British Airways profits soar 45%

BA is predicting tough times ahead for the airline industry

British Airways has reported a 45% rise in annual profits but warned that economic uncertainty and high fuel costs pose challenges.

BA made a profit of �883m in the year to 31 March, which BA boss Willie Walsh called an "outstanding" result.

Mr Walsh said he would not be taking an annual bonus because of the problems at the opening of Heathrow's Terminal 5.

The airline warned that the problems with the move to Terminal 5 would hurt its earnings this year.

Nevertheless, its shares closed up more than 4% in trading on Friday.

'Volatile market'

BA said the first quarter of the current financial year would be particularly difficult, with crude oil prices at $115 a barrel, almost double the $58 a barrel seen a year ago.

The airline's bill for the six million tonnes of jet fuel it uses in an average year was �124m higher than the previous year, despite significant hedging and a weaker dollar.

However, total operating costs were down 0.7% as a result of lower staff costs.

"We operate in a volatile market and this year has been no different," Mr Walsh said.

"We have continued to work hard on our costs savings to deliver these strong results."

BA said that shareholders would receive their first dividend since 2001 and added that staff would share a �35m bonus.

However, Mr Walsh said he had turned down his annual bonus - which could have been worth up to �700,000 - after taking responsibility for the problems at Terminal 5.

The harsh media glare will remain on Mr Walsh ahead of what is bound to be a difficult summer Walsh feels the heat See BA's share price

"I thought it would be inappropriate that I be paid a bonus," he told BBC News, adding that his decision had not been affected by concerns about how the media would react should he have taken the money.

"I didn't do it for press reasons. I have made it very clear that I was bitterly disappointed about the way we performed at the opening of Terminal 5."

The airline forecast that revenue would rise by about 4% in the current financial year but Mr Walsh said the upcoming period would be "very challenging".

He also admitted that fares may have to rise to offset the soaring cost of fuel.

Analysts are cautious about profit forecasts for BA this year, Merrill Lynch saying the firm faced "uncertainty" over fuel costs and the general economic picture.

Tough year

British Airways has been beset by problems in 2008.

In addition to high fuel prices, its pilots have threatened to strike over the launch of a new subsidiary and the opening of Terminal 5 was regarded as a disaster.

Staff at the new terminal were not able to get into work, thousands of bags were mislaid and flights were cancelled.

In early April, the airline said that the chaos surrounding the opening of Terminal 5 had so far cost about �16m.

However, because the �4.3bn building opened just days before the end of the past financial year, the bulk of the financial impact from the fiasco will be incurred this year.

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