The bmi group, formerly British Midland Airlines, announced a pre-tax loss of £19.6m last year, compared with a pre-tax profit of £12.4m in 2001.
Chairman Sir Michael Bishop warned 2003 promised "to be another tough year for the airline industry".
The group, which includes budget airline bmibaby, did enjoy some successes last year, carrying a record 7.5m passengers - an 11.9 per cent increase on the 2001 total.
Sir Michael said: "2002 was an exceptionally tough trading environment for most of the airline industry.
"The tragic events of September 11 impacted on our performance, especially in the first half of the year, and the highly competitive UK business travel sector eroded yields.
"Despite these difficulties, the growth in passengers carried has now returned to pre-September 11 levels."
He added: "2003 promises to be another tough year for the airline industry.
"However, the very recent signs of a slight upturn in confidence and bookings following the latest developments in Iraq may provide the prospect of a return to a more stable operating environment in the second half of the year."
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