British Airways boss Willie Walsh says record oil prices will mean the end of budget fares.

Travel prices will rise, capacity fall and airlines go out of business, the BA chief executive has warned.

BA will increase fares and not just by adding a higher fuel surcharge, Walsh said, agreeing that: “The era of eye-catching fares is over.”

Walsh was speaking in Houston following the launch of BA’s daily service to the city from Heathrow and as oil prices hit a high of $133 a barrel.

He said: “Air travel has been incredibly cheap and we are seeing a correction. Pricing will change. The industry has no future if prices do not reflect costs. We will see more airlines fail and prices go up. High oil prices have to be passed on to consumers and at some point demand will be affected.”

Walsh warned carriers would find it much harder to cut operating costs to compensate for the fuel price since they had already slashed costs and restructured in the wake of September 11.

“A lot of airlines will take out capacity because they simply cannot afford to fly all their planes,” he said.

BA will scrap plans to increase capacity this year and ground a number of older aircraft this winter, cutting availability during weaker periods of demand. Walsh said: “This is about whether people can survive.”

He insisted BA was in a strong position, but said: “It is life-threatening for the low-cost carriers.”