British Airways (BA) today announced plans to axe its annual spending plans by 20 per cent, ground flights and reduce its capacity forecasts for summer and winter.

The flag carrier, which is still in talks with unions over jobs and pay cuts, said today that it will reduce this year’s capital expenditure from £725 million to £580 million.

The airline said it expects spending to remain in line with the reduced target in the next financial year to 2011.

BA has been exploring a number of options to cut costs after making a £401 million full-year loss on rising fuel prices and falling passenger numbers as cash-strapped holidaymakers choose to stay at home.

At the same time, the number of lucrative premium flyers in business class has also fallen as companies cut back on spending. For June, BA said that premium numbers fell by 14.9 per cent. Non-premium flyers declined by 1.3 per cent.

BA expects the number of flyers over the summer months to decline from a previous forecast of 2.5 per cent to 3.5 per cent, while capacity over the winter is expected to fall by 5 per cent, above the 4 per cent originally expected.

In a further cost-cutting move, BA will ground three Boeing 757 aircraft next summer and a further three Boeing 747-400s will not fly in winter 2010.

BA has asked a number of its staff to work for free in one of a number of attempts to save costs.

However, this week the carrier was forced to call in a mediator to chair talks between the company and unions to avoid a damaging summer of strikes.

BA has proposed a series of cost-cutting measures, including a pay freeze and reduction in allowances and benefits as it battles the severe downturn in the airline industry.

It is also seeking up to 2,000 voluntary job losses among cabin crew.

Unions have agreed to make short-term sacrifices to help the company but they do not want any changes to be permanent.

Failure to reach a deal could lead to strikes by thousands of workers during the busy summer months.

BA and its unions have been trading accusations over recent days, with Unite, the union that represents 27,000 BA employees, accusing Willie Walsh, the airline's chief executive, of damaging BA's reputation by stating that it was "fighting for its survival".

Staff anger has been compounded by Mr Walsh's pay package. Though he is to work for free in July, he will receive a 6 per cent increase in pay this year, to £743,000. He is also eligible for a bonus of up to £1.1 million that will be paid in shares.

More than 2,500 jobs have already gone at BA in the past year. BA's pilots have also agreed to 100 voluntary redundancies.

In May the airline revealed that it slumped to a £401 million loss last year - the worst loss since 1982. BA made a profit of £992 million in 2007-08.

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