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Update: BA profits surge 44.5%

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By Jamil Hussein

Date: Friday 16 May 2008

LONDON (ShareCast) - British Airways warned of a challenging year but investors concentrated on the airliner posting a 44.5% increase in full year profits despite weaker conditions and rising fuel prices.

Pre-tax profit for the 12 months rose to £883m from £611m previously on revenue that increased 3.1% to £8.75bn. Operating margin increased to 10% from 7.1% in 2007.

The positive results, driven by cost-cutting measures and rising business-class seat sales, prompted BA to pay its first dividend since 2001. It is paying 5p per share for the year.

BA also decided to share £35m bonus with employees, though chief executive Willie Walsh said he will not accept a share because of the difficulties encountered at London Heathrow’s Terminal 5 earlier in the year.

The group warned of a difficult new year. “The full year will also be challenging, against an uncertain economic outlook,” it said.

The first quarter will be “particularly difficult”, it added, due to increased crude prices and the delayed transition to Terminal 5, which affected both costs and revenue.

Revenue for the full year is expected to increase by 4%, which is in line with the lower end of the guidance it gave at Investor Day. Non-fuel costs are expected to be some 3-3.5% up on the previous year.

The group said fuel costs could rise by around £1bn, based on the current market price of $120 per barrel. Hedging cover for oil has increased with some 72% cover for the first half and just under 60% for the second half.

“We operate in a volatile market and this year has been no different. Against the background of a progressively tougher trading environment we have continued to work hard on our cost savings to deliver these strong results,” said the group.

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