THE owner of British Airways has stepped up pressure on its European rivals by forecasting it will make bigger than expected profits this year.

International Airlines Group (IAG), which also operates the Spanish carriers Iberia and Vueling, upgraded its guidance at a time when Air France-KLM and Germany's Lufthansa have issued profit warnings.

IAG reported underlying profits of £707 million for the crucial summer quarter to September 30, a rise of £165m on a year earlier.

For the whole of 2014, it now expects an improvement in profits of between £432m and £471m up from guidance in early August for a rise of about £393m.

The group has around 430 aircraft in service and employs more than 60,000 people.

A restructuring programme at the previously loss-making Iberia has seen 2,500 staff leave the airline under a voluntary redundancy programme, while salaries have been reduced.

IAG said staff costs improved by 8.4 per cent at constant currency rates while fuel costs were also lower as a result of lower oil prices. Passenger revenues were 9.2 per cent higher at £10.5 billion.

Another factor in BA's improvement has been the cost benefit achieved from the performance of its new Airbus A380 and Boeing 787 aircraft.

Air France-KLM and Lufthansa have blamed their warnings on overcapacity on US routes and competition from Middle Eastern carriers.

But BA made an operating profit of £477.3m in the period, compared to £375.1 m last year, after it grew capacity and maintained its focus on cost control.

Iberia's operating profit increased to £127.4m from £58.2m last year.