BRITISH Airways and merger partner Iberia have posted combined half-year profits of £34.2m despite a 35% jump in fuel costs.

International Airlines Group, which was formed in January, has benefited from improved demand on long haul routes, particularly for premium seats, as well as ongoing cost cutting measures.

Its fuel bill surged to £2.1bn in the six months to June 30, of which only half was recovered through initiatives such as fuel surcharges.

The airline’s profit in the six months compared with a loss of £366m racked up by the two airlines a year earlier.

Former BA boss Willie Walsh, who is chief executive of the combined group, said he expected “significant growth“ in profits across 2011, despite strong competition on short-haul routes.

He also expects events in Japan, North Africa and the Middle East to knock profits by up to £87.7m.

He added: “Against a background of economic uncertainty, London remains a strong market.”

BA and Spain’s Iberia have retained their brands in the merger, which is expected to save £351m a year by its fifth year.