time, though I do think the future is looking good for BA once the financial crisis passes and because of lower projectd costs for oil, though of course, the airline industry remains a volitile one and traditionally has marginal profits.