Airlines in new fares war

A new airline price war was signalled today, with fares set to tumble on flights from Heathrow to New York and Sydney.

British Airways will face new competition which is likely to result in far cheaper seats on both long-haul routes from next year.

Hong Kong-based Cathay Pacific was granted much-prized rights to operate on the lucrative transatlantic route between Heathrow and New York, currently dominated by four US and UK carriers.

At the same time, Virgin Atlantic has won the right to take on BA and Qantas on services to Australia, which are predicted to boom after the success of the Rugby World Cup. Though prices have already been falling between Heathrow and New York's JFK, four major carriers dominate services on the route - BA, Virgin, American Airlines and United Airlines.

David Soskin, chief executive of online travel firm cheapflights.com, said: "There is absolutely no question Cathay's entry into the New York market will lead to a fresh price war."

Cathay has won the right to fly out of Heathrow as part of inter-governmental horse-trading which also sees Virgin permitted to start operating services to Australia from London via Hong Kong.

In return for the Hong Kong government giving the go-ahead for Virgin to fly through to Sydney, the British Government had to grant the coveted Heathrow rights to Hong Kong's national airline.

Cathay is understood to be planning a daily London-New York service but its launch may be delayed by the need to get the green light from the European Union. It will also have to acquire takeoff and landing slots at the airport, both expensive and difficult to come by at Heathrow.

A BA spokesman said: "We have seen the competition coming. Competition does not scare British Airways. At Heathrow we already work in the most competitive international airport in the world."

Virgin's Sir Richard Branson was unfazed by the prospect of a new rival on its core New York service. "We have always said competition is a good thing," he said today.