British Airways highlighted the wider impact of the economic crisis yesterday when it reported a 92 per cent fall in first-half profits as it suffered the twin blows of record high fuel prices and a sharp fall in the number of business-class passengers.

In the six months to September 30, pretax profits fell to £52 million after BA carried 582,000, or 2.7 per cent, fewer passengers in the first half compared with the same period last year. The company also revealed that the pace of decline has worsened since the end of the summer travel period.

BA’s traffic figures showed that it carried 5.6 per cent fewer passengers in October and its aircraft were only 77 per cent full on average - down 3 percentage points. The decline last month was most severe among premium passengers - first and business class - with BA reporting a 9.2 per cent reduction in traffic in October.

Willie Walsh, BA’s chief executive, said that although the fall in passenger numbers was significant, it was not as bad as expected, given the economic environment. “The drop in premium passenger numbers is smaller than many people expected,” he said. “We had anticipated that the economic conditions would impact on traffic but the decline has come later than most people predicted.”

However, Mr Walsh did add that the first half had been the bleakest on record and that he expected trading conditions in the second half to remain challenging, although BA would benefit from lower fuel prices.

He said that BA’s full-year forecast was for breakeven or a slight profit, which would be considered by analysts to be a good performance, given the economic environment.

Ryanair, Europe’s largest budget carrier, is also aiming to break even this year after a 47 per cent fall in first-half profits to €215 million (£174 million).

Singapore Airlines said this week that its first-half profits had fallen 36 per cent and Japan Airlines, Asia’s largest carrier, said its operating profit fell by 47 per cent in the same period.

BA is coping with the downturn by cutting the number of flights it offers this winter and reducing costs. It has offered redundancy to managers and is halting capital expenditure projects such as upgrading airport lounges. The airline is also trying to keep yields, or revenue per seat, high even if it means carrying fewer passengers. This should help it to maintain a good profit margin when the aviation market rebounds.

Andrew Fitchie, aviation analyst at Collins Stewart, said: “The trading outlook for airlines is deteriorating; we have only seen two months of long-haul premium traffic weakness. However, BA’s strategy appears to be working as it manages yields up to a level that is sustainable against higher long-term oil prices.”

The turbulence on global stock markets has resulted in BA’s pension scheme deficit increasing by £200 million to £1.74 billion, which is now more than the market value of the airline.

Despite a 17p increase in its share price yesterday to 147p, BA’s market capitalisation is £1.7 billion - down 56 per cent from last year.

The complexity of BA’s pension deficit arrangements has led to a delay in merger talks between the British flag carrier and Iberia, its Spanish counterpart. Mr Walsh said: “Iberia is taking longer than expected and the main issue has been the complexity of our defined-benefit pension scheme. They have had to appoint advisers to understand the issues. I believe we are there now and we can start the detailed discussions.”

Pension pressure

- The true cost of BA’s retirement obligations could be close to £7 billion – more than four times its stock market value, John Ralfe, a leading independent pensions consultant, said. The airline’s pension liability, which will have risen dramatically in the wake of sharp falls in equity markets over the past eight weeks, is likely to be at the heart of BA’s merger talks with Iberia, the Spanish airline.

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