British Midland set to double profits despite low-cost rivals

British Midland yesterday shrugged off the challenge from the new low-cost, no-frills carriers by predicting that profits would more than double to pounds 15m this year. The airline also confirmed it would start flying from Heathrow to Manchester next year in competition with British Airways and Virgin Trains' `indifferent' rail service. The sharp rise in profits this year from pounds 6.1m in 1996 has been achieved despite fierce competition from a number of low-cost airlines on British Midland's domestic and European routes.

Passenger numbers in the first 10 months of the year were up by 7 per cent to 5.1 million and sales were 16 per cent higher at pounds 452m. About pounds 3m of the profits increase was due to the strike over the summer by BA cabin crew.

Sir Michael Bishop, British Midland's chairman, said he had no interest in launching a low-cost airline as BA has done and forecast that half the no-frills airlines now operating could fail.

Referring to Ryanair, EasyJet, Debonair and Virgin Express, he said: "Only one [Ryanair] is truly financially successful and how many more the market can take with BA starting up will be interesting to see. I think it will follow the US pattern. One or two will make it and the rest will find it difficult to make a meaningful return on their investment."

Sir Michael also criticised the rail service on the West Coast Mainline provided by Richard Branson's Virgin Trains, predicting that British Midland would make big in-roads into the London-Manchester market before Virgin had introduced its new fleet of high-speed trains.

British Midland will start flying eight times daily to Manchester from 29 March next year and is promising to undercut BA's business class fare by pounds 20. A three-day business return will cost pounds 178 and economy fares will start at pounds 59.

"We are responding to the strongest possible representations made to us by commerce and industry in the North-west that the present situation of an indifferent rail service and a monopoly air route to London is harming the competitiveness of this important region of the UK," said Sir Michael.

BA flies just under 1 million passengers a year between Heathrow and Manchester but together with other services from Gatwick, Stansted and London City, the airline market is reckoned to be nearer 1.5 million. Including rail passengers, the overall travel market is about 3 million a year. British Midland is aiming to take about 25 per cent of the market in the first year, rising to 35-40 per cent after two years on the route.