BA's expected £200m loss forces it to compete with no-frills airlines

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British Airways is expected to outline plans today to compete aggressively against the so-called low cost, 'no frills' carriers at Gatwick airport as it reports quarterly losses of about £200m.

The airline is thought to be planning to compete head to head with the likes of Ryanair, easyJet and Go, BA's former subsidiary, by mimicking their highly successful format of offering cheap flights without services such as in-flight meals and drinks.

The move is part of a wider restructuring at BA, codenamed "future size and shape", which has been examining ways of cutting costs across the business.

BA's short-haul operation, under extreme pressure from the low-cost carriers, has been a key area of scrutiny under the review. At one stage, the company is thought to have considered pulling out of Gatwick and short-haul flights altogether.

"What they're looking to address is what they can do in terms of the cost base, particularly at Gatwick. They have to find a way in which they can co-exist alongside low-cost carriers. Not only are they [the low-cost carriers] here to stay, they're growing," one source said.

The move also comes eight and a half months after BA sold Go, the low-cost airline it set up in 1997, for £110m to a management buyout team backed by venture capital firm 3i.

The plan to compete with the no-frills airlines at Gatwick is expected to be unveiled today alongside the company's figures for the third quarter ending in December. Analysts predict BA could post an operating loss of anywhere between £168m to £275m compared with an £80m profit a year earlier.

The expected dramatic plunge into the red reflects a slump in the company's passenger traffic, particularly on transatlantic routes, following the terrorist attacks in the US on 11 September last year.

British Airways is unlikely to detail other restructuring plans today, which are widely expected to result in thousands more job losses. Speculation has mounted that the airline could axe between 4,000 and 20,000 jobs.

The expected cuts would come on top of the 7,200 job losses BA announced last Autumn, which reduced the size of its workforce to about50,000.

The final outcome of the airline's strategic review, begun last September, is not expected to be published until the middle of this month at the earliest. It could coincide with BA's investor day scheduled for 13 February.

The five members of the company's "future size and shape" taskforce have been taking a radical look at all aspects of the business to cut costs.

Its promotional marketing division, Air Miles, is expected to remain under BA ownership, despite speculation it was up for sale for about £200m.

Last month BA suffered another setback when its plan to form a transatlantic alliance with the US carrier American Airlines was scuppered by the US Department of Transportation.

Earlier this month, BA gave the airline industry a boost as its December traffic figures suggested passenger numbers were recovering more quickly than expected after the terrorist attacks. Traffic levels on BA were down by 10.4 per cent in December compared with a fall of almost 18 per cent in November. The figures showed the recovery in traffic levels was much more pronounced among economy passengers than first and business-class passengers.