Bmibaby destinations

Alicante Barcelona Faro Malaga Nice Palma

The carrier's scheduled start date of 23 March is designed to catch the Easter holiday market.

Thursday's launch comes two weeks after Easyjet told BBC News Online that the low cost carrier was poised to overtake BMI British Midland to become the UK's second largest scheduled airline.

Divided fortunes

Traditional, full-price carriers have suffered a sharp drop in passenger numbers since the 11 September attacks.

BMI is launching this new airline in response to a clear market opportunity and consumer demand

Nigel Turner BMI finance director

Flag carrier British Airways recently said it would slash shorthaul routes and attempt to refocus on transatlantic business customers.

But discount airlines are riding out the downturn by stimulating volume on certain routes with cut-down prices.

Both Easyjet and Ryanair have seen passenger numbers increase in recent months.

Bmibaby tickets would be priced competitively with other discount airlines and could start at �25 each way, with discounts offered for booking over the internet, a spokesman said.

'Market opportunity'

The new airline is being set up as a subsidiary of BMI, which will continue to operate its traditional scheduled service.

The discount carrier, whose livery is expected to be unveiled next week, is a separate venture, but will be supported by existing BMI resources and staff.

"BMI is launching this new airline in response to a clear market opportunity and consumer demand," said Nigel Turner, who will take responsibility for the budget airline at board level.

BMI said it was also determined not to "make the same mistakes that British Airways made".

BA set up the low-cost airline, Go, but then admitted its strategy to compete in both the full-service and no-frills markets was not working.

It sold Go for a profit last year.

Go challenge

BMI British Midland is currently challenging Go, which recently announced plans to operate flights from East Midlands Airport, BMI's home base.

BMI is questioning Go's application to fly from the East Midlands to Prague by seeking clarification on a bilateral capacity agreement between the Czech Republic and the UK.

The company is also looking for clarification on other agreements between the UK and European countries outside the EU.