Bmibaby - a division of British Midland - will offer cheap, no-frills scheduled services.

The airport is well placed to cope with the rapid growth in passengers we intend to bring to the airport

Tony Davis, bmibaby

The news is a major boost for the airport and will bring an estimated million extra passengers to the terminal every year.

This will be the first low cost airline base in Wales and will create an additional 100 airline jobs at the airport.

Bmibaby launched its services in March 2002 from East Midlands Airport, and currently runs routes to nine international destinations including Barcelona, Dublin, Nice, Ibiza and Prague.

The airline is planning to base two Boeing 737s at Cardiff Airport this winter as part of this deal - details of the destinations to be served will be released later this year.

Seats will go on sale from Cardiff and the airline hopes to become the airport's biggest customer.

"We are determined to provide travellers from Cardiff with all of the advantages of low cost travel to an exciting range of destinations," said Tony Davis, bmibaby managing director.

Bmibaby currently operates from East Midlands Airport

"Cardiff International has a large potential catchment area in both Wales and England, and I am convinced that they will give bmibaby the same resounding thumbs up that we have seen at our East Midlands base.

"The airport is well placed to cope with the rapid growth in passengers we intend to bring to the airport."

Bmibaby is the fastest-growing no-frills airline, challenging carriers such as Easyjet, Ryanair and Go in the booming low-cost market, which has been making profits when the established airlines such as British Airways were losing money.

The sector has also survived the shake-up of the airline industry in the wake of the 11 September terrorist attacks.

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Welsh Secretary Paul Murphy, speaking from the European Parliament in Strasbourg, said: "This gives Welsh air passengers the opportunity to travel to major European destinations at low cost from their own airport.

"It is a tribute to Cardiff International Airport - to its management, staff and to the facilities it has to offer - that it was only selected after an intense review covering a wide range of other options."

Last month, TBI, the group that operates Cardiff International Airport, as well as airports at Luton and Belfast, reported a 26% rise in profits.

The increased earnings were attributed to the boost given to business by cheap flights.

But scheduled services from Cardiff have been relatively few and expensive.

Cardiff airport currently handles 1.5m passengers a year

British Airways recently cut its routes out of the airport, with the loss of over 40 posts.

Jon Horne, managing director of Cardiff International Airport, described the move as a "significant step forwards" for the airport, for TBI and for the area.

And the bmibaby announcement has been welcomed by Welsh Assembly Economic Development Minister Andrew Davies.

"This is a coup for Cardiff International Airport," said Mr Davies.

"The new service demonstrates how Wales can compete successfully in a highly competitive and growing market," he added.

"Securing a new low cost carrier of this high repute will offer air passengers within the wide catchment area a far better choice of short haul flights to attractive European destinations."