Competition among budget airlines flying out of Belgium is now so cut-throat that ticket prices often fail to cover costs, a senior airline boss warned today.
Mr David Hoare, chairman of Sir Richard Branson's Virgin Express airline, said the industry was in an unsustainable position due to the price war's impact on profits.
No-frills airlines in Belgium launched a series of aggressive price cuts after the Iraq war and the SARS health crisis in Asia prompted a decline in overseas travel.
Mr Hoare predicted rival carriers would report rising revenues but they were frequently pricing "well below" their full cost.
"Indeed, on a number of routes out of Brussels, initially to Spain and now to Italy, prices have fallen even below Virgin Express's very low costs," he said.
Virgin Express posted pre-tax profits today of 1.7 million euros (£1.2 million) for the three months to September 30, down from 4.6 million euros for the same period last year.
Subsidies which rival budget airlines receive from the state had also created a fundamental problem in the Belgian market, Mr Hoare said. He welcomed a draft EU ruling on the legality of a local government subsidy given to rival budget airline Ryanair to use publicly owned Charleroi airport.
Mr Hoare said: "Over the past two years we have been concerned by the rapid growth of Ryanair out of their Charleroi base. "Ticket prices started low as expected, but over the past six months appear to have dropped even lower, and now payments are offered to customers, contributing to their airport taxes. This does not look normal or right."
Ryanair has already vowed to appeal against the ruling if it is confirmed by the European Commission and has threatened to pull out of Belgium. The Irish company says the subsidies are crucial to its low cost business model. Virgin Express serves 16 major destinations in Europe from Brussels and operates flights from Amsterdam to Rome and Milan.