LONDON (Bloomberg) – British Airways Plc's cabin-crew union appealed to investors at their annual meeting to press for a compromise in an 18-month dispute over pay and staffing levels. CEO Willie Walsh told the gathering that there'll be "no fudging" in his drive to cut costs.

The Unite union distributed a letter to shareholders entering yesterday's meeting at the Queen Elizabeth II Conference Centre in London seeking "an end to management by conflict", and a banner outside said: "Give peace a chance."

The 12,000 flight attendants at Europe's third-largest airline are in the second week of voting on Walsh's latest contract offer. While Unite says new proposals on pay may prove acceptable, it also wants the CEO to give ground on the withdrawal of travel perks and suspension of striking workers.

"The difficult thing for Unite is that a minority of their members are not going to get their travel concessions fully reinstated, so the union has a difficult job to find a way of placating them," said Geoff van Klaveren, a Deutsche Bank AG analyst in London with a "hold" rating in the carrier.

Strikes by cabin crew have grounded flights at London-based British Airways for 22 days this year at a cost of £154 million ($231 million), Unite estimates. The walkouts have hampered the company's ability to benefit from a rebound in demand for global air travel, though Walsh says all inter-continental services will operate in any fresh stoppage.

"If BA is able to operate almost all their long-haul flights during the dispute, that makes the union's bargaining position weaker than it was a year ago," van Klaveren said.

Unite is staying neutral in the current pay ballot, which ends on July 20, saying it can't back Walsh's offer because he won't negotiate on the perks or disciplinary matters.

Should the CEO's proposals be rejected, the dispute and associated "instability" will continue into the autumn, hurting earnings further, the union said in the letter to investors.

Even if the deal is accepted, an improvement in morale "above all" requires the restoration of travel concessions, which would come at no cost to the company, Unite said, adding that employees will also be angry about the "heavy-handed" use of suspensions and "fearful" for their future at the company.

Walsh told investors that British Airways is in dispute with the BASSA branch of Unite, which represents cabin crew, rather than with the majority of workers, and that he's hopeful the latest proposal will be seen as a way of ending the dispute.

"We are absolutely determined to make what changes are necessary to ensure that British Airways is competitive in the future," he said. "There is no fudging of this issue. Our costs must be brought into line with those of our competitors."

Cabin-crew costs at Dubai-based long-haul carrier Emirates are probably less than half those at British Airways, he said.

Chairman Martin Broughton said Walsh's strategy has his full support and that the company has the backing of its biggest shareholders and clients, with whom it is in "constant touch."

British Airways was trading up 3.5 percent at 211.8 pence as of 2.45 p.m. in London. The carrier's stock has gained 13 percent this year for a market value of £2.44 billion.

Walsh is trying to cut costs after the global recession pushed it to a record £425 million loss in the fiscal year through March. The carrier also faces increasing competition on its long-haul routes from Middle-Eastern carriers such as Emirates and Qatar Airways Ltd.

Walsh cut plane staffing levels in November and estimates that the airline can save £160 millionannually within ten years. Of that total, about £60 million will come from the reduction in crew complements and the rest from establishing a parallel fleet using new attendants on less-generous contracts.

Passenger traffic at British Airways fell 11 percent in May after flights were lost to strike action, just as industry-wide demand jumped almost 12 percent, based on International Air Transport Association figures. Traffic at the company fell a further 11.5 percent in June as the walkouts continued.

Extended stoppages could cost £1.4 billion in lost sales as people switch to discount carriers such as EasyJet Plc, researchers at Manchester Business School estimate.

Broughton yesterday reiterated that British Airways aims to break even at the level of pretax earnings. The company is also targeting a six percent increase in revenue, he said.

While the trading environment is still "harsh", corporate bookings are continuing to pick up, especially on the most lucrative North Atlantic routes, the chairman said.

Regulators in the US and European Union should deliver final rulings on the deepening of the UK carrier's alliance with AMR Corp.'s American Airlines in the near future, with all signs suggesting antitrust immunity will be granted, he said.

British Airways is also confident that a plan to reduce its pension deficit will be approved by Iberia Lineas Aereas de Espana SA in September, paving the way for a merger between the two carriers before the end of this year.

Air France-KLM Group, Europe's biggest airline and one of British Airways' biggest rivals in the long-haul market, said yesterday it has entered a code-sharing agreement with Flybe, the UK's biggest domestic carrier.

According to the deal, Air France will be able to sell its own tickets on 45 new services between Britain and France via Flybe flights, as well as 17 new routes within the UK. Flybe will gain access to five additional services to France, seven new domestic French routes and 11 international destinations.