BA braces for turbulent year ahead

By Dan Lalor and Mark Potter

LONDON (Reuters) - British Airways is braced for a turbulent year with fuel costs set to rise 1 billion pounds, but raised hopes it could manage by lifting profits 45 percent and paying its first dividend since 2001.

Shares in Europe's third-biggest airline, which had fallen 12 percent in the past fortnight, were up 7 percent by 10:02 a.m. in brisk trade.

The growth in annual profit was driven by cost-cutting and rising business-class seat sales that led to a 10 percent operating margin, the dividend payment, and a 35 million pounds bonus pot for staff to share.

All except one. Chief Executive Willie Walsh said he would not accept a bonus for 2007-08 because of problems at London Heathrow airport's new Terminal 5, whose opening descended into chaos with cancelled flights, delays, and lost luggage.

BA said it was reviewing its capacity, costs and network against the backdrop of economic pressures and high fuel prices, and forecast revenue growth at the low end of its previous forecast range of between 4 percent and 4.5 percent.

"The first quarter will be particularly difficult (...and) the full year will also be challenging," BA said.

However, it said strong results for the year ended March 31 proved it was up to the challenge.

"We're going into this period in a strong position and we've got very strong cash performance within the business," Walsh told BBC Radio 4.