BA takes on budget rivals

After posting its worst loss since privatisation, BA takes on budget airlines

LONDON, June 18 -- British Airways plans to slash fares on a third of its European routes as it takes on its "no-frill" rivals.

Europe's biggest airline, which has been losing passengers to easyJet (EZJ)and Ryanair, said on Tuesday it would cut some ticket prices by as much as 80 percent on routes mostly to France and Italy from Thursday.

BA (BAY) has already announced plans to cut 13,500 jobs to save £650 million ($960 million) as it continues to lose passengers on its transatlantic routes following September's terror attacks.

Last month, the airline reported its worst full-year loss since it was privatised 15 years ago.

"It's a further step in the right direction,'' Amanda Forsyth, a fund manager at Standard Life Investments which owns just over two percent of Britain's flag carrier, told Reuters. "There will obviously be an impact on revenue per passenger, but I think that's largely built into market expectations.''

BA's stock, which has fallen more then 40 percent over the past 12 months, rose 1.9 percent to 200.1 pence in mid-afternoon trading on Tuesday.

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London-based BA is not alone in feeling the pinch from low-cost operators. Britain's No.2 airline BMI British Midland, Deutsche Lufthansa (FLHA)and Scandinavian Airlines System have all moved to reduce fares.

Ryanair (RYA), Europe's biggest budget airline, said earlier this month net income rose 44 percent to 150.4 million euros ($142.3 million) in the year ending March 31.

Ryanair, which has ordered 150 737-800 aircraft from Boeing valued at about $9.7 billion to meet demand, has been winning over passengers with offers to fly some routes for as little as 9.99 euros.

Ryanair Chief Executive Michael O'Leary expects traffic to grow 30 to 35 percent per year over the next two years, exceeding the company's owns estimates, before "steadying back" to 25 percent per year.

Unlike its low-cost rivals, BA said it would continue to serve free food, offer bar services and seat choice to passengers. Low-cost airlines have been able to cut costs by not offering such services.

BA said a mid-week return flight to Paris would now cost £69, instead of £298. In addition, business class customers can now combine peak and off-peak fares -- enabling them, for example, to fly one way during peak time and another during off-peak time.