Rising demand from long-haul business class passengers helped British Airways increase profits significantly in the third quarter and offset a jump in fuel and other cost increases.

The improved results -- ahead of market expectations -- reflect a stronger trading performance during the winter months across much of the European airline sector and follow similar positive announcements by Air France-KLM and Germany's Lufthansa.

BA's chief executive Willie Walsh said the results were "encouraging" and reflected improving revenue, as demand for air travel continued to strengthen. But the airline was still having to engage in heavy promotions in order to achieve the higher volumes.

Operating profits in the quarter rose 28.7 per cent from ?136 million to ?175 million ($411 million) and increased 20 per cent in the first nine months to ?612 million. Pre-tax profits increased by 8.6 per cent in the quarter from ?151 million to ?164 million and by 2 per cent in the nine months to ?529 million. Several financial analysts raised their profit forecasts for BA.

Chris Avery, aviation analyst at JP Morgan, said the airline could finally hit its target of a 10 per cent operating margin in the financial year to March 2008, compared with a forecast 8 per cent margin in the current year.

"The European airline trading environment is seeing a better winter than most commentators predicted last autumn," Mr Avery said.

"Fuel price surcharges have not depressed demand for air travel and the UK consumer spending slowdown on the high street has not really crossed over into the airline space."

BA strengthened its own guidance for the full year to the end of March, and said that revenues were expected to rise by more than 8 per cent compared with earlier guidance for a rise of 6-7 per cent. Fuel costs were expected to jump by ?525 million in the full year to ?1.65 billion. BA has hedged 80 per cent of its fuel requirements to the end of March at $US48 a barrel, but is less protected in the coming year, with 54 per cent of its requirements hedged at $US57 a barrel.

While revenues increased strongly by 8.8 per cent in the third quarter and by 8.4 per cent in the nine months, total costs rose by 7.3 per cent, including fuel.