The owner of British Airways is considering setting up a low-cost short-haul operation that would go into direct competition with Ryanair (RYA) and EasyJet (EZJ) and could trigger a ticket price war.

Airline conglomerate International Consolidated Airlines (IAG), which owns British Airways, is investigating plans that would shift its current short-haul flights into a new low-cost subsidiary based at Gatwick Airport as it continues to look for ways to offset pandemic-induced declines in long-haul traffic.

This would allow British Airways to take on dominant European discount carriers, such as Ryanair, EasyJet and Wizz Air (WIZZ), from a level playing field.

A British Airways spokesman has said the airline is currently in talks with unions over the possibility of a new subsidiary but has given no further detail.

‘The subsidiary is intended to have a lower cost base enabling British Airways to compete more effectively in the short-haul market, which is recovering more quickly than long-haul,’ said analysts at investment bank Berenberg.

Ryanair nudged up its passenger target for the autumn amid signs of a ‘very strong recovery’ in European short-haul flights, chief executive Michael O’Leary told Reuters on 31 August.

British Airways has traditionally earned much of its revenue from long-haul flights, especially its key US to UK routes, and has been hit hard by Covid as these flights have been severely disrupted by the pandemic.

The airline suspended flights from Gatwick at the start of the health crisis to use vacant slots at Heathrow but with flight demand starting to claw its way back to pre-pandemic levels as travel restrictions are gradually reduced, the airline is said to be keen to re-establish its presence in the short-haul end of the market.

‘The airline had pivoted its reduced capacity more towards Heathrow since the start of the pandemic, with short-haul generally used to feed traffic into its more profitable long-haul business,’ said Berenberg’s analysts.

British Airways would hope to have the low-cost operation up and running in time for next summer, according to reports, and will operate under the same British Airways brand. The airline already owns low-cost, short-haul operators Vueling and Level, which operate out of bases across southern and central Europe.

Plans for the low-cost expansion come at a time when question marks remain over the level of business travel post-pandemic. More companies have realised that meetings can be efficiently held via web-based conference platforms such as Zoom and Teams, and so money can be saved by travelling less, which would also benefit environmental goals.

According to The Times, sweets and pet food giant Mars is planning to cut corporate travel by half and book 145,000 fewer flights a year. In April, Bloomberg reported that banking group HSBC (HSBA) was budgeting for half its pre-pandemic business travel costs.

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