British Airways said on Friday it saw no improvement in bleak trading conditions and vowed to continue to cut costs, rounding off another miserable week for Europe's airlines.

Trading conditions continue to be very challenging, with ... no visible signs of improvement. Our work to reduce costs is beginning to bear fruit, but there is much more to be done, Chief Executive Willie Walsh told reporters.

The carrier's revenues fell by over 12 percent in the three months to end June to just under 2 billion pounds ($3.31 billion), though its two main rivals Air France-KLM and Lufthansa fared worse, reporting sales down 20.5 and 19.5 percent, respectively, earlier in the week.

BA shares were up 4.6 percent at 140.5 pence at 0942 GMT as the market was comforted that there no new shocks, though they are still down 20 percent this year.

Airlines around the world are suffering heavy losses due to a slump in passenger numbers and volatile fuel prices.

Low-cost airlines Ryanair and easyJet are performing better as they steal cost-conscious business customers and as holidaymakers opt for cheaper short-haul breaks over long-haul. Both companies are set to end the year in the black, unlike most full-service airlines.

GRIM READING

BA said its first-quarter operating loss was 94 million pounds, below the around 100 million guidance given earlier in July. It is the first time the airline has ever made a loss in the April-June period.

The numbers from British Airways, whichever way you slice them, make grim reading. They are pulling out all stops in order to remain viable as a business, but an uncertain economic outlook, a pension deficit and delayed merger talks are factors that are going to weigh on the company for the foreseeable future, said Manoj Ladwa, senior trader at ETX Capital.

Willie Walsh said BA had cut operating costs by around 6.6 percent since last October and shed 1,400 jobs since the end of March as it fights to slim down during the downturn, with more to come.

The carrier has been attempting to wring pay cuts from its workforce and has even axed meals on some short-haul flights, though it is no closer to resolving a battle with trade unions representing cabin crew and ground staff, which could end in major strike action.

The talks are still ongoing, but are in a cooling-off period, Walsh told reporters.

He added that he had recently had a meeting with Antonio Vazquez, his newly appointed opposite number at Spain's Iberia , a long-standing potential merger partner.

We had a constructive meeting. It was an opportunity to congratulate him on his appointment and confirm with one another our desire to proceed with the proposed merger, Walsh said.

British Airways said its full-year fuel bill was expected to be between 450 million and 500 million pounds lower than last year, while its debt pile also fell slightly to 2.3 billion pounds.

It announced plans earlier this month to raise 600 million pounds to shore up its balance sheet.

(Editing by Myles Neligan and Will Waterman)

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