British Airways posted a 29 per cent rise in quarterly operating profit as increased demand for premium-class travel helped offset rising energy bills.

The airline's revenue forecast inched higher but it repeated that profit margin targets would not be achieved because of fuel costs. However, Willie Walsh, BA's new chief executive, said the group had no immediate plans to raise fuel surcharges on tickets.

Europe’s third-largest airline said operating profit for the last three months of 2006 was £175 million, compared with £136 million a year ago. That topped City expectations, which had centred at £164 million.

Turnover was up 8.8 per cent to £2.13 billion thanks to improved demand for first and business class. Revenue was also helped by stable ticket prices and the addition of routes to India and Shanghai.

The better trends continued through January, with BA revealing a 3.3 per cent rise in passenger traffic.

"Despite the improved revenue outlook, market conditions remain broadly unchanged as significant promotional activity is required to maintain seat factors," Martin Broughton, BA's chairman, said.

BA said that, while its average passenger fare fell 1.5 per cent in the quarter, the average was still expected to be slightly higher for its fiscal year ending March. The group forecast 8 per cent revenue growth for the year compared with its previous forecasts of between 6 and 7 per cent.

However, Mr Walsh admitted that fuel costs meant BA will not achieve a 10 per cent operating profit margin in the current year.

"The fuel price continues to represent significant headwind in relation to that. We are not expecting that," he said, referring to the 10 percent operating margin, reiterating comments he made last year.

BA's fuel costs increased by more than 28 per cent for the quarter even after hedging contracts were taken into account. The fuel bill also reflected a larger flying programme and a stronger US dollar.

City analysts were concerned that, while current results are good, headwinds may be building. They noted that BA management guided for costs before fuel to be up 1 per cent year-on-year, against previous flat guidance.

German brokerage WestLB commented: "Although the short-term earnings momentum at British Airways remains positive, British Airways has, in our view, run out of significant potential for material additional cost cutting for the time being. ... The company therefore lacks the internal earnings momentum to offset the expected further increase in fuel costs."

Analysts at Cazenove noted that BA still has to address its £2 billion pension deficit, and would be affected by any possible open skies deal between the European Union and United States. It saw today's results as "a good opportunity to take profit".

In early deals on the London Stock Exchance, British Airways shares were down 1p at 323p. They have climbed from around 312p over the past fortnight.

For detailed information on BA and an updated share price, click here.

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