British Airways is to fight back from big losses announced today with plans for a no-frills price war at Gatwick.

It is also expected to announce later this month that almost 7,000 jobs will be slashed from its payroll in the next five years.

The airline lost £160 million before tax in the three months up to December 31. In the same period the year before it made £65 million profit.

The figures were better than those predicted by City experts.

Chief Executive Rod Eddington said the results reflected the impact of the September 11 terrorist attacks on the aviation industry.

As part of its recovery plan, the beleaguered carrier is considering launching a fierce counter-attack against low-cost airlines which are creeping into Gatwick.

BA is thought to be planning a series of short-haul services from Gatwick to compete with Ryanair, easyJet and Go.

The new services would copy the no-frills airlines by stripping out non-essential services such as free meals and drinks in order to slash prices, But its main competitor easyJet, which is expanding at Gatwick, dismissed the idea as "insane".

EasyJet head of corporate affairs Toby Nicol said: "It is very difficult to turn part of an established airline into a low-cost airline.

"You don't get low-cost simply by taking food away. It is incredibly complex. You have to set up from scratch."

If BA decides to take on the budget airlines it would make Gatwick its regional base for low-fare flights.

A BA spokeswoman declined to comment on future job losses or plans for Gatwick.

There has been speculation that 1,600 jobs will go over the next five years on top of the 5,200 job losses already announced after the terrorist attacks.

One option being considered in a review of BA's future direction, to be published later this month, was to pull out of Gatwick altogether. It is thought this idea has been rejected.

Instead Gatwick could once again become a "bucket and spade" airport, with BA and low-cost carriers concentrating on budget trips to the Continent.

Asked whether BA would be slimmed down in the future, Mr Eddington said: "Yes - we've got to take costs out of our business."

Mr Eddington declined to talk about whether that would mean job cuts. Some reports claimed there could be up to 10,000.