By Alistair Osborne Last Updated: 3:33PM GMT 07 Nov 2008  British Airways expects times to get tougher  So it's with some justification that chief executive Willie Walsh can claim that today's half-year figures represent "a good performance given the incredibly difficult trading conditions".  Operating profits of £140m were well down on 2007's record £567m but they were also comfortably ahead of forecasts from the City's planespotters of only £88m.  There were other surprises too. BA upped its full-year revenue guidance by 1 percentage point to 4pc and reiterated that it remained on track for a "small profit in the financial year" – much better than most analyst estimates of losses.  All this explains the initial 22pc jump in the share price, off an admittedly bombed-out base, even if it then slipped back to a more modest 15pc rise.  Scratch beneath the surface, however, and there are still plenty of reasons to keep the seat belts fastened – indicated by the decision to axe a dividend the airline has only just restored.  BA is taking the opposite approach to Ryanair in the current crisis by increasing fares to compensate for falling passenger demand – a strategy getting a big boost from the relative strength of the dollar against sterling, not to mention those controversial fuel surcharges.  Yields – broadly revenues per seat – jumped 10.5pc over the half despite a fall in traffic volumes, with the planes flying only 74.6pc full, down 3.8 points.  The big question, amid the deepening economic slump, is how much longer BA can keep raising fares to compensate for fewer passengers.  Not for long is a decent guess, judging by October's traffic statistics. Volumes fell 4.4pc last month but the most telling statistic was the 9.2pc nosedive in premium traffic – largely those first- and business-class passengers paying with the corporate credit card.  With bankers being made redundant, businesses going bust and even the well-off leisure traveller feeling the pinch, there's a big risk of more empty seats at the front of the BA cabin. Mr Walsh admits there may be worse to come.  There's no question that BA is still better-placed than most of its rivals, with strong management ready to cut costs and a decent balance sheet where net debt is £1.4bn. The falling oil price is also a boon, even if some of the benefits are being undermined by the stronger dollar.  All the same, there is one dog that hasn't really barked – the airline's ballooning pension deficit. John Ralfe, a leading pensions consultant, calculates that, on a buy-out basis, the deficit is now well north of £6bn – getting on for four times the company's market value. It remains the big stumbling block in BA's merger negotiations with Spain's Iberia, though Mr Walsh claims that the concerns are overdone.  He is banking on a rebound in the markets to take the problem away. He deserves some luck here, but has no control over asset prices.  The upshot is that Mr Walsh must steer a pension deficit with wings through the current economic slump, while simultaneously getting a favourable deal with Iberia and pulling off a transatlantic tie-up with American Airlines. As a former pilot, he will need all his navigation skills.
For a company that makes most of its money shuttling well-fed bankers across the Atlantic, the view from BA's cockpit window is none too promising.