MORE expense account travellers are buying business-class and

first-class airline tickets than ever before, a further indicator of

company confidence as the recession becomes a memory.

Filling the higher-margin parts of the cabin is vital to airline

economics, and British Airways for one is relieved that the high rollers

are back again in a big way. Largely as a result of this, its first

quarter to June profits jumped almost two-fifths to #88m. However, as a

result of last year's rights issue and a higher tax charge, earnings per

share were unchanged at 6.9p. This disappointed the market so that 12p

was lopped off the shares to 417p. They look like staying near this

point, selling at about 13 times earnings, until the USAir situation

becomes clearer.

Premium traffic grew by 12%, twice the rate of the main cabin, and

growth in profits from this business was much higher than this as

margins widened. Group operating margins improved from 7.12% to 8.47%.

Passenger yield on scheduled services was 3.4% ahead and load factor

edged forward.

Also helping margins was a 13.5% decline in fuel costs. This was

partly offset by an increase in the number of miles flown and overall

fuel costs were down 5%. They would have been more but for currency

movements.

BA chairman Sir Colin Marshall yesterday said the improvement in

premium traffic had been achieved without significant discounting. The

better trend is continuing.

''Passenger and cargo carryings continue to be strong and prospects

for the year remain encouraging,'' said Sir Colin. Third quarter cargo

traffic jumped by almost a fifth to 171,000 tonnes, reflecting improving

economic activity and an increase in chartered freighter capacity.

BA is consolidating its European links through TAT in France and

Deutsche BA but the future of USAir remains in doubt. BA has a 25% stake

and USAir is the most important plank in BA's expansion strategy. It is

struggling to reduce heavy losses through cost-cutting and its trade

unions have submitted a proposal to do this in exchange for an equity

stake, an idea which has received an unenthusiastic welcome from its

management and BA. The latter's own pilots are pressing for a larger

employee investment in their company.

Talks over USAir are continuing and though time is pressing it may be

the autumn before they come to a result. BA has already said it may have

to write off its #275m investment.

The group is looking to build more links in the Far East, where there

are gaps in its global strategy. A deal in China may emerge, though

other airlines are also keen to get access to the country and its

booming economy. The political changes in South Africa have brought a

20% increase in traffic and BA has increased its flights there.

BA's own cost-cutting efforts are continuing and productivity was up a

further 4.7%, though unit costs were 1.8% higher. Expenditure was

boosted by an increase in the number of aircraft in service and by a 43%

rise in engineering costs associated with the USAir arrangements, hire

of cargo capacity from other airlines, currency effects, and additional

engine maintenance work.