British Airways reported record first-half profit on Friday, up 26 percent due to cost cutting, but its shares fell by as much as 5 percent after it cut its full-year revenue guidance due to the weak U.S. dollar.

Profit before tax was 593 million pounds ($1.23 billion) in the six months to Sept. 30, 122 million more than a year earlier after it slashed 150 million off costs.

Our cost performance was excellent, helped by the weak U.S. dollar, said Chief Executive Willie Walsh.

The market focused not on the way the weak dollar would help cut costs, but on the way it would reduce revenues after BA cut its view of full-year revenue growth to 3 to 3.5 percent from earlier guidance of 4 percent.

The shares fell by as much as 5 percent in early trading, but later recovered and were down by just 2.7 percent at 418.5 pence by 0852 GMT.

What we see is premium bookings remaining strong, Walsh told reporters. The North Atlantic non-premium market is still soft but other non-premium markets are more encouraging.

Analysts at Deutsche Bank kept a 'hold' rating on the stock due to worries about the impact of liberalisation of the transatlantic market next year, but added: We believe this is a good set of figures from a strong management team.


Walsh said BA remained committed to the consortium looking at buying Spanish airline Iberia (IBLA.MC: Quote, Profile, Research).

We're still working on finalising the financing on Iberia, added Finance Director Keith Williams.

The airline said it was on track with its goal of keeping operating margins at 10 percent or more, having hit 12.5 percent in the first half.

It predicted costs excluding fuel were now expected to be 100 million pounds lower than previously forecast in the full year due to the weak dollar.

But fuel costs are expected to be up by 100 million pounds on last year.

Fuel costs remain a major challenge and our fuel bill for the year is expected to top 2 billion pounds for the first time, said Walsh.

The fuel surcharge is constantly under review, but there's no plans to adjust it at this moment, he added.

Walsh brushed off media reports that BA's plans to start flights to the United States from European cities could be threatened by opposition from its pilots or by plans to cut flight capacity at New York's JFK airport.