Part of the success of the no-frills airlines EasyJet and Ryanair has been in poaching passengers from British Airways. Now, reports Simon Calder, BA is fighting back.
Two years ago EasyJet launched cheap flights linking Edinburgh and Glasgow with Luton, using borrowed Boeing 737s. Its fares, starting at pounds 29 one- way plus tax, proved so successful that EasyJet now has seven aircraft of its own, with 12 more planes on order at a cost of pounds 300m.

In contrast, Ryanair is the grandfather of low-cost airlines. It began life by mimicking Aer Lingus, offering similar fares and services on routes between Ireland and the UK. Only when it was relaunched - as an aggressively cut-price airline offering fares to and from Dublin to meet or beat the ferries - did Ryanair begin to grow into a company with a pounds 200m turnover. Some people travel only because fares are so low; others have moved from surface routes and more expensive carriers.

British Airways bailed out of its Irish routes five years ago when the yields fell too low. Now, BA is concerned about the customers it has lost to EasyJet - which has taken one in 10 of passengers on its London-Scotland services. So BA executives are studying the viability of launching a low- cost airline of its own.

Dan Brewin, one of the airline's most senior figures, says a decision will be made by the end of this year. In a debate with Ryanair and EasyJet at the Association of British Travel Agents' convention earlier this month, Mr Brewin warned that there may not be room for three no-frills airlines in the UK.

EasyJet says it is "extremely concerned" at the prospect of a BA low- cost subsidiary. Tony Anderson, its sales and marketing director, told The Independent that his airline could be hit at a crucial stage in its development: "EasyJet has never feared fair competition, but the very notion of one of the world's largest and most profitable airlines entering into a segment it's always sneered at gives us great cause for concern." But Ryanair believes the chief victim of such a move would be BA itself. Caroline Green of Ryanair Direct says: "British Airways will only be detracting from their own sales. They'll be moving economy passengers from Heathrow and Gatwick to another airport [Stansted] around the M25."

This effect is, no doubt, part of BA's calculations. Shifting some routes to Stansted - the London airport with the greatest spare capacity - could free up slots at Heathrow and Gatwick for much more profitable long-haul flights. Pressure on gates at Heathrow is so intense that BA has moved some flights from Terminal 4 back to Terminal 3, which it abandoned in 1985.

The deeper you look, the more compelling is the logic of BA moving into the fast-growing low fares sector. Britain's biggest airline owns more than 30 Boeing 737-200s; this relatively elderly derivative of the world's most popular aircraft has traditionally been the backbone of no-frills airlines. In the past year BA has gained experience of ticketless travel, a technique at the root of cut-price air travel.

A "new" airline, perhaps called Europa BA or BA Direct, could offer fares at similar levels to EasyJet, starting at pounds 35 plus tax to Amsterdam. But EasyJet's Tony Anderson said his airline would seek legal redress if BA went ahead with its plan for a cheap and cheerful offshoot: "BA is a dominant player in the UK travel industry, and as such it has a special responsibility not to take action that is aimed specifically at forcing low-cost competitors out of the market."

The two airlines have also clashed on the issue of Air Passenger Duty, which this month doubled to pounds 10 for flights within the EU. This week, the Advertising Standards Authority ruled that airlines should include taxes in advertised fares. EasyJet has taken out full-page press advertisements saying "Airport tax should be a percentage of the fare", rather than a flat rate.

In a jibe at the former chancellor, Kenneth Clarke, who introduced and then doubled the tax, EasyJet says: "Most Tory politicians rarely travel anything else other than BA Club class, and they have apparently missed the biggest revolution in air travel since the introduction of jet aircraft."