British Airways (BA) improved its operating profits in the second quarter in spite of higher fuel prices and an industrial dispute at one of its suppliers.

The UK airline benefited from rising demand - in particular from premium long-haul passengers - and was able to make a small increase in average fares as it filled more of its available seats.

Its confidence in the outlook for the full year has risen, and BA forecast "some improvement" in yield, or average fare, after several years of decline.

Revenues were forecast to grow by 6-7 per cent, up half a percentage point from its previous guidance. However, Willie Walsh, who took over as chief executive last month, warned that the airline needed to make further cuts in costs. Costs were up in most areas and Mr Walsh said the group "must re-energise our drive on controllable costs".

It is seeking to reduce employee costs by £300 million (€444 million) by March 2007.

Mr Walsh said the group's pension deficit was "unsustainable". The pretax deficit is put at £2 billion. Savings on pensions contributions were an important part of the planned cut in employee costs, he said.

BA's fuel bill, which accounts for about 20 per cent of total costs, rose 51.3 per cent in the second quarter to £410 million. - (Financial Times Service)