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British Airways (BA) is predicting a slimmer profit margin of seven per cent in 2008 with higher fuel costs and an economic slowdown set to hit earnings.

Fuel costs are expected to be up by some £450 million to £2.5 billion, an increase of 20 per cent, the airline said.

Non-fuel costs are expected to rise between three and 3.5 per cent, while total costs, excluding fuel, are forecast to be up £200 million.

As a result, the company is forecasting an operating margin of about seven per cent for 2008/9, from a target this year of ten per cent.

BA's chief financial officer, Keith Williams, said: "The outlook for next year is consistent with economic slowdown, the impact of increased fuel costs and one-off Terminal 5 transition costs, all of which analysts have already factored in to their expectations."

The London-based group said revenue is forecast to increase by between four and 4.5 per cent to over £9.1 billion, based on capacity measured in available seat kilometers (ASKs) up 2.4 per cent.

Shares in BA dropped five per cent to £2.51 on the news.

British Airways will be moving more than 90 per cent of its Heathrow operation into Terminal 5, which is due to open in three weeks.

The terminal will be used exclusively by BA and will be capable of handling 30 million customers a year.