The boss of British Airways and Iberia’s parent company today warned that the London Olympic Games will “dampen” demand this summer.

The comments from chief executive Willie Walsh came as International Airline group delivered soaring full year pre-tax profits of €503 million after exceptional items against €84 million in 2010. This was based on annual revenue rising by 10.4% to €16.3 billion.

But Walsh said: “British Airways traffic this summer may be impacted by the Olympic Games.

“While the Olympics will be positive for the long-term position of London as a global destination, past experience in other host cities suggests that demand could be dampened during the games.”

He also sought to allay fears over the future of domestic routes to Heathrow as part of the takeover of BMI, which faces a challenge by rival Virgin Atlantic.

“While subject to regulatory approval, we plan to integrate bmi mainline into British Airways following agreement by BA pilots to make productivity changes that justify the integration,” said Walsh.

“This deal gives us the ability to grow at Heathrow by launching new long haul routes to growth economies and supporting our short haul network.

“We have already committed to continue flights from Heathrow to Belfast and will increase services to Scotland.

“Without this deal, links to the UK regions would not be safeguarded.”

Walsh also repeated his long standing opposition to Air Passenger Duty, which is rising again in April.

“The performance of our airlines reflects the different markets in which they operate. The north Atlantic market remains strong, benefiting British Airways,” he said.

“However, British aviation’s competiveness is undermined by the UK government’s determination to continually increase APD with the latest rise due this April.

“In 2011 British Airways paid almost £500 million in APD. As a result of the latest increase, the airline is reducing by around half the number of new jobs it’s creating this year and has postponed plans to bring an extra Boeing 747 back into service.”

He outlined pans to restructure the Iberia network with the launch of low fare Iberia Express in March – a decision which had led to strike action at the Spanish carrier.

“Iberia’s challenge is its exposure to financial uncertainty in the eurozone in a highly competitive marketplace with no-frills airlines, high speed rail and growing competition from more efficient long haul airlines,” said Walsh.

“Its management has been focused in addressing this, however, the challenge remains for Iberia to become more competitive especially as it has a high cost base and outdated workplace practices.

“The launch of Iberia Express in late March, alongside the restructuring of its network and hub, will enable Iberia to become more customer focused and cost effective.

“As a result, we are facing continuing industrial action from Iberia’s pilots, with a negative impact of around €3 million per strike day. We are fully committed to the project, and believe its benefits will far outweigh the costs.”

The IAG annual results performance were boosted by net cost and revenue savings of €74 million, €64 million more than target, in the first year since the BA-Iberia merger. But annual fuel costs rose by 29.7% to €5 billion, before exceptional items.

Looking forward, Walsh said: “Higher fuel costs, weaker European markets and labour unrest will imply, for the first part of the year, a reduction in operating results when compared with the first half of last year.

“We expect the year-over-year cost pressures to reduce as we move through the second half of the year.”