May 16 (Bloomberg) -- British Airways Plc said full-year profit more than doubled as business travel on trans-Atlantic routes spurred sales, helping the carrier reach a record profit- margin target and pay its first dividend in seven years.

The stock rose the most in two years after net income in the year ended March 31 jumped to 680 million pounds ($1.32 billion), or 58.6 pence a share, from 290 million pounds, or 25.2 pence, a year earlier. Analysts had predicted a profit of 654 million pounds. Sales rose 3.1 percent to 8.75 billion pounds, the London-based company said today in a statement.

British Airways increased premium traffic 4.9 percent in the year as it targeted corporate flyers on routes between the U.S. and London, boosting operating profit to 10 percent of sales, its highest-ever margin. Chief Executive Officer Willie Walsh predicted a ``particularly difficult'' first quarter, hurt by record oil prices and costs from the chaotic opening of a fifth terminal at the U.K. capital's Heathrow airport.

``Delivering 10 percent has not been easy, but we have achieved it by remaining focused on our strategy for the last six years,'' Walsh said in the statement. ``Against the background of a progressively tougher trading environment we have continued to work hard on our cost savings to deliver these strong results.''

British Airways rose as much as 17.50 pence, or 7.8 percent, to 241.50 pence, the biggest gain since May 19, 2006. The shares were trading at 233.5 pence as of 8:11 a.m. in London, paring declines this year to 25 percent and valuing Europe's third- largest airline at 2.69 billion pounds. Air France-KLM Group, the continent's biggest carrier, has dropped 16 percent and Deutsche Lufthansa AG of Germany, the No. 2. is down 7.6 percent.

Dividend Resumed

Walsh maintained his guidance for the current fiscal year for revenue growth of about 4 percent. The airline will pay a dividend, it said today, the first since the Sept. 11, 2001, attacks on the U.S. triggered a global slump in air travel.

Fuel costs may increase by about 1 billion pounds this fiscal year with oil at $120 a barrel, British Airways said, making for a ``challenging'' 12 months. First-quarter earnings will be hurt by a $57 increase in crude prices year-to-year and by the disruption at Heathrow Terminal 5, it said.

``The figures are slightly ahead of consensus but the caution for this year on fuel is clear,'' said Chris Avery, an analyst at JPMorgan in London with a ``neutral'' rating on the stock. ``At $120 oil, BA won't make much money in the new year.''

British Airways makes the bulk of its profit from premium seats on north Atlantic routes, where it competes with carriers including Virgin Atlantic Airways Ltd. and UAL Corp.'s United Airlines. The company carried 33.1 million people during the year, up 0.2 percent, after increasing capacity 0.8 percent.

Capacity Review

Walsh said today the airline will reduce capital spending and review capacity, costs and routes to help cope with a tougher trading environment this year.

Earnings have come under pressure in the past few months as the world economy slows, jet-fuel costs increase and people avoided booking with the carrier after the turmoil surrounding the opening of Terminal 5. An agreement allowing new entrants to fly on Heathrow-U.S. routes is also pressuring the airline.

Andrew Fitchie, an analyst at Collins Stewart in London, said before the results that at the current oil price British Airways may be doing no better than breaking even, even before the impact of Terminal 5's botched opening on March 27.

Training, Baggage

Inadequate training and a baggage-handling breakdown at the 4.3 billion-pound building led to the cancellation of 600 flights over 12 days and a backlog 20,000 items of luggage.

British Airways and Heathrow operator BAA Ltd., a unit of Spanish builder Grupo Ferrovial SA, opened Terminal 5 after nearly 20 years of planning to help ease overcrowding at Europe's busiest airport, which CEO Walsh has blamed for discouraging passengers.

Following the opening British Airways ousted Gareth Kirkwood, its director of operations, and David Noyes, director of customer services, saying it planned to appoint a chief operations officer to combine both roles. Heathrow Managing Director Mark Bullock also stood down this week.

Walsh has also faced calls to quit and was forced to agree to meetings with investors and to delay moving a second wave of services to Terminal 5 following the chaos. The CEO, who joined in 2005, set the 10 percent margin goal after slashing costs and reducing the company's pension deficit. He said today he won't take an annual bonus in acknowledgement of the Heathrow debacle.

Year-earlier earnings were clipped after the airline set aside 350 million pounds to settle antitrust fines and canceled flights because of a threatened strike by cabin crew.

Until the start of the ``Open Skies'' regime on March 30, only British Airways and three other carriers were allowed to operate flights from Heathrow to the U.S. The increased competition may allow the U.K. carrier to win the antitrust immunity needed to expand its alliance with American Airlines.

To contact the reporter on this story: Tracy Alloway in London at talloway@bloomberg.net

Last Updated: May 16, 2008 03:16 EDT