British Airways is back in profit after a fierce cost-cutting programme, but the company has warned of a "challenging" year ahead.
BA still faces a tough outlook
BA made a £135m ($219m) profit in the year to 31 March, compared with a £200m loss last year.
However, the impact of the build-up to the war in Iraq led to a £200m loss during the January to March period, and the airline said its revenues in the April to June quarter would be lower than last year.
BA also said its pension fund was showing a £1.2bn deficit under the latest accounting rules. This company's total stock market value is just £1.5bn.
The gloomy outlook for current revenues hit BA's share price, and the shares closed down 4% at 137.5p.
British Airways has been undergoing major restructuring under its 'Future Size and Shape' programme, which has seen cuts in flights and in the size of its workforce.
These are good results in one of the toughest years in living memory
Rod Eddington, BA chief executive
The airline was forced to cut costs following the post-September 11 slump in air travel together with the fierce competition coming from no-frills carriers such as Easyjet and Ryanair.
The industry as a whole has continued to come under pressure from the depressed state of the global economy, and more recently from the conflict in Iraq and the spread of the deadly Sars virus.
BA said its total costs fell by 11.9% last year, excluding exceptional charges, and added that its savings programme had "exceeded targets in all areas".
The airline has cut the size of its workforce by about 10,000, against a target of 13,000 jobs by September this year.
BA's chief executive Rod Eddington said he was confident the airline would exceed its annual cost savings target of £650m by the end of March 2004.
He said BA had already achieved £570m of savings, beating its March 2003 target by £120m.
The cost cuts allowed BA to return to profit even though its turnover fell nearly 8% to £7.7bn.
"These are good results in one of the toughest years in living memory," said Rod Eddington, British Airways' chief executive.
"Despite the war and Sars, our people have made a tremendous contribution in delivering all of our first year Future Size and Shape targets."
But he warned: "The timing of economic recovery is not clear. We must deliver further cost efficiencies in the coming year."
BA chairman Lord Marshall added that the economic outlook would remain "challenging" this year.
"The outlook is that revenue in quarter one will be lower than last year. Visibility beyond the first quarter is not clear."
BA chief financial officer John Rishton said there was still "far too much capacity" in the airline industry.
In the US in particular, mainstream carriers were losing money and being kept alive by government aid "when maybe they shouldn't be", he told BBC World Service Radio.
No return for Concorde
The £200m loss for the January to March quarter included an £84m charge for the retirement of Concorde.
Mr Eddington said there would be no going back on the decision to end supersonic services, despite a recent campaign by Sir Richard Branson to rescue the services.
BA decided to retire Concorde because of a combination of falling passenger revenues and higher maintenance costs.
"The chief executive of Airbus and his senior directors have made it very clear to me personally that Concorde's time has come, sadly, and it's time she retired," Mr Eddington said.
"Our experts and their experts have both come to the same conclusion it couldn't be clearer."