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British Airways reports strong quarterly profit

Last quarter results * British Airways posted net profit of ?80 million from just ?1 million a year earlier. * Pretax profit was ?91 million, far higher than the ?51 million predicted by analysts. * Revenue rose 13 percent to ?2.1 billion. * The airline's fuel bill rose by 44.7 percent. * Employee costs were up 5 percent. * Earnings were boosted by a one-time gain of ?26 million from selling a stake in the London Eye Co.

British Airways PLC reported a leap in profit in the last quarter on Friday after higher ticket prices and demand for flights outweighed a sharply higher fuel bill. Shares in the carrier soared as it also raised its revenue guidance for the current financial year.

BA said net profit for the three months to March 31 came to ?80 million (US$151 million) from just ?1 million a year earlier.

The airline's pretax profit for the quarter of ?91 million was well ahead of the ?51 million (US$96 million) expected by analysts.

Revenue rose 13 percent to ?2.1 billion (US$4.0 billion) on the back of higher-margin premium traffic, the airline's bread and butter, and ticket surcharges.

Investors responded positively, sending the airlines' shares sharply higher. They closed up 9 percent at ?3.49 on the London Stock Exchange.

Willie Walsh, British Airways' chief executive, called them "good results," but warned that the company faces challenges with fuel and staff costs.

However, the airline raised revenue guidance for the year ending March 31 next year, to a 5 percent to 6 percent increase from the previous estimate of 4 percent to 5 percent.

The airline said the rise was due to the impact of the latest fuel surcharges and filling more seats.

BA has joined several of the other full-cost airlines in increasing fuel surcharges on passenger tickets in recent months as the price of crude oil has climbed. Several low-cost carriers that compete with BA on short haul routes, such as easyJet PLC and Ryanair Holdings PLC, have built marketing campaigns out of refusing to do so.

Walsh said that BA has around 58 percent of its fuel requirement for this financial year hedged at US$57 a barrel on average.

For the full year through March, BA said profit rose to ?451 million from ?377 million, an increase of 20 percent.

Annual revenue rose 9.6 percent to ?8.5 billion from ?7.8 billion in the previous fiscal year.

The company said its planes flew with fewer empty seats and that it improved its operating margin, even though its fuel bill rose by 44.7 percent and employee costs were up 5 percent.

The company said it remains committed to reaching an annual 10 percent operating margin by March 2008 and the carrier's shorthaul business is now in profit for the first time in 10 years.

Earnings were also boosted by a one-time gain of ?26 million from selling a stake in the London Eye Co. in February.

However, BA said that while full-year revenue from its longer-haul passenger business rose, its regional airline business, dubbed BA Connect, suffered from "significant competitive pressures."

BA Connect slashed its operating costs by more than 10 percent, but not enough to fully offset the lower revenue, the company said.

Last month, British Airways slashed short-haul fares on dozens of routes by as much as 50 percent in a bid to win back passengers from rivals such as Ryanair and easyJet.

BA said that staff will share in a ?48 million bonus from the profit rise, but added that its pensions deficit continued to rise and now stood at ?2.1 billion.
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