BMI British Midland to launch no-frills, low-cost carrier after strategic U-turn

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BMI British Midland, the country's second-biggest scheduled airline, yesterday unveiled plans to launch a new no-frills, low-cost carrier in what amounts to a complete U-turn in strategy.

The new airline, which will be named next week, will be based at East Midlands airport near Derby and will begin services to six Mediterranean destinations from March with one-way fares starting from as little as £25 including airport taxes. Passengers will only be able to book flights by telephone or on the internet. BMI is aiming for 500,000 passengers in its first year.

The move comes just two months after BMI's chief executive, Austin Reid, denied that it had any plans to turn itself into a low-cost operation. The new airline will be staffed by existing BMI employees and will operate daily services to leisure destinations including Nice, Palma, Malaga and Alicante using two Boeing 737 aircraft which BMI had been due to hand back.

Nigel Turner, BMI's finance director, denied the launch of the new lost-cost airline was a "spoiler", designed to upstage plans by the rival operator Go to begin services from East Midlands in May.

He claimed that BMI had been working on preparations for the new carrier since last spring, adding that its research showed there was huge demand for low-cost air travel in the East Midlands region with 8 million people living within an hour of the airport.

"The area around East Midlands airport has been screaming out for a low-cost airline and you cannot fly in the face of the fact that they are popular," Mr Turner said. "We wanted one in our stable."

But Barbara Cassani, the chief executive of Go, said BMI's announcement smacked of panic and showed that the airline was in disarray. "It can't decide whether to be full-service or no-frills, which is a recipe for commercial disaster," she said.

Mr Turner said that the new low-cost carrier would compete with the parent airline on some routes such as Nice and Palma and BMI admitted that further route development might take place from its existing portfolio of services.

But Mr Turner rejected suggestions that BMI itself would slowly migrate into a low-cost carrier, insisting that it would continue to operate as a full-service, two-class airline from Heathrow and East Midlands. He also denied that the new airline would cannibalise customers from the full-service airline.

"They are two entirely different concepts. Our mainline scheduled services to Paris, Edinburgh, Belfast and Glasgow will not be affected at all by the fact that we will also have a low-cost carrier flying to the Mediterranean," he said. The arrival of the new BMI operation will bring the number of low-cost airlines in the UK to five. Of the other four, Go, Ryanair and the KLM subsidiary Buzz all operate principally out of Stansted while easyJet's main airport is Luton.

Mr Turner suggested that far from wanting to upstage Go, Ms Cassani may have announced plans to launch services from East Midlands because she had got wind of BMI's plans.

Go is also aiming to attract half a million passengers at East Midlands in its first year of operations but it has yet to announce which destinations it will serve or what the frequencies will be. Mr Turner refused to say whether the new low-cost airline would incorporate the initials BMI or the words British Midland. But he did say it would have a distinct identity and logo.

Services will start on 23 March ­ a week before the Easter bank holiday weekend.