British Airways yesterday said it increased profits strongly in the first quarter but warned the airline industry faced a tougher winter season with increased promotions and discounted tickets.

The carrier said that in the three months from April to June, pretax profits rose 57 per cent from £124 million (€182 million) to £195 million, while operating profits increased by 20 per cent from £176 million to £211 million.

The improved performance was driven by higher revenues and strong demand from business travellers, which enabled BA to fill a record share of its available seats in the period.

The airline is continuing to cut jobs while increasing its flying programme, and the workforce was reduced by 2.1 per cent, or nearly 1,000 jobs, in the 12 months to June 30th, from 46,079 to 45,100. Further significant job cuts are expected during the next two years, as a result of the airline's move to the new terminal five at London Heathrow airport at the end of March 2008.

Willie Walsh, BA chief executive, said the airline was making "steady progress" in agreeing changes in working practices and had reached deals with several groups of employees ahead of the move to terminal five.

In the first quarter, revenues rose 12.5 per cent to £2.3 billion, more than offsetting higher costs resulting mainly from the rise in fuel bills and higher employee costs due to increased pension costs, severance and pay awards.

BA is in difficult negotiations with trade unions and the trustees of its main pension fund over proposed reforms of the pension scheme, including raising the retirement age and reducing future benefits. It is also facing pay negotiations in the autumn.

BA is expanding its long-haul services, which generate almost all its profits. Mr Walsh said that competition in the short-haul market in Europe was "brutal," and the airline had responded by offering higher volumes of lower price seats to meet the competition from the low-cost carriers.

BA chairman Martin Broughton said strong revenue was expected to continue and the airline raised its guidance for the full year to a forecast increase in revenues of 6-7 per cent from the previous 5-6 per cent.

Fuel costs are forecast to rise by £550-£600 million in the full year. BA has hedged 65 per cent of its requirements to the end of the financial year at $62 a barrel.