Virgin Atlantic said it has benefited from its rival's difficulties after problems at Terminal 5 hit British Airways earlier this year.
The airline, which is 51 per cent owned by Richard Branson's group Virgin, said it has increased annual profits by 38 per cent.
Pre-tax profits reached £34.8 million in the 2007/2008 financial year, despite soaring fuel costs.
Business travellers abandoning British Airways for Virgin's service fuelled the rise, the company said.
British Airways suffered from baggage handling problems at its Terminal 5 building in London's Heathrow, which was opened in March.
Thousands of bags were lost during the crisis, causing flight delays and disruption to passengers.
The airline industry as a whole has also been suffering from high fuel prices and low consumer confidence. Many companies, including British Airways, have been reporting lower profits this year.
"While the outlook remains pretty overcast for the aviation industry, the winners will be those airlines that focus on offering the best customer service," said Steve Ridgway, Virgin Atlantic's chief executive.
Virgin Atlantic increased the number of passengers it flies by 7.6 per cent, to 5.7 million, as it expanded the number of destinations it serves around the world to 30.