British Airways has returned to profitability for the first time in two years, despite the impact of the Icelandic ash cloud and ongoing disputes with staff.

Beating market expectations, the British flag-carrier reported a pre-tax profit of £158 million for the six months to September 30th.

This compares to a loss of £292 million for the same period of 2009.

Analysts had been expecting BA to post a profit of approximately £75 million - half of what the airline actually made.

Revenues were up 8.4 per cent to £4.4 billion at the airline, thanks to a particularly strong 39 per cent rise in cargo revenues, according to an official release.

British Airways’ chief executive, Willie Walsh, said: “Our concerted efforts to introduce permanent structural change across the airline has led to a reduction in non-fuel costs and a return to profitability.

“Revenue has increased, driven primarily by yield improvements and, while fuel costs have risen, they are in line with our expectations.”

Despite the strong results BA directors have declared no dividend will be paid for the period.

Could a deal with American Airlines be next?

Strike Action

While British Airways remains in dispute with its cabin crew over changes to contracts, the airline has made progress in other areas.

Over the summer BA agreed a new productivity deal with its Heathrow terminal-based staff, designed to provide a more flexible, cost-efficient and customer focused ground operation.

In addition, BA has begun to recruit new cabin crew on altered terms and conditions, with the first taking to the skies on Monday.

BA also claimed to have successfully overcome challenges posed by industrial action across Europe.

“Despite disruption caused by numerous air traffic control strikes across Europe this summer, 74 per cent of our Heathrow flights and 84 per cent of our Gatwick flights departed on time, significantly outperforming our major competitors,” added Mr Walsh.

Mergers & Acquisitions

BA has returned to profitability ahead of its merger with Iberia – with the deal scheduled to be completed on January 21st 2011.

The Spanish carrier reported a €74 million profit for the third quarter today, offsetting losses of €16.4 million for the same period last year.

Shareholders at both airlines will vote on the proposed merger in November.

British Airways has also strengthened its relationship with American Airlines in the past six months, at the two carriers move toward a possible merger in the future.

Mr Walsh continued: “At a strategic level, we launched our transatlantic joint business with American Airlines and Iberia earlier this month, having received regulatory approval in the summer.