British Airways is braced for a turbulent year with fuel costs set to rise £1 billion (€1.2 billion), but raised hopes it could manage by lifting profits 45 per cent and paying its first dividend since 2001.
Shares in Europe's third-biggest airline, which had fallen 12 per cent in the past fortnight, were up over 6.4 per cent by 10.32am in brisk trade.
The growth in annual profit was driven by cost-cutting and rising business-class seat sales that led to a 10 per cent operating margin, the dividend payment, and a £35 million bonus pot for staff to share.
All except one. Chief Executive Willie Walsh said he would not accept a bonus for 2007-08 because of problems at London Heathrow airport's new Terminal 5, whose opening descended into chaos with cancelled flights, delays, and lost luggage.
BA said it was reviewing its capacity, costs and network against the backdrop of economic pressures and high fuel prices, and forecast revenue growth at the low end of its previous forecast range of between 4 per cent and 4.5 per cent.
"The first quarter will be particularly difficult (...and) the full year will also be challenging," BA said.
However, it said strong results for the year ended March 31st proved it was up to the challenge.
"We're going into this period in a strong position and we've got very strong cash performance within the business," Mr Walsh told BBC Radio 4.
Pretax profit rose to £883 million pounds on revenue up 3.1 per cent to £8.75 billion pounds, and BA announced a dividend of 5 pence, the first payment since 2001.
BA's shares have more than halved in value in the past 15 months, hit by rising fuel costs, a deteriorating economic outlook and, more recently, the chaotic opening of Terminal 5.
Mr Walsh told BBC radio: "Many (airlines) will struggle to survive the way oil prices are".
But he said BA would enter the more challenging environment from a position of strength, albeit with its 2007-08 results being "the high point, certainly in the short term".
BA reiterated that it remained in talks with American Airlines and Continental Airlines to explore possible opportunities to cooperate. Mr Walsh would not comment further.
But he told reporters BA had now sorted out problems at Terminal 5. "Despite the difficulties of the opening of Terminal 5 in the first few days, it is now working well and some 2 million passengers have gone through it," he said.
BA said that based on the current oil price of $120 a barrel its fuel bill for this year would increase by around £1 billion to over £3 billion.