Cheaper fares lured more passengers into travelling

The group said pre-tax profits for the six months to September rose to �363m, up 16.3% on the same period last year.

The number of passengers passing through its seven airports jumped 7.5% over the period to 77.5m.

But, BAA is facing a number of costs - including a dispute with Ryanair over alleged non-payment of airport fees.

The group said it had invoiced Ryanair for �7m over the matter, adding: "Given the current litigation with Ryanair, a �7m provision has also been established."

We also face the continuing challenge of difficult industrial relations across much of the aviation industry Mike Clasper, BAA

BAA was also forced to write off �6m during the period to meet Heathrow Express check-in costs, after two airlines said they would cease to use the facility.

Improving market

The company has benefited from the steady upturn in the aviation industry, which was hit last year by the effect of the Iraq war, Sars outbreak and a global economic downturn.

The group has also escaped the effects of rising oil prices which have been squeezing airlines in recent months, as it makes its money from airline landing and takeoff fees, airport advertising, retail rent, car parks, and its duty-free shops.

Breaking down figures for each of its airports, BAA said the number of passengers using Heathrow rose 7.6% to 35.8 million - mainly down to a rise in long-haul and North Atlantic passengers.

The popularity of no-frills travel lifted numbers at Southampton and Stansted by 16.9% and 10.1% respectively, while all of its Scottish airports also posted growth in traffic numbers.

Challenges ahead

Elsewhere, Gatwick passenger numbers grew 4.9%, with an increase in European scheduled traffic helping to offset a dip in the European charter market.

Net retail income from BAA's seven UK airports jumped 9.1% to �312m.

However, despite the positive figures, chief executive Mike Clasper warned that BAA will face challenges.

"We also face the continuing challenge of difficult industrial relations across much of the aviation industry," he said.

Gatwick has been hit by several walkouts by its ground staff, while Heathrow was narrowly spared from action by 10,000 British Airways staff over the summer which would have hit BAA's earnings.