BA profits go flying towards a new record

To illustrate the flag carrier's new-found confidence, the airline announced a business class-only service from London's City Airport to New York and is not ruling out going after a takeover deal with bmi, the former British Midland, to shore up its dominant position at Heathrow.

Shrugging off the doom-mongers in the City, BA booked £178million of operating profits in the three months to the end of September, its third trading quarter, brushing away fears of falling demand and rising fuel prices.

Some had believed BA would be forced to downgrade its revenue growth forecasts for the fourth time in a year, and might scrap the 10% profit margin target which is seen as the holy grail of operational efficiency in the airline and to which chief executive Willie Walsh has pinned his credibility.

In the event, BA reported: "Our revenue guidance for the full year continues at 3% to 3.5% in spite of weakness in shorthaul premium and some non-premium markets."

It continued: "We continue to focus our efforts on achieving a 10% operating margin for this financial year."

With BA increasingly back on the front foot despite a falling share price in recent months, and the airline industry in the middle of the latest bout of consolidation, there is growing speculation that BA will pounce on bmi.

"We are always looking for opportunities to increase our number of [takeoff and landing] slots at our home base of Heathrow," said Walsh.

A BA-bmi tie up would see the merged operation control more than 50% of Heathrow's slots at a time of the introduction of "Open Skies" liberalisation, which allows any international airline to come into Heathrow and start flying the lucrative transatlantic routes.

Pressed on whether BA would move on bmi, Walsh said: "You will have to ask Sir Michael Bishop [bmi's founder and chairman] and see if he is selling."

In addition to news of the launch of new BA transatlantic services from continental airports to New York announced last month, BA today announced a 32-seater business class service from City Airport, aimed at winning over Canary Wharf and Square Mile executives fed up with the time it takes to get to New York from Heathrow.

BA however is still warning of strong headwinds both on fuel costs and demand.

In its trading outlook, the airline said: "We have seen some fall in non-premium [economy class] bookings in the January booking period compared to last year."

"Our fuel costs will continue to rise and are now expected to be up more than £100million on last year. Our ability to mitigate rising fuel costs next year will be challenging."