Air France KLM, the world's biggest airline by revenues, posted a stronger-than-expected 28 percent jump in quarterly profit on Thursday and said full-year operating income would rise.

Profits were powered by strong demand, especially on longer routes, and by fuel surcharges and hedging which buffered the airline from surging oil prices.

Air France KLM said operating profit rose to EUR725 million euros (USD$1.08 billion) for the three months to the end of September, while revenues of EUR6.489 billion were up 5.8 percent.

Its fuel costs rose just 1.8 percent, as overall operating costs rose by 3.6 percent to EUR5.7 billion.

The airline said while passenger revenues grew by 6.1 percent, cargo revenues fell 0.3 percent.

"The passenger activity was dynamic during the second quarter, still driven by long-haul. In cargo, the recovery in traffic levels from the end of the first quarter was confirmed, but unit revenues remain under pressure," it said.

KLM, the Dutch arm of the company, said separately that it had ordered two Airbus A330-200 airliners and five from Boeing, including 2 777-300ER long-range planes and three single-aisle 737-700s.

A capital gain of EUR202 million on the sale of a stake in the Amadeus reservations system helped boost its pre-tax performance.

"These are excellent results, essentially due to the strength of passenger demand, but also due to a plan of cost savings," Finance Director Philippe Calavia told journalists.

"We are not seeing any weakness in passenger demand, even with the level of fuel prices where they are today, and even with the fuel surcharges we are applying."

The airline also said its financial charges fell sharply.

Air France KLM confirmed its objectives of a further rise in operating income in 2007/08 from last year's EUR936 million and a return on capital employed of 7 percent after tax for the full year, up from 6.5 percent.

"The first quarter was excellent; the second quarter was very good," Deputy Chief Executive Pierre-Henri Gourgeon said.

The Franco-Dutch airline group, formed from a 2004 merger of Air France and KLM, aims to lift its return on capital to 8.5 percent by 2009-10.

It has promised its investors it will only pursue possible mergers with other European airlines if the deals protect its medium-term financial goals.

Vice Chairman Leo Van Wijk said this week that Air France KLM had not yet decided whether to bid for either struggling Italian carrier Alitalia or Spain's Iberia, both of which are looking for buyers.