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Last Updated: Friday, 19 May 2006, 16:57 GMT 17:57 UK
BA profits up on ticket increases
British Airways 747
British Airways has seen its pension deficit rise
British Airways (BA) has reported an increase in annual profits after the airline filled its planes with passengers on more expensive tickets.

Pre-tax profit was 620m ($1.2bn) in the 12 months ending 31 March, 21% up on the previous year. Sales increased to 8.52bn from 7.7bn, BA said.

Operating profit was 705m, which topped market expectations.

Faced with increased competition, BA has added new routes and raised ticket prices to offset surging fuel costs.

BA shares closed 29.25 pence, or 9.14%, higher at at 349.25p on the London market.

"We believe trading and strategy are going very well for the company," Deutsche Bank said in a note to clients.

Pension proposals

The main driver of BA's business is its trans-Atlantic and long-haul operations, and the firm has added new routes to China and India to tap into growing demand among top business travellers.

About 60% of BA's earnings are made on routes to the US and Canada.

Also helping BA's bottom line has been a recovery in its short-haul business, which the firm said is now in profit for the first time in 10 years.

BA chief executive Willie Walsh
I am pleased with the dialogue we have had with staff, trustees and trade unions on the vital pensions issue
BA chief executive Willie Walsh

BA has also improved its seat or load factor, with fuller planes as demand for air travel grows.

Earlier this year, BA announced plans to cut fares by more than 50% to 65 destinations in an effort to lure clients away from its lower cost rivals such as Ryanair and Easyjet.

BA also is looking at ways of cutting costs, especially with relation to its pensions deficit.

The airline has said it wants to raise the retirement age for its pilots and cabin crew. It would then inject 500m into the pension scheme.

On Friday, BA said that its pensions deficit was 2.07bn, up 101m from a year ago.

"We have announced our proposal to tackle the pension deficit and I am pleased with the dialogue we have had with staff, trustees and trade unions on this vital issue," said BA's chief executive Willie Walsh.

"These are good results with revenue performance by improvements in seat factors and yield," he added.

Higher costs

The effect of funding the pensions shortfall was evident during the past 12 months, and BA said that employee costs increased by 5%.

Another negative was the impact of record crude oil prices that pushed fuel costs significantly higher and were a main factor behind an 8.2% gain in total costs.

BA said its annual fuel bill rose by 44.7% to 1.6bn, and is forecasting that it will need to spend 600m more this year to keep its planes in the air.

"Market conditions remain broadly unchanged," said Martin Broughton, BA's chairman.

However, BA's efficiency plans would involve significant changes and there are fears they could lead to strikes, though Mr Walsh played down the likelihood of a repeat of the industrial action that blighted travellers last summer.

"There is nothing on our agenda to signal there will be any difficulties this summer," he said. "We are going to tackle all aspects of the cost base where we can."

BA said on Friday it would pay staff a 48m bonus after they achieved an 8.3% operating margin.


BBC NEWS: VIDEO AND AUDIO
BA boss Willie Walsh explains why profits went up



SEE ALSO:
BA cuts Europe fares by up to 50%
20 Apr 06 |  Business
BA raises fuel surcharge further
18 Apr 06 |  Business
New BA boss unveils shake-up plan
09 Mar 06 |  Business
BA fuel surcharges to rise again
08 Sep 05 |  Business
Virgin Atlantic ups fuel charge
06 Sep 05 |  Business
BA profits boosted by new rules
04 Jul 05 |  Business


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