International Airlines Group SA, formed last month by the merger of British Airways PLC and Iberia SA, reported modest combined 2010 profits in its inaugural earnings on Friday despite higher fuel costs.
The group also warned passengers to expect higher fuel surcharges in the coming months as a result of the disruption to crude oil supplies because of political unrest in the Middle East.
IAG said it made a euro100 million ($138 million) profit in 2010, based on full year figures from Iberia and nine-month figures from British Airways. It didn't provide a net figure for 2009.
Pretax profit was euro84 million, compared with a loss of euro1.2 billion in 2009, on the back of a 10 percent rise in revenue to euro14.8 billion.
The group, which represents Europe's second biggest airline by market value behind Germany's Lufthansa SA, said its long-haul business remains strong, particularly in the premium sector. But it says the short-haul European market remains "highly competitive."
IAG Chief Executive and BA boss Willie Walsh said the group was monitoring the situation in the Middle East after a 5.2 percent rise in fuel costs in the final quarter of last year and will adjust the fuel surcharge "if we think it's necessary."
"There has been an increase in the volatility of the fuel prices over the last few weeks," Walsh said. "It is likely that increases will be seen in the market and this will affect all airlines and will be a challenge to the industry."
Walsh said he expected the annual fuel bill to rise to euro5.1 billion this year from euro3.9 billion last year.
The group achieved the combined profit despite severe winter weather across Europe, strikes by BA cabin crew and a Spanish air traffic controller strike.
Passenger revenue for the final three months of the year was up 15.6 percent and cargo revenue jumped 28.2 percent. But operating costs also rose 9.5 percent over the quarter, with one-off costs including the scrapping of two Boeing 747 aircraft costing euro19 million and merger completion costs of euro26 million.
Looking forward, the group also faces another possible strike in BA's long-running dispute with cabin crew.
The Unite union said earlier this week that voting in a fresh ballot for industrial action will start on March 1. The result is due on March 28, raising the possiblity of an Easter vacation walkout.