BA joins holiday fares dogfight

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British Airways signalled the start of a dogfight for the wallets of the Europe's holidaymakers with the announcement that it was to examine the possibility of starting a low-cost, no-frills airline.

The nation's flag-carrier has been hit by a flock of low-cost airlines which have established themselves beside the traditional operators. BA has appointed a consultancy - Howell Henry Caldecott and Lewry - to investigate the challenge posed by carriers such as Ryanair, and Richard Branson's Virgin Express.

Bob Ayling, BA's chief executive, has made it clear he views the newly deregulated skies over the Continent as a threat to BA's profits. It has been so rattled by its brasher, smaller rivals that it considered buying one of the most successful low-cost carriers, Luton-based EasyJet.

Stelios Haji-Ioannou, EasyJet's founder, refused to comment on a possible deal with BA but said: "They say imitation is the sincerest form of flattery. The problem for BA is that it might cheapen the brand. After all management spent pounds 60m on a fancy re-design to convince the world it is a global, quality airline."

The reason for the success of the new entrants is not difficult to divine. EasyJet's Luton-to-Scotland single costs pounds 29; BA will offer travellers an economy fare for up to four times that. No-frill operators can offer cheap seats as all tend to sell tickets directly to travellers, avoiding the commission usually paid to agents. They also cut costs by not offering food and flying only to smaller, uncongested airports, where planes do not have to queue to land and office rent is cheap.

EasyJet has grown so quickly it is planning to "buy" Luton airport. Ryanair'sflights between Dublin and Stansted, near London, airport have raised the number of passengers flying between the two capitals from 994,000 in 1985 to 3.4 million last year. Virgin Express, which was launched last year and operates out of Brussels, increased passenger numbers by 35 per cent to 1.8 million in 1996.

Experts said BA's move was logical move. "A number of larger carriers, for example Lufthansa ... have started their own low-cost carriers. BA have just responded to the demand for cheap flights," said Jacqueline Gallacher, deputy editor of Airline Business magazine.

In the past, the world's favourite airline gave upstarts no quarter. Sir Freddie Laker, the low-fare pioneer, started his Skytrain services to the US in the 1970s but it collapsed after cut-throat competition from the big carriers. Years later he won a pounds 6m settlement from BA and other airlines after his claims that big carriers caused the failure of his service in 1982.

When Mr Branson started Virgin Atlantic, it was targeted in a "dirty- tricks" campaign by BA. The affair ended with it paying Mr Branson libel damages in an out-of-court settlement. The new services have been made possible by the European Commission's 10-year crusade to liberalise the skies over the Continent. The Commission took its cue from the US, which began deregulating its market in 1978 and resulted in lower fares as well as an explosion in air travel.

Until April this year, when the final act came into force, no EU airline could even start domestic services in another member-country. The older, established state carriers have been slow to change. The reason lay in the cosy club operated by the mainly state-funded airlines.

As Clifford Paice, head of regulation at the Civil Aviation Authority, said last year: "What we had was a wide-ranging cartel of airlines - a cartel which was not simply encouraged by governments but actually enforced by them ... it ought to be said that few airlines were complaining."