British Airways Plc fell to a worse than expected first-half loss and forecast revenue would slump by 1 billion pounds this year, but analysts said the worst could be over as the airline signaled business was stabilizing.

BA, whose alliance with American Airlines and Spain's Iberia is being scrutinized by European and U.S. competition watchdogs, on Friday reported a pretax loss for the six months to end-September of 292 million pounds ($482.4 million), while revenues fell 13.7 percent to 4.1 billion.

The airline, which has reduced operating costs by 8.7 percent by cutting free meals on some flights among other measures, said it would slash more costs, with another 1,200 staff losing their jobs next year taking the total number of job losses to 4,900.

Our revenues are likely to be about 1 billion pounds lower this year so we're determined to reduce costs further to ensure we return to acceptable levels of profitability, Chief Executive Willie Walsh told reporters on a conference call, adding that BA was riding along the bottom of the downturn.

Shares in BA, which have risen 27 percent in the last quarter, were 6.2 percent higher at 198.1 pence by 6:30 a.m. EST, valuing the group at around 2.5 billion pounds. Peer airlines such as Germany's Lufthansa and Air France-KLM , which have also cut their bloated cost bases in response to the recession, rose 3.4 and 1.8 percent respectively.

BA reported better traffic data, with all-important business class traffic down 1.4 percent in October year-on-year, a vast improvement on September's 7.9 decline.

Evolution analyst Nick Cunningham called the results weak but not disastrous.

The airline's loss -- impacted by higher debt levels, lower interest rates, a higher pension burden and restructuring costs -- compares with a first-half pretax profit of 52 million last year and expectations for a loss of between 235 million and 255 million in a Reuters poll of six analysts.

LESS PESSIMISTIC TONE

BA said passenger revenue fell 13.6 percent, on capacity 3 percent lower, while yields -- the revenue it makes on each passenger for every mile traveled -- were down 12.2 percent.

However, it said volumes and yields had started to stabilize, with analysts predicting the worst could be over.

The tone is a little less pessimistic than before. That is consistent with the view that BA has reached the bottom of the downward cycle, said Astaire analyst Douglas McNeill.

The global recession has battered the airline industry as consumers cut back on trips abroad and lucrative business class travelers fly less. BA has also been hit by potential labor strikes and growing competition from low-cost carriers such as Ryanair which reported an 80 percent rise in first-half net profit earlier this week.

The International Air Transport Association recently said it expected airlines to lose $11 billion this year.

Walsh said he was confident in the strength of BA's case to win U.S. Department of Transportation approval for a sales tie-up with American Airlines and Iberia.

A decision on BA's proposed merger with Iberia would likely come in the very near future, he added.

Walsh also said industry conditions were still challenging -- bad news for planemakers Boeing and Airbus who are headed for their worst annual order tally in 15 years.

Bank of America Merill Lynch estimates BA reported a pretax loss of 144 million for the second quarter -- normally one of its best quarters -- and analysts believe it could suffer a larger annual loss than last year's record 401 million pounds deficit.

BA is expected to report a pretax loss of 568.76 million pounds for the year to the end of March, according to a Thomson Reuters I/B/E/S poll of 19 analysts.

The carrier is still in talks with unions over staffing problems and reiterated plans to impose new contracts on cabin crew.

BA's pension scheme deficit widened by 1.5 billion pounds to 2.6 billion in the first-half as equity gains were offset by changes in the calculation of liabilities.

What BA gained on the roundabout, it lost on the swing, said pension consultant John Ralfe.

(Additional reporting by Cecilia Valente; editing by Julie Crust and Jon Loades-Carter)

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