Profits at British Airways (BA) plummeted by 91.6 per cent in the first half of the year as the carrier scrambles to stay in the black for its full 2008 financial year.

The group said that pre-tax profits fell from £616 million last year to £52 million in the six months to September 30.

Willie Walsh, chief executive of BA, said today: "The six-month period will be remembered as one of the bleakest on record. The period was hit by a crisis in the banking sector, record fuel prices and several airlines going out of business."

But he pledged: "We remain focused on delivering a small operating profit in the current financial year”, sending shares in the airline up 9.9 per cent to 144p.

Revenues were 6 per cent up on last year at £4.4 billion. However, costs rose by £711 million over the period, most of which were a result of increased fuel prices.

The airline is forecasting that non-fuel costs will continue to rise by 5 per cent in the second half of the year.

The company also announced plans to cut spending in anticipation of falling consumer demand by reducing its summer 2009 flight capacity by 1 per cent compared with a year earlier.

The reduction in capacity promises to combat the dual problems of falling passenger numbers and a rising number of empty seats on BA flights. Passenger load factor — a key measure of seats filled — was nearly 5 per cent lower over the first half than it was a year earlier at 74.6 per cent.

BA carried 17.2 million passengers over the period, down 3.9 per cent on the previous year, as demand dropped amid the economic downturn.

The airline also gave warning that the trading outlook remains difficult because of the weakening economic climate.

The flag carrier also said that it had been hit by the falling value of the pound, which added around £100 million to costs this year, and it is likely to further compound its problems in the second half.

Landing fees and en-route charges rose by 13.4 per cent because of the falling pound. The airline also blamed BAA, the airports operator owned by Spain's Ferrovial, for raising prices at Heathrow, by 38 per cent, and at Gatwick, by 36 per cent.

On the upside, BA said there were improvement at Heathrow's Terminal 5, which has been beset by operational difficulties since it opened.

BA said punctuality at Heathrow was 20 per cent better in July, August and September than it was in 2007 and October 14 was the airline’s best day at the airport with 95 per cent of flights departing on time.

Commenting on the future of Heathrow, Mr Walsh said a new third runway is “critical” for the future of the airport despite hints from the Government that enthusiasm for the expansion could be waning.

Gordon Brown said recently that he would make a final decision on third runway only after full consideration of its environmental impacts.

Mr Walsh said today that improving Heathrow’s performance was “more important than it has been,” because of the economic downturn.

The BA boss also said that merger talks with Iberia of Spain have included discussions about BA’s pension deficit.

BA admitted in September that trustees of its two defined benefit pension schemes had calculated the total deficit at £1.74 billion — a huge increase on the £400 million in the latest full-year accounts and the deficit now equals BA’s market capitalisation.

A spokeswoman for BA said the carrier has been trying to explain its view of the actuarial and accounting issues surrounding the pension to the Spanish.

Merger talks between BA and Iberia were announced last July, but the pension deficit is a big stumbling block.

Iberia’s investors have said they want as much as 40 per cent of the merged group in return for taking on BA’s pension liabilities. BA said this morning it has yet not discussed the share split of the combined group with Iberia.

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