British Airways achieved record profits last year and reached a 10 percent operating margin for the first time in their history.

The airway has decided to pay a dividend for the first time since 2000/01 and is paying a £35m bonus to staff after narrowly achieving its profit targets despite the cost of the chaotic Terminal 5 opening in March. The dividend will be 5p a share.

BA chief executive Willie Walsh said the company had achieved an “outstanding financial result” despite significant economic slowdown in the last six months and rising fuel prices.

BA has previously warned that profits would decline sharply this year from last years peak and it said on Friday the full year would be “challenging against an uncertain economic outlook.”

The airline said that moves to reduce capital expenditure this year were being implemented and that it was reviewing its capacity, costs and network in the face of the economic pressures and high fuel prices.

BA warned the first quarter would be “particularly difficult” given the jump in the crude oil price from $58 a year ago to around $115 a barrel.

The delayed transition of its operations to Terminal 5 at Heathrow, its global hub, would also hit both revenues and costs in the quarter and in the full year.

The costly debacle of Heathrow’s Terminal 5, which cost BA around £16m over the last five days alone, has forced BA and BAA, the airport operator to revise its timetable for the transfer of the bulk of the airline’s long-haul flights from T4. This was supposed to take place on April 30.

The transfer is now due to begin on June 5 but will take place in phases and is not expected to be completed until October. Mr Walsh said T5 was “now working well.”

British Airways is also facing higher airport charges from BAA this year at both Heathrow and Gatwick.
It warned that its total fuel costs would rise by around £1bn based on the current price of around $120 a barrel. This increase is more than double the rise of £450m forecast in March based on an oil price of $85 a barrel. Last year, BA’s fuel costs rose from £1.93bn to £2.06bn.

The group has managed to hedge 72 per cent of its fuel requirements for the first half of the current financial year and just below 60 per cent for the second half.

The fuel price rise was passed on to customers earlier this month to £158 on a long-haul flight of more than nine hours. BA forecast an increase in revenues of 4 percent due to the increase in its fuel surcharges to customers.

BA was one of the most profitable airlines this year. Last year BA increased its operating profit from £602m to £875m, and raised its operating margin from 7.1 percent to 10 percent. Earnings per share rose by 59.1 percent from 37.2p to 59.2p.

Although its turnover rose by 3.1 percent from £8.49bn to £8.75bn, its pre-tax profit increased by 44.5 percent from £611m to £883m. Operating costs excluding fuel fell by 3 per cent.

In related news, BA said it was pressing ahead with its planned OpenSkies subsidiary airline despite the continued threat of strike action by its pilots over the move and the opening of a court case with Balpa, the pilots union, next Monday.

BA said it would launch the first service under the OpenSkies brand between Paris Orly and New York JFK airports on June 19.

BA plans to build a fleet of six 757s under the OpenSkies brand by the end of next year. OpenSkies will be the first time BA has operated long-haul services that do not touch the UK.
The BA share price rose in early trading on Friday by 5½p or 2.5 per cent to 229½p.