NEW YORK (Bloomberg) — British Airways chief executive officer Willie Walsh said carriers must continue to raise ticket prices to pass on fuel costs if they're to ride out one of the toughest years in the industry's history.

"We've seen oil prices rise and it's important that we see the costs being passed on to customers," Walsh said yesterday in a telephone interview. "There's no question the industry will have to do that."

British Airways fell 2.4 percent in London trading, taking losses this week to 13 percent, after oil breached $130 a barrel. Walsh, who spoke from New York, where the London-based airline is spending $30 million on upgrading its Terminal 7 lounges, said first- and business-class tickets are key to sustaining earnings as kerosene costs escalate and an economic slowdown hurts demand for travel.

"Premium traffic in that context is becoming more important," the chief executive said.

Europe's third-biggest airline fell five pence to 202.75 pence yesterday. The stock has declined 35 percent this year, cutting the company's market value to £2.34 billion ($4.6 billion). Air France-KLM Group, the continent's largest airline, has lost 22 percent and Deutsche Lufthansa AG, the No. 2, is down 11 percent.

Airlines may lose as much as $40 billion this year as higher fuel prices and too many unoccupied seats wipe out earnings, independent aviation analyst Chris Tarry said yesterday. That compares with a $12 billion deficit recorded in 2001 after the September 11 terrorist attacks on the US. Record oil prices may add as much as $65 billion in costs, the analyst said.

Walsh was in New York to announce the upgrade of British Airways' facilities at John F. Kennedy airport's Terminal 7 with features such as dedicated check-in, matching its product at London Heathrow's Terminal 5, which opened in March.

The CEO said he's watching the situation regarding UK competitor BMI, the second-biggest holder of take-off and landing slots at Heathrow, where British Airways has its main hub.

A new air-services agreement between Europe and the US that means more carriers are allowed to use Heathrow for trans- Atlantic flights has increased the value of slots and prompted speculation that BMI, controlled by its chairman, Michael Bishop, may become a takeover target.

"We're interested in what happens to BMI but I fully recognise that's a decision for Michael Bishop to make," Walsh said today. Bishop owns 50 percent plus one share of Castle Donington, England-based BMI. Lufthansa owns about 30 percent and has said it's interested in acquiring the chairman's stake.

British Airways won't use its own bank of take-off and landing positions to boost its balance sheet, Walsh said. Accounting firm Deloitte & Touche said last week that UK airlines may start factoring the value of slots and using them as security against future borrowings.

"We don't see any reason to do that as we've got a very strong balance sheet," Walsh said in the interview. Deloitte estimates that British Airways' slot portfolio is worth at least £2 billion.