Gatwick Airport is set to become a battleground as airlines compete in the fast-growing market for budget flights.

Low-cost carrier easyJet, which began operating a single route to Geneva three years ago from Gatwick, will be operating 20 flights a day later this month.

The airline's success story contrasts sharply with the troubles suffered by British Airways, (BA) which has just announced pre-tax losses of £160 million for the three months to December 31, compared with a profit of £65 million for the same period the year before.

BA is finalising a strategy to radically change the way it operates, which it will reveal later this month.

It is expected to slash 1,600 jobs in the next five years, in addition to 5,200 announced after the September 11 terrorist attacks.

But, as it shrinks its operations, it is also looking at plans to expand into a market which it tried before but abandoned.

BA is believed to be preparing for a no-frills war at Gatwick, competing with easyJet and Ryanair and with budget carriers at other airports in the South.

This would come less than a year after it sold Go, the budget carrier it launched in 1997.

To compete, it would have to copy the budget airlines' policy of stripping out non-essential services such as free meals and drinks. Fares would have to be under £100 and tickets sold over the telephone or internet.

Its main potential competitor in this area, easyJet, has said BA would be "insane" to try it.

The head of corporate affairs at easyJet, Toby Nicol, said it would be very difficult to turn part of an established airline into a low-cost carrier.

He said: "You don't get low cost by taking food off the aircraft. Setting it up is incredibly complex."

He said he did not see how BA could become a major player in the low-budget business unless it formed a separate company again.

Budget airlines saved money by using only one type of aircraft. This meant pilots and technicians only needed to train for that aircraft, which cut time and money spent on simulators. Also, fewer spare parts were needed.

Another way they reduced costs was by cutting out travel agents, their commissions and the need to offer hospitality to the agents.

Mr Nicol said they saved by not issuing tickets. Passengers book by telephone or on the internet and are given a number. They give this number when they check in and their details come up on a computer.

Mr Nicol said: "It saves on staff sending out tickets and managing the booking system."

The no-frills flights do not offer food, which leads to less mess in the cabins and reduces time needed for cleaning.

Because there is no food, easyJet, which uses Boeing 737s, has removed one of the three toilets on each of its aircraft and replaced it with seats.

Mr Nicol said the main requirement of a budget airline was to keep aircraft in the air as much as possible. Most planes fly eight hours a day but easyJet flies for 12 hours a day.

He said: "We only fly from efficient airports. Speed of turnaround is very important because it means we can make more flights."

Their quickest airport is Luton, where they are on the ground for only 20 minutes. It takes 35 to 40 minutes at Gatwick because it is a bigger airport.

Another saver for the budget airline is not having to worry about connecting to other flights. If passengers want to continue their journey, they have to collect their baggage and check in again.

Pricing for seats is also very different from other airlines. Seats are sold in blocks and are cheaper the earlier they are booked. They get more expensive nearer departure time because the budget airlines say that is when the demand becomes stronger.

The boom in low-cost airlines is reversing the present downward trend but also adding to it by eating into passenger numbers on short-haul flights.

Major airlines are struggling to survive in the aftermath of September 11.

"The harrowing pictures of two airlines exploding into the World Trade Centre in New York could not have come at a worse time for an industry which was beginning to wobble as the global economy began a general downturn.

The outrage caused another unwanted dimension to the crisis in the aviation industry - a fear of flying.

Most passengers feel anxiety on taking off and landing but the hijacking of the four passenger jets added to this fear by proving how vulnerable an aircraft can be. Transatlantic flights have been particularly badly hit.

BA was already experiencing difficulties and was starting to shed its workforce before last year's atrocities.

The airline has to find a new way forward in order to survive.

It grew its way out of the last recession, sparked by the Gulf War in 1991, by attracting business passengers prepared to pay higher prices for quality services and more routes.

But this strategy will not work this time because of the slump in transatlantic trade.