British Airways has confirmed plans to launch a business-class service next year, flying from London's City airport to New York. It will go head to head with Silverjet in trying to win corporate custom.

The airline continues to see demand from long-haul premium class passengers but short-haul volumes are slipping. In the last nine months of 2007, overall premium class traffic increased by 4.2%.

Pre-tax profit across the group increased by 34.9% to £788 million in the trading period.

Fuel costs in the first six months of the period fell by £36m, but then rose £72m in the last three months.

The company warned that annual fuel costs could increased by more than £100 million during 2008. It said the extra charges would be offset by reductions in other operating costs this year but said dealing with fuel price pressures in 2009 would be 'challenging'.

Commenting on trading since Christmas, it said non-premium bookings had fallen during January on the previous year. It remains confident of meeting 3-3.5% revenue growth despite weaker demand for short-haul premium and some non-premium markets.

It continues to invest in fleet upgrades. Contracts were recently signed for 12 Airbus A380 and 24 Boeing 787 aircraft, with options for a further 25 planes. These will replace older aircraft and introduce quieter and more fuel-efficient machines.

Shares in British Airways fell 1% to 329.25p in the first half hour of market trading on Friday.