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British Airways Profit 45% Higher, Fuel Costs to Rise

British Airways raised hopes it can manage a turbulent year ahead by paying its first dividend since 2001 and lifting profits 45 percent as it said fuel costs are set to rise 1 billion pounds ($2 billion).

Shares in Europe's third-biggest airline, which have fallen 12 percent in the past fortnight, surged as much as 8 percent.

British Airways planes parked at Heathrow Airport in London, Wednesday Aug. 1, 2007. A British regulator on Wednesday fined British Airways 121.5 million pounds (US$ 246 million; euro 180 million) after the airline admitted colluding with a rival over surcharges on long-haul flights. BA said it accepted the fine from the Office of Fair Trading and expected to be hit with another penalty from the U.S. Department of Justice later in the day. (AP Photo/Kirsty Wigglesworth)
Kirsty Wigglesworth
British Airways planes parked at Heathrow Airport in London, Wednesday Aug. 1, 2007. A British regulator on Wednesday fined British Airways 121.5 million pounds (US$ 246 million; euro 180 million) after the airline admitted colluding with a rival over surcharges on long-haul flights. BA said it accepted the fine from the Office of Fair Trading and expected to be hit with another penalty from the U.S. Department of Justice later in the day. (AP Photo/Kirsty Wigglesworth)

British Airways said it was reviewing its capcity, costs and network against the backdrop of economic pressures and high fuel prices, and said revenue growth this financial year was likely to be at the lower end of its previous forecast range of between 4 percent and 4.5 percent.

However, the group said strong results for the year ended March 31 proved it was up to the challenge.

Pretax profit rose to 883 million pounds, the group met its operating margin target of 10 percent and announced a dividend of 5 pence, the first payment since 2001.

Some analysts remained cautious, however.

"While BA's valuation appears low, earnings visibility is limited with uncertainty on both the economic backdrop and fuel costs," Merrill Lynch said in a research note.

"We remain cautious and maintain our Neutral recommendation." BA's shares have more than halved in value in the past 15 months, hit by rising fuel costs, a deteriorating economic outlook and, more recently, a chaotic opening at the new Terminal 5 at London's Heathrow airport.

By 0733 GMT, the stock was up 2.7 percent at 230 pence, off an early high of 241.5 pence and valuing the business at about 2.6 billion pounds.

Challenging

"The first quarter will be particularly difficult (...and) the full year will also be challenging," BA said in its outlook statement.

"As a result, we have reduced capital expenditure and are reviewing our capacity, costs and network." BA reiterated that it remained in talks with American Airlines and Continental Airlines to explore possible opportunities to cooperate.

It also said it had sorted out problems at Terminal 5.

"Despite the difficulties of the opening of Terminal 5 in the first few days, it is now working well, and some 2 million passengers have gone through it," it said.

BA said that based on the current oil price of $120 a barrel its fuel bill for this year would increase by around 1 billion pounds to over 3 billion pounds.

However the firm, which uses about 6 million tonnes of jet fuel a year, said the damage was limited.

As a result of further hedging, it said it now expected every $1 change in the crude oil price to affect profit by 16 million pounds, down from 18 million previously.