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

BA's pretax loss -- impacted by higher debt levels, lower interest rates, a higher pension burden and restructuring costs of 48 million pounds -- compares to the pretax profit of 52 million pounds it made in the same period last year and expectations for a loss of between 235 million and 255 million in a Reuters poll of six analysts.

The airline said it would look to drive more costs out of the business in the coming months.

"Our revenues are likely to be about 1 billion pounds lower this year so we're determined to reduce costs further," Chief Executive Willie Walsh told reporters on a conference call.

He added that the airline was "riding along the bottom" of the downturn.

The global recession has battered the airline industry as consumers cut back on trips abroad and lucrative business class travellers fly less. BA has also been hit by growing competition from low-cost carriers and potential labour strikes.

The International Air Transport Association recently said it still expected airlines to lose $11 billion (6.61 billion pounds) this year.

Walsh also 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.

Shares in BA, which have risen 27 percent in the last quarter, were 4.6 percent higher at 194.4 pence by 8:48 a.m., valuing the group at around 2.5 billion pounds.

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 travelled -- were down 12.2 percent.

However, it said both volumes and yields had "started to stabilise," with analysts predicting the worst could now be over for BA.

"These results are a touch worse than expected but 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.

Walsh said conditions in the aviation market were still challenging, which is bad news for planemakers Boeing and Airbus who are headed for their worst annual order tally in at least 15 years.

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.

Earlier this week Irish budget airline Ryanair reported an 80 percent increase first-half net profits, while Scandinavian airline SAS reported a surprise third-quarter pretax profit of $16 million.

(Editing by Julie Crust and Jon Loades-Carter)