British Airways posted a record 531 million pounds full-year loss on Friday, hit by the recession, industrial disputes and the winter snow, though its ambitions to break even next year could by hit by more strikes.

The loss, BA's largest annual deficit since it was privatized in 1987, was less than the 590 million pounds ($846 million) shortfall predicted by analysts, and follows last year's 401 million loss.

BA said its revenues for the year to the end of March fell 11 percent to 7.9 billion pounds, offset by costs 1 billion pounds lower, and predicted a return to breakeven next year as a slump in travel caused by the global economic downturn eases.

We think we can break even on the pretax profit level in the next full year, Chief Executive Willie Walsh told reporters on a conference call.

Long-haul premium traffic has recovered and reductions in short-haul traffic have eased. Market conditions are showing improvement from the depressed levels in 2009/10.

Shares in BA, which have dropped 17 percent in the last month, rose 2.8 percent in early trade and were up 1.3 percent at 189 pence by 0957 GMT (5:57 a.m. ET), valuing the business at about 2.2 billion pounds.

The results were affected by cabin crew strikes in March, which cost the carrier 43 million pounds and are due to continue next week, but do not include the 100 million pounds hit it took from the ongoing disruption caused by the eruption of an Icelandic volcano last month.

I admire BA's optimism but even if you ignore strikes, volcanic dust and the state of the economy I'm not at all confident that the slight improvement we have seen will result in break even or that the market is on the up, said Howard Wheeldon, a senior strategist at BGC Partners.

I think we're in for a very long flat period at best.

PERMANENT CHANGE NEEDED

BA shares have risen 10 percent in the last year but those gains have disappeared in the last week after a court said the airline's cabin crew could press ahead with further strike action in the coming weeks.

Walsh said returning the business to profitability required permanent change across the company and that it was disappointing that the Unite union fails to recognize that.

Unite said BA staff would start three five-day strikes next week unless the pair can settle a dispute over pay and terms.

The dispute has grown increasingly bitter with some analysts saying Walsh's firm stance has effectively broken the industrial action, or at least put unions on the back foot. Unite has also accused Walsh of trying to break the union, which has 97 percent of BA cabin crew as members.

If the action goes ahead, BA has said it will operate a full schedule at London's Gatwick airport, a full schedule at London City, some two-thirds of long-haul flights at London Heathrow and around half of the airport's short-haul program.

IBERIA COST SAVINGS

BA said its merger with Spain's Iberia , which is expected to generate 400 million euros ($496.6 million) a year in cost savings, would be complete by the end of 2010.

It also said it hoped plans to form a commercial alliance with American Airlines would be approved by the U.S. Department of Transportation and the EU by this summer.

BA, Europe's third-largest carrier, said it had managed to cut costs by around 1 billion pounds in its last fiscal year, thanks, in part, to a fuel bill 600 million pounds lower.

However, the airline said it was unable to recommend a dividend this year because of its current financial situation.

Passenger traffic fell 3 percent during the year, with first and business-class travel -- the most profitable part of its passenger business -- falling in nine of the 12 months.

Air France-KLM on Thursday predicted a return to breakeven this year after it posted a record full-year operating loss of 1.285 billion euros.

Earlier this week industry body IATA said demand for business and first-class seats rose in the first-quarter of 2010 but that premium travel was still some 15 percent below pre-recession levels.

(Editing by Victoria Bryan, Mike Nesbit)

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