British Airways today reported a smaller-than-expected quarterly loss of £50 million - but warned it still faced a record annual shortfall.
The airline said hefty cost cutting measures had helped improve performance in the three months to December 31. Analysts had expected the firm to post a much greater loss of £150 million in the period.
BA also reported its first operating profit for more than a year for the quarter.
Chief executive Willie Walsh said the results reflect "permanent change" to the business and said operating costs were down more than 10 per cent.
BA has yet to stem the fall in passenger numbers and today said these were down 8.7 per cent for the UK and Europe in January compared to a year earlier - declining steeply from the nine month fall of 4 per cent.
The freezing winter weather continued to take its toll, with heavy snowfall at the beginning of the month causing disruption in the UK and Europe.
The International Air Transport Association has said last year was the worst year on record for the industry.
In the nine months of the financial year so far BA passenger revenues were down 13 per cent, with a 3.9 per cent reduction in capacity.
Losses for the year so far have reached £342 million, from £70 million the previous year after BA posted a record deficit in first half trading - a normally buoyant period because it contains the holiday season.
BA said the better trading seen in the third quarter is likely to continue to the end of its financial year, with continued improvement in long haul routes.
Mr Walsh said: "While we are on the right track, we still expect to make record losses this year.
"Permanent structural change is being introduced in all areas and will return us to sustained profitability."
The airline has slashed staff numbers this year and is engaged in a potentially damaging battle with staff over strike threats.
BA only narrowly avoided crippling strike action over the Christmas period - but the threat of industrial action is expected to have had an impact on bookings as fliers sought alternatives over the festive period.
But union Unite is re-balloting its 12,000 cabin crew members at BA for industrial action on a row over schedules, with the result due on February 22.
Mr Walsh stressed that BA's focus would be on permanent cost reduction if the business is to be returned to profitability in the short term.
He said he was determined to press ahead with "permanent structural change" following a £300 million reduction in non-fuel costs last year.
He told the Press Association he did not believe the threatened 12-day strike by cabin crew over Christmas had any significant impact on the airline.
If the strike had gone ahead, it would have been "damaging", he admitted.
Mr Walsh said there were "ongoing discussions" between senior BA officials and Unite, but he was not directly involved.
"We are continuing to talk. We have made it clear we are prepared to talk. But challenges must be addressed by permanent structural change to our cost base."
Mr Walsh declined to discuss the airline's contingency plans in the event of a cabin crew strike, adding he was "pretty confident" employees were aware of BA's message to them.
Len McCluskey, assistant general secretary of Unite, denied suggestions that the two sides were close to resolving the cabin crew dispute.
But he said today's better-than-expected financial results could make it easier to get a deal and avoid industrial action.
"The climate is easier to try to examine all the problems. We have always accepted that the recession has hit British Airways. Our members have accepted that they need to make a contribution.
"We put forward £60 million-worth of savings months ago that could have avoided the controversy."
Mr McCluskey told BBC Radio 4's Today programme that Unite was not looking for a confrontation with the airline.