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British Airways (BA) has reported a 26 per cent increase in first-half pre-tax profits, with costcutting having boosted the carrier's performance.

The airline said its profit before tax climbed to £593 million in the six months to September 30th, up from the £471 million reported for the first-half of 2006.

BA said despite fuel costs remaining a "major challenge" for the company, it still expects to meet its goal of achieving a ten per cent operating margin by March 2008.

The carrier expects its full year fuel costs to top £2 billion, although the company said that the weak US dollar had helped trim expenses.

BA's total costs dropped by £150 million over the first six months of the year, with employee costs down 7.1 per cent to almost £1.1 billion due to reduced pension and severance spending.

However the airline revealed that tougher competition had led to a "disappointing" result for its cargo business, with revenue from such operations falling to £290 million.

But BA chief executive Willie Walsh was upbeat about the company's overall performance, saying: "These are record results which are driven by all the hard work our people put in last year to tackle the cost base of our business."

Mr Walsh also confirmed that the first major public trials of check-in procedures at Heathrow airport's new terminal five will begin this weekend, with the opening of the terminal set for March 27th next year.

The BA chief said the carrier also expected current restrictions on hand baggage to end soon, stressing the development would "go a long way to relieving the hassle factor of the one bag limit".