Ryanair has vowed to undercut British Airways' fares on all routes it competes on, when BA launches its own low-cost airline early next year. The Irish airline also warned that it would be monitoring BA's operations closely to ensure it meets competition criteria.
BA announced yesterday that it would launch a new, completely separate airline, aimed at capturing the growing number of low-fares travellers. The airline will be called "Blue Sky" and will base its services mainly from Stansted, a major airport for Ryanair in flights from Dublin and its main base for routes between the UK and other destinations.
BA will also be targeting European destinations such as Germany, Spain, Italy, France and Scandanavia. This year Ryanair began flying from Dublin to Brussels and Paris, and from London to Oslo and Stockholm.
The new BA airline's chief executive is Ms Barbara Cassani, who has held senior management posts with BA in the US and the UK. In a statement she said her new airline will fly to the best cities in Europe, at the best prices and will offer "the best no frills" service. She said this was her "pledge" to the customer.
"The low-cost airline market is one of the toughest in the world and my brief for Blue Sky is simple: make it popular and make it profitable," she said.
Mr Tim Jeans, Ryanair commercial director, said BA's move was not surprising. "It was bound to come - the low fares sector was getting far too big to ignore," he said. "It's an endorsement of Ryanair's policy - if you can't beat them, join them," he added.
Mr Jeans said BA's move means that Ryanair will have to redouble its efforts to stay ahead of the pack. "We will stick to what we know and we won't be beaten on price."
He said he felt that BA would not compete on the Dublin-London route as the company would see it as a pretty crowded market already and Ryanair had built up some strength in it. BA said yesterday that it would not be launching the low-cost operation on the Dublin-London route, where it already operates dozens of flights each week through the Cityflier franchise.
Mr Jeans said it is likely that BA will compete with Ryanair on its European routes out of London, such as Oslo and Stockholm. He said Ryanair had no problem with competition, but it would be watching closely to see that BA competed fairly.
He said it would be necessary to ensure that BA did not cross-subsidise its fares on the Blue Sky's operation. "It is important that BA is as good as its word and runs the operation at arms' length from its core operations," he said.
He said BA was already dominant in Heathrow and Gatwick and it was vital to ensure that the airline did not dominate Stansted.
Asked whether Blue Sky would hit Ryanair's profits, Mr Jeans said this was unlikely as the company had diversified its business very well.
Last night, analysts Dolmen Securities, in a research note on Ryanair, referred to BA's intention to establish a low-cost airline. It said analysts fear that if British Airways were to enter the market it would seriously affect Ryanair's revenue.
"However, the history of large scheduled airlines establishing low-cost, no-frills operations has been a fraught one, particularly as they have often found it difficult to achieve the same cost base.
"Furthermore, the EU Commission would be very conscious of the potential for cross-subsidisation in such an operation and would very quickly move to curtail it," the paper states.
Dolmen recommends that investors hold their Ryanair shares and advise waiting for the next quarter, which will then give a better picture to the underlying strength of the revenue and passenger growth. Ryanair published figures last week which showed a sharp rise in turnover to £96.9 million for the six months to the end of September.
Ryanair's shares were unaffected by BA's announcement yesterday. They closed at 320p, having opened at 314p, up 6p on the day.
Meanwhile, it emerged last night that BA is to cut its commission to travel agents on tickets sold from 9 per cent to 7 per cent from next January. It follows similar moves by Ryanair. The move provoked a storm of protest from agents when Ryanair reduced commissions earlier this year.
