Low-cost rivalry takes off as bmibaby arrives at Gatwick

The youngest of Britain's budget airlines, bmibaby, is to launch services from Gatwick airport tomorrow in a move that will increase competition within the low-cost sector of the market.

Until now, rival low-cost carriers such as easyJet and Ryanair have avoided competing with one another where possible in favour of attacking the soft underbelly of the high-cost, full service airlines such as British Airways, Lufthansa and Air France.

However, when the summer flight schedule begins on Friday, bmibaby will find itself in competition with rival low-cost carriers on no fewer than 43 of its 52 routes. The airline will compete directly (ie airport to airport) with Ryanair or easyJet on 10 routes and indirectly (i.e city to city) and a further 33 routes.

Of the two routes bmibaby is launching from Gatwick tomorrow, easyJet already operates flights to one of them - Prague. At Nottingham East Midlands airport, bmibaby competes directly with easyJet on seven routes including Malaga, Prague, Edinburgh and Glasgow and with Ryanair on services to Dublin and Murcia in Spain, which also serves Barcelona.

Tony Davis, the managing director of bmibaby, said: "The original business model of the low-cost carriers in Europe was to take on the flag-carriers because it offered easy pickings. The fare differentials were dramatic and it enabled the budget operators to gain a foothold very quickly. But as the market becomes more congested the opportunities to compete against just one incumbent high-cost carrier are becoming more and more scarce. The nature of the market is changing and... there is now much more competition between low cost airlines."

This, he said, has helped drive prices down even further. For instance, bmibaby's one-way fares from Gatwick to Prague start at £19.99.

EasyJet and Ryanair still do not compete directly on virtually any routes, despite the vitriolic marketing war the two airlines have fought out over the past 12 months. There is some evidence that easyJet is going out of its way to avoid competition. It is, for instance, ending services from East Midlands to Glasgow and Barcelona where it faces competition from Ryanair and bmibaby. Mr Davis says, however: "As the marketplace becomes more crowded and low cost airlines bring in more aircraft, the question is how long such a strategy is sustainable."

Michael O'Leary, the chief executive of Ryanair, forecast a week ago that at least one budget airline would go under this winter, predicting it would be an "awful" time for the industry.

Mr Davis agreed. He said: "I think we will see consolidation in the sector if history is any guide. We have always said there is only room for three low-cost airlines in Europe and we are confident we will be one of them."

Mr Davis said bmibaby was on course to break into profits this time next year.