NOT enough bums on seats is the airlines problem and British Airways

could have done with more of them in its first quarter.

But the market was encouraged by its underlying performance at a time

of intense competition in the airline industry and marked the shares up

14[1/2]p to 350p.

Profits tumbled 31% to #63m as a result of a surge in financing costs

from #8m to #42m as the price of the group's ambitious expansion moves

came home to roost. This problem was addressed by the #442m rights issue

in the spring.

Operating profits were up by an eighth to #108m, despite June's

one-day strike, on revenues 9% ahead at #1516m as the lower pound helped

the group resist the pressures on yields caused by excess capacity in

the industry. Passenger kilometre revenue rose by 2.3%.

With much of its revenue in foreign currencies, BA is a natural

beneficiary of a lower pound, though pulling the other way in the first

quarter were increases of 27% and 20% respectively in fuel costs and

landing fees.

Chairman Sir Colin Marshall said they tended to be disdvantaged by a

weak pound in their second half.

Even so, analysts were impressed by the way the group managed to make

profits at all in current conditions.

Airlines may be a growth industry in the long term, but right now

there are too many flights chasing too few passengers.

Smith New Court indicated that it would change its rating of BA shares

from hold to buy, with the group being well placed to benefit from

European economic recovery next year.

The high-profile ''dirty talks'' dispute with Virgin does not seem to

have put people off flying BA, and in the three months it carried 7.8

million passengers with underlying traffic volume up by 6.6%.

But with capacity up 9%, load factor slipped from 71.6% to 69%. Higher

margin premium traffic continued to fall, though only slightly. Cargo

carryings were 6% ahead.

The programme to cut costs by at least #150m is on schedule. Unit

costs were only 0.7% higher and are expected to be unchanged in the

second quarter compared with the same period last year. Since June

passenger numbers have continued to rise but competition has remained

intense even into the peak holiday season, affecting yield.

''It is very difficult to predict the yield situation,'' Sir Colin

said. ''It certainly continues under pressure in the second quarter. I

suspect it will for the rest of the year.''

Sir Colin maintained that BA remains well positioned to take advantage

of improved prospects in 1993 and 1994. In fact, he could have said

better positioned than most airlines now the group's global strategy is

starting to fall into place.