Brazil's leading airline, TAM, posted a 26 percent rise in first-quarter net profit on Thursday, as lower fuel costs and higher passenger receipts helped it recover from a heavy loss in the previous quarter.

TAM, which has embarked on cost cutting to help ease the impact of the economic downturn, had a net profit of BRR54.4 million reais (USD$25.9 million) in the January-to-March period, up from BRR43.1 million in the same period a year earlier.

Its operational profit surged 129 percent to BRR197 million against BRR85.7 million a year earlier.

The stronger profits came despite a fall of 3 percent in passenger numbers on domestic and international flights to 7.3 million.

That was offset by a 9.2 percent rise in earnings from ticket sales on domestic flights and 29.9 percent increase on international flights. An expansion of its passenger loyalty program to include other airlines also helped boost income, it said.

Profits were also boosted by a drop of 17.7 percent in the company's fuel costs to BRR695 million from BRR844.8 million previously, a result of the company's renegotiation of hedge contracts at the end of March.

Like many airlines around the world, TAM sought to hedge against the skyrocketing cost of jet fuel last year by locking in a price above USD$100 a barrel.

That bet turned sour when the price of oil dropped in the second half of 2008 and Brazil's currency, the real, weakened sharply against the dollar, leading TAM to book a net financial expense of BRR1.96 billion (USD$933 million) in the fourth quarter of last year.

As a result, TAM chalked up a net loss of BRR1.12 billion in the fourth quarter, compared with a profit of BRR118.5 million in the year-earlier period.

Chief Executive David Barioni Neto said on Tuesday that the company was "well positioned" to withstand the economic downturn and that it was over the worst of the global economic crisis.