Nov. 7 (Bloomberg) -- British Airways Plc, Europe's third- largest carrier, gained the most in almost seven years after raising its revenue forecast and pledging to trim flights, boost fares and complete a job-cutting program.

The airline is fighting a global economic slowdown by hiking prices to compensate for declining capacity, in contrast with low-cost carriers that are slashing fares to fill seats. London-based British Airways raised its forecast for full-year revenue growth to 4 percent from 3 percent, promising to scale back capital spending and eliminate hundreds of management jobs.

``BA's strategy has been to raise fares to offset cost inflation,'' Andrew Fitchie, a London-based Collins Stewart analyst, wrote in a note to investors. The plan ``appears to be working as it manages yields up to a level that is sustainable against higher long-term oil prices.''

The airline will reduce the summer schedule by 1 percent as the industry suffers from fuel prices that hit a record in July and a widening economic slump that has restrained traffic and put at least 30 carriers out of business. The International Air Transport Association forecasts that industry losses will exceed $5.2 billion this year.

British Airways advanced 15.5 pence, or 12 percent, to 146 pence in London trading, the biggest jump since Jan. 4, 2002. The shares have dropped 53 percent this year, valuing the airline at 1.68 billion pounds ($2.64 billion).

Surpassing Estimates

The carrier made changes as the company said fiscal first- half sales rose 6.4 percent to 4.75 billion pounds, beating the average analyst estimate of 4.57 billion pounds. Operating profit also surpassed estimates even as the carrier reported a net loss of 49 million pounds, compared with net income of 493 million pounds a year earlier.

Chief Executive Officer Willie Walsh is trying to push through a merger with Iberia Lineas Aereas de Espana SA, Spain's largest carrier, to add Latin American routes. British Airways is also seeking to strengthen its dominance on trans-Atlantic flights from London through a partnership with AMR Corp.'s American Airlines. The carriers, together with Iberia, have applied to antitrust regulators to allow them to cooperate.

In the meantime, higher prices and currency-exchange gains will drive revenue higher, BA said. ``Yield improvements, due mainly to price and exchange, are expected to more than offset volume reductions.''

Spending Plans

Non-fuel costs will increase by 5 percent this year, compared with an earlier estimate of 3 percent, the airline said today in a statement. BA maintained the company's fuel-bill estimate at 3 billion pounds.

The airline lowered capital expenditure plans for the year to 550 million pounds from 650 million pounds. About a third of 1,350 eligible managers accepted voluntary severance and most will leave the company by the end of the year. BA said today it will suspend flights from London Heathrow to Dhaka, Bangladesh, and Kolkata, and stop service from London Gatwick to Dublin and Zurich. BA also will close a Glasgow, Scotland, cabin-crew base.

``We remain focused on delivering a small operating profit in the current financial year and sustainable profitability in the medium and long term,'' the carrier said in the statement.

The airline may face more competition on its lucrative trans-Atlantic routes after Deutsche Lufthansa SA said Oct. 29 that it intended to buy a controlling stake in BMI, the second- largest carrier operating from Heathrow.

Lufthansa, Air France

Lufthansa, based in Cologne, Germany, said Oct. 29 that it had trimmed expansion plans, cutting the projected increase in seat capacity to 5.2 percent at its main brand, 1.9 percentage points less than an earlier forecast. Air France-KLM Group, Europe's biggest airline, said the same month that it would struggle to meet full-year earnings targets and would limit capacity growth.

British Airways said that traffic, the number of passengers multiplied by distance flown, fell 4.4 percent in October. The load factor, or the proportion of seats filled, declined 3 percentage points to 77 percent.

``The earnings were no worse than expected, and the decline in premium traffic wasn't much worse than in September, and it certainly hasn't gone off a cliff,'' Nick Cunningham, a London- based analyst at Evolution Securities, said in an interview.

Operating profit fell 75 percent to 140 million pounds. That compared with an estimate of 95 million pounds, according to the average of six analysts surveyed by Bloomberg News.

``Our fuel-hedge position remains largely unchanged from our last guidance and therefore we are well placed to benefit from falling fuel prices,'' BA said.

Even so, ``It's a tough winter,'' Chief Financial Officer Keith Williams said in a Bloomberg Television interview. ``You're seeing a real slowdown in the market generally.''

Iberia, Pensions

The Iberia tie-up may yet face hurdles amid concern that the U.K. carrier's pension deficit is widening and may require further cash injections.

``I remain convinced that a merger between British Airways and Iberia would be the right move for both companies,'' Walsh said in a conference call with reporters. ``I'm pleased with the progress that has been made.''

Discussions about the Iberia merger have centered on British Airways' pension deficit, Williams said. Iberia rose as much as 13 percent to 1.82 euros and was up 8.7 percent at 11:40 a.m. in Madrid.

``There was no agreement on merger ratio,'' the CFO said. ``What we have been discussing is pensions.''

To contact the reporter on this story: Steve Rothwell in London at srothwell@bloomberg.net

Last Updated: November 7, 2008 12:29 EST