SIGNS of another gruelling year ahead for British Airways took the gloss off better-than-expected annual results from the battered airline.

BA posted pre-tax profits of £135m - higher than City hopes - after racking up losses of £200m in the previous 12 months.

But it also revealed that it lost £200m in the last three months of the financial year to March 31, as Sars and the Iraq crisis hit demand.

To underline its focus on cutting costs, BA yesterday announced that it is to withdraw its Bristol-to-Newcastle service as part of its reduction in loss making flights from October 25.

BA operates three services each weekday between Newcastle and Bristol, and one a day at weekends.

BA will continue to operate 64 flights a week from Newcastle to London Heathrow and Gatwick.

The cuts are being made following a fleet and network review by BA CitiExpress as part of a full regional review, which it hopes will save £7m this financial year and £20m overall.

As well as the difficult trading conditions, BA said its pension fund deficit had soared to £1.2bn after stock prices tumbled. It will learn later this year if it has to increase contributions to its 101,000 member schemes.

Investors were also told for a second year running that they will not receive a final dividend. The impact of September 11 meant they did not receive a bonus last year.

Hilary Cook, of Barclays Private Clients, said: ''The lack of a dividend speaks volumes. This is a company which is desperate to conserve cash.

''The first quarter was pretty dire and the company can't see much beyond that. It does not make pretty reading.''

BA has already pledged to step up the cost-cutting programme which has so far produced annual savings of £570m - £120m better than expected.

The airline wants additional savings of £450m from a ten per cent reduction in spending and the adoption of a "self-service" culture by staff and customers.

However, no extra job cuts are planned to add to the 13,000 which will have been lost by September as part of the company's Future Size and Shape review.