British Airways is to unveil its third quarter results on Monday.

Losses could be anything between £25m and £45m, analysts forecast.

The past year has been difficult for the airline, hit by high fuel prices and cheap fares. Many believe the company will post a full-year loss of £250m.

But things can only improve for Europe's biggest airline, analysts say.

Signs of a turnaround are already in place, with the company's policy of charging more money for fewer seats expected to pay off in the new financial year.

High cost business

In the past year, BA profits have been hit by high fuel prices and low air fares, principally due to overcapacity on the North Atlantic route.

It isn't alone in the problems it faces.

Last week, KLM Royal Dutch Airlines posted higher- than-expected third quarter losses of $17.3m.

Many airlines were hit hard by the Asian crisis, which prompted carriers to concentrate on putting more flights on the North Atlantic route, driving down fares as a result.

Even now Air France and Deutsche Lufthansa, among others, are still adding capacity.

"I think the competitive environment for them is pretty tough,'' said Martin Borghetto, an analyst at Morgan Stanley Dean Witter & Co. `"BA is suffering more on the North Atlantic than competitors, because that's their most important route in terms of historical profitability.''

The emergence of cheap no-frills carriers, such as easyJet, has also made things difficult for BA, prompting them to set up a competitor, Go.

Investors' lack of faith in the company is reflected in its share price.

BA stock has lost 58% of its value since it hit a record 760 pence in May 1997.

The stock fell 5% on Friday to close at 309 pence, valuing the company at about £3.3bn pounds.

Things can only get better

The good news for BA is that people now seem willing to pay more for their flights.

BA's strategy has centred on carrying fewer passengers, but charging them more.

It plans to reduce capacity by 12% in the next three years.

Initial signs are that this strategy is working.

In January, premium traffic was up 5.2% - the seventh consecutive monthly increase - while economy traffic fell 7.1%.

Encouraged by this data, BA announced on Thursday that it planned to raise economy and business fares on North Atlantic flights by 3% to offset high fuel prices.

It is also to create a new superior economy cabin, with prices 20% higher than regular economy class.

It is being introduced as part of what the airline describes as a £600m package of passenger improvements over the next two years.

Crucially, this move could improve BA's yields, the return it gets per seat. BA's yields were down 7.1% and 5.2% in the first and second quarter.

"There has been improvement in premium passengers and we should see improvement in yields...the question is by how much," ABN Amro analyst Damien Horth said.

Chris Tarry, aviation analyst at Commerzbank, adds: "This and next quarter are still going to be bad, but then we can look forward to a better environment."

Cutting costs

The other option open to chief executive Bob Ayling is to cut costs.

Already, Mr Ayling has announced that BA plans to cut operating costs by 12.5% by the end of the 2002 financial year.

Mr Ayling is expected to provide more detail of how this will be done on Monday.

Some of these - or future - cost cuts, could be achieved by reducing staff.

British Airways employs 64,000 employees and already speculation is that up to 10% of these positions could be cut.

Airline talks

BA's good work may yet come to nought if more US airlines are given permission to fly into Heathrow.

The UK and US governments have thus far failed to agree on rules for allowing more airlines to fly between London's Heathrow Airport and North America.

The current agreement allows only British Airways, Virgin Atlantic, American Airlines and United Airlines to fly direct scheduled flights between Heathrow and the US.

But other airlines, which have seen the large profits that can be raked in on what is a restricted market, want to enter the fray.

BA's share price was hit on Friday by US calls to renounce the agreement that allows BA to be one of only four carriers to fly to the US from Heathrow.