Virgin Atlantic today said its profits have rocketed as passengers switched from British Airways because of chaos at Terminal 5.

Sir Richard Branson's airline said it had benefited from the "T5 effect" with travellers moving to Virgin to avoid BA's new terminal at Heathrow. Virgin has opened its own Upper Class Wing at Terminal 3.

However, the airline warned that high oil prices and the economic downturn would hit profits this year as the industry faced its toughest time for years.

Virgin's pre-tax profits rose 38% to £60.9 million in the year to the end of February after a 22% rise in premium passengers sent sales up 9.1% to £2.34 billion. The total number of passengers carried hit 5.7 million as Virgin added new routes from London to Chicago, Nairobi and Mauritius.

In the first three months of the new financial year, which coincided with the disastrous March opening of BA's new base at T5, sales were up 16% to £645.3 million and profits hit £23.5 million.

Chief executive Steve Ridgway described the chaos at T5 as "a gift" for Virgin. "The results were partly strengthened by a T5 effect as Virgin gained passengers from BA because of the ongoing problems at their new Heathrow terminal," he said.

The comments sparked a war of words with BA, which recently reported tumbling profits for April, May and June. A BA spokesman said today: "Any suggestion that Virgin is somehow rising above the effects of unprecedented oil prices and economic downturn is obvious claptrap."

Ridgway said that he was not complacent about the results. "We are pleased with last year," he said. "The industry had a good year which was the calm before the storm because it is a very different place from where we are now.

"To see profits rise that much was pleasing. We saw what was happening. We didn't know what would happen with fuel prices but we could see the economy slowing down, so we slowed down our growth as a result.

"While the outlook remains pretty overcast for the aviation industry, the winners will be those airlines that focus on offering the best customer service and which are nimble enough to take advantage of the opportunities that lie ahead.

"Against a backdrop of high oil prices and weakening consumer demand, we are well-placed to succeed over the coming months."

Sir Richard also hit out at plans of BA and rival American Airlines to collaborate more closely on transatlantic routes claiming it will create a "monster monopoly". He added: "It's ironic that just as regulators are breaking up one monopoly - BAA - British Airways and American Airlines are trying to create another.

"Our results prove that consumer want choice on transatlantic routes. Unless the regulators block the proposed BA/AA monopoly, consumers will lose out - and they'll pay higher ticket prices for the privilege."