I thought BA were �200m in the red. Why on earth is their share price going up?

Let's not kid ourselves. No-one likes it when a company loses money. And diving into the red after 14 years in the black is nobody's idea of a good time.

But some losses are better than others. And BA investors have several reasons to be (modestly) cheerful.

For one thing, the entire airline sector has been in the doldrums since 11 September, when - understandably - many people got rather nervous about flying over the Atlantic.

BA, an airline which depended heavily on trans-Atlantic traffic, was hit particularly hard. It also had the aftermath of the foot and mouth crisis, during which the closure of vast swathes of Britain's countryside put the boot into the tourist trade.

In any case, BA had been in something of a mess for some time, with costs well out of step with income. So 9/11 simply acted as the last straw to push it into getting its house in order.

Okay, so the going hasn't been easy. But that still doesn't explain why a loss is OK, does it?

It does when the loss is half what everyone was expecting.

Earlier this year, City experts used passenger figures, other published data, the performance of BA's rivals and so on, to forecast the airline's likely full-year result.

These estimates inevitably vary between banks and analysts, but most put the likely pre-tax loss at between �300m and �400m.

BA needs the big-ticket business travellers to come back

The actual figure of just �200m suggests that BA has been clamping down on costs and keeping up its quality of service rather better than anyone had anticipated.

And some of the numbers bear that out. BA's passenger revenue kilometre metric - a key measure of performance in the airline industry- was rising during the January-March period.

And although passenger numbers are down 4.5% for the year as a whole, again the fourth quarter showed an uptick.

How did the City get it so far wrong, then?

Bankers and dealers wouldn't like to admit it, but projecting profits and sales is hardly an exact science. Nobody expects an analyst to hit the numbers right on the nose; after all they're not psychic.

That said, though, it's rare that the numbers are so wide of the mark.

There are two possibilities, which are by no means mutually exclusive.

Firstly, given the annus horribilis which the aviation business has just been through - including bankruptcies in Switzerland, Belgium and the US, plunging passenger numbers, and a steady switch away from traditional carriers to low-cost airlines - it's not exactly a shock that expectations erred on the pessimistic side.

And secondly - well, part of the information that the analysts use comes from talking to the company itself.

And when bad news is on the cards, businessmen have a tendency to spin things so they look worse than they actually are.

Tell people to expect a tragedy, and a mere disappointment is going to come as something of a relief.

Fair enough. But when are they going to start making money again?

There's the rub. BA is not willing to make any predictions about when it might be back in the black.

And neither, frankly, is anyone else.

For one thing, traffic is still well down on pre-11 September levels.

BA faces competition from its former subsidiary Go

The short-haul routes BA runs across Europe won't be profitable till 2004.

And it is these routes which are hammering BA. Increasingly, travellers in Europe are turning to low-cost airlines such as easyJet, Ryanair and Go for knock-down prices on flights short enough that free drinks and silver service don't really matter.

This last - Go - is a key part of the problem. BA actually founded Go, before selling it off for about �110m last year.

It's now been sold to easyJet for more than three times that amount.

Not only has BA therefore missed out on a jackpot, some say; it has also offloaded a chunk of itself which it now has both to replicate and compete against.

The losses would have looked a whole lot worse if that �110m hadn't been there to offset things.

And BA is still desperate for more high-ticket business class passengers.

But as Goldman Sachs points, the airline may have to wait till big US and European companies start talking about mergers and acquisitions again before things pick up in that department.

Top-dog financiers flying between Europe and North America are going to want the big chairs at the front of the plane, not the cheap seats at the back with the unwashed masses.

So cross your fingers, BA, and pray that the bankers are back in business.