Fuel fears have knocked BA's shares

The carrier said cost cuts - including junking routes, mothballing planes and axing jobs - and a rise in long haul passenger numbers helped boost profits.

BA added it had beat its �650m target for the "Future Size and Shape" cutback plan, finding total savings of �869m.

But BA warned rising oil costs - which have already seen it up ticket prices - would raise costs by �150m this year.

The airline has already introduced a �5 surcharge on return flight fares to meet the increased fuel bill.

Oil concerns

Chief executive Rod Eddington shrugged off criticism that the group had failed to put enough cash aside to guard against the unexpected on the fuel markets, unlike rivals such as Lufthansa.

"I think Lufthansa is about 80% hedged, we're about 45%," Mr Eddington told BBC Radio 4's Today programme.

"Fuel prices are going up and when they go up like this you can't really hide from them."

Any further ticket price rises will "depend entirely on what happens to fuel" - although he acknowledged that experts he had spoken to expect prices to "stay high for some time", which could mean more price changes in the future.

Revamp, relaunch

Although profits were up, BA also revealed a number of key markets were still under pressure, adding it would not be paying a final dividend to shareholders.

Despite a revamp of its services - including the launch of a new World Club sleeper services and new staff uniforms by designer Julian McDonald - sales fell 1.7% to �7.56bn.

The continuing focus on controllable costs remains key to long-term profitability Lord Marshall, BA chairman Check BA's latest share price

The airline has been affected over the past year by terrorist concerns, with the cancellation of a number of transatlantic flights having an impact on forward bookings.

Long-haul volumes are recovering steadily, but short-haul demand in the premium sector remains weak, BA said.

BA and its rivals, particularly the no-frills carriers, in Europe have been fighting a fares war.

The airline has ditched unprofitable short-haul routes and even adopted practices used by its no-frills rivals, such as online ticketing - a strategy which appears to be working.

Costs focus

BA said two in three passengers in the UK now use electronic tickets with more than 50% of its short-haul leisure flights booked online - saving the group more in costs.

In addition, it has attracted more passengers, especially those prepared to travel first and business class, on the lucrative transatlantic routes.

"The continuing focus on controllable costs remains key to long-term profitability," said the chairman, Lord Marshall.

"We ended the year a stronger business despite the challenges facing by our industry."

One focus of the cost cuts has been to chop back at losses at its short-haul business, which mainly operates flights between the UK and Europe.

But this market may become even tougher over the next 12 months, as budget airlines increase capacity on routes to mainland cities.

Losses of �60m at its short-haul business included �30m in one-off exceptional charges, Mr Eddington said.

Shares in the group fell 3.14% - or 7.75p to or 239p - by around 0945 GMT after the news.

Meanwhile, Dutch airline KLM announced on Monday that it too was imposing a fuel surcharge in light of the record high worldwide prices.

Starting from Wednesday, it is adding a fuel surcharge of 8 euros (�5.40) on return fares.

"Exceptional and structurally high fuel prices have made this unavoidable and the surcharge applies to all KLM flights worldwide," said KLM.