Fuel costs hurt BA despite profit jump

By Pete Harrison

LONDON (Reuters) - British Airways warned on Friday that rising fuel costs would become increasingly hard to tackle, knocking its shares despite solid third-quarter results and robust business-class travel to and from the United States.

BA shares fell 4.5 percent to 317 pence by 10:35 a.m., valuing the airline at around 3.7 billion pounds. Deutsche Bank analysts said BA's warning on fuel costs was "another way of saying that margins will fall next year".

The airline said long-haul premium traffic had so far shrugged off a downturn in corporate travel from the United States to Europe, which contributed to the recent failure of business-class airline MAXjet.

"Fuel remains our biggest challenge," Chief Executive Willie Walsh told reporters. "Fuel costs soared by 72 million pounds in the third quarter -- probably the highest ever increase in a quarter."

"While we've done very well to mitigate the rising cost of fuel, that clearly will get more difficult," said Walsh, adding that the group was still aiming for its 10 percent margin target this year.

Operating profit reached 734 million pounds in the nine months to December 31, in line with analysts' forecasts and up from 571 million a year ago.

It said full-year fuel costs would be more than 100 million pounds above last year's, but would be offset by cost-cutting elsewhere.

LONG HAUL