British Airways will cut capacity and park 16 aircraft this winter after reporting a £401 million loss for the full financial year ending March 31.

Speaking at the release of the preliminary results today, BA chief executive Willie Walsh declined to make a forecast for the current year in what he described as “the harshest trading environment we have ever faced, with no immediate improvement visible”.

The loss represents a £1.3 billion turnaround on a year ago when BA reported a profit of £922 million. Losses in the final quarter of the financial year represented more than three-quarters of the total. The lion’s share of these came from a 13% fall in premium traffic on the 2007-08. Total passenger numbers were down 4.3% to 33 million. Revenue nonetheless rose by more than £230 million to almost £9 billion.

Walsh said the downturn in premium passengers had forced BA to cut fares and chase market share. “We changed our focus from driving yields to securing volume as customers became more price sensitive,” he said. But Walsh added: “Despite the fall in premium traffic, our market share is growing.”

The carrier will reduce capacity by 4% this winter following a 3% cut for the same period in 2008-09. Walsh announced there would be no base pay rise for staff this year and no management bonuses, and said talks with unions on changes to pay and productivity continue. BA has shed more than 2,500 jobs since last summer.

Walsh made no mention of BA’s continuing merger talks with Iberia, but said he was optimistic of US and European regulatory approval for plans to operate a joint transatlantic business with the Spanish carrier and American Airlines.