BA returns to profit with £158m surplus

British Airways today reported pre-tax profits of £158 million - its first half-year surplus for two years. (PA)

British Airways boss Willie Walsh said today the airline had turned the corner after making a half-year profit for the first time in two years.

It achieved pre-tax profits of £158 million in the six months to September 30, whereas it made a pre-tax loss of £292 million in the same period a year ago.

The milestone was reached despite disruption to flights caused by the ash cloud from an Icelandic volcano and strikes by cabin crew during the period.

Passenger numbers were down 6.2% in the half year, but picked up towards the end of the period with a 4.3% increase in September.

BA was helped by the economic recovery, which has seen an increase in sales of business class tickets, as well as a major cost cutting drive.

Confident that the economic recovery would continue, Mr Walsh announced plans to increase capacity by 4% or 5% next year.

"We are benefiting from an improved economy, which we hope will pick up in 2011," said Mr Walsh. "We don't see any evidence to support a double dip."

Although bullish about BA's prospects, Mr Walsh slammed next week's increase in Air Passenger Duty, which will rise by 55% on the longest flights.

"We believe the levels cannot be justified and are having a negative effect on the economic recovery in the UK," he added.

It would cost BA an extra £100 million in taxes and put further pressure on pricing.

BA claims to run more flights to the Caribbean than any other European airline and will be particularly affected when Caribbean flights are put into a higher tax band next week.

Mr Walsh also said the results had vindicated his controversial strategy of taking cost out of the business.

The company reduced its costs by 1.5% even though fuel costs, which are its biggest expense, went up by 2.4% in the period.

Over the past year the company has reduced its wage bill in the face of resistance from cabin crew who disrupted flight schedules in an on-going dispute about terms and conditions.

However, pilots, engineers and air terminal staff have signed new agreements and new cabin crew have been appointed on new terms, the first wave of whom are due to start on Monday.

The accounts reveal that BA reduced its staff costs by 2.7% to £1 billion in the half-year.

"The challenge we faced was one of structural cost difference between us and our competitors," said Mr Walsh. "The changes we have made to our cost base are now having a big impact on the business.

"I'm pleased with the results today - they demonstrate that the action we have taken has been the right decision for the business. The figures speak for themselves."

Sales increased 8.4% to £4.4 billion in the half-year and its profits haul figure is more than double the £73 million that had been expected by analysts.

The last time the company reported a half-year profit was in the six months ending September 2008.

In the first quarter BA reported a loss of £164 million but profits of £322 million in the second quarter, which included the busy summer holiday season, helped to pull the half-year back into the black.

Mr Walsh has further plans to take cost out of the business. Its long-awaited merger deal with Iberia to create International Airlines Group should complete in January if it receives shareholder approval.

The two airlines would retain their own brands, but the initiative will save 400 million euros (£348.2 million) a year by its fifth year.

It also recently sealed its three-way trans-Atlantic business link-up with American Airlines and Iberia.

Despite the strong results BA's share price was the biggest loser in the FTSE 100 Index, dropping 3%. It had risen by 33% in the past two weeks in anticipation of its strong results.