By Pete Harrison

LONDON (Reuters) - British Airways Plc (BAY.L: Quote, Profile, Research) warned on Thursday that airlines were entering a downward cycle due to global economic weakness, with high fuel costs piling on further pressure.

The airline said it would fall short of its long-held target of 10 percent margins next year, but Chief Executive Willie Walsh said any downturn would also bring opportunities and that BA was still circling rival bmi.

"We'll need to be ready to seize those opportunities ... to move into the gaps created by the failure of our competitors," he told the airline's annual investor day.

"We're very interested in the future of bmi. Anything that gives us the option to pursue further growth at Heathrow is interesting."

Europe's third-largest airline said revenue was expected to rise by 4 to 4.5 percent to more than 9.1 billion pounds ($18.1 billion) in the year to March 2009, but that operating margin would fall to around 7 percent.

"Importantly this is in line with -- if not slightly higher than -- consensus, and above our forecast for 6.3 percent margins," said analyst Tim Marshall at UBS.

Other analysts also said the drop in margins was expected, but BA shares fell 4.3 percent to 253 pence by 0835 GMT, continuing a five-week downward streak.

"To some degree, we've started the down-cycle, particularly in the U.S.," Finance Director Keith Williams told reporters. "We're well placed to deal with a down-cycle. We're going into the downturn from a position of real financial strength."