The sweeping away of restrictive rules that govern transatlantic air travel could cost British Airways £250 million a year in lost profits.

From tomorrow, BA, which is reeling under a torrent of criticism for the chaos that has surrounded the opening of Terminal 5, its new base at Heathrow, will face increased competition on its most lucrative routes as the “open skies” era begins.

The agreement allows any European carrier to fly to any American city, effectively smashing the Heathrow cartel. To this end, on Sunday Continental, Delta US Airways and even Air France will muscle in on transatlantic services from Britain's largest airport. This is expected to drive down air fares, particularly in business class.

The arrival of new carriers at Heathrow is a particular threat to BA, which controls 40 per cent of the airport's slots and is the largest transatlantic carrier.

Airlines make almost no money on transatlantic economy fares but reap large profits from business and first-class passengers. BA is thought to make as much as 60 per cent of its profits from its Heathrow-to-New York operations alone.

BNP Paribas, the investment bank, has estimated that open skies could cut BA's profit margin to 4 per cent, against the airline's estimate of 7 per cent for next year. The BNP forecast represents a £273 million reduction in profits based on BA's prediction of revenues of £9.1 billion in 2008-09.

Geoff van Klaveren, a BNP analyst, said: “BA has had a protected position at Heathrow and that will be impacted by open skies. Business-class capacity will increase across the Atlantic and that will reduce BA's margins.”

BNP estimates that the addition of new carriers will increase the number of business-class seats by 14 per cent.

BA insists that open skies is not a threat to its business and hopes to take advantage of the rule change to start a new airline, itself called Open Skies.The new carrier will offer flights to New York from European cities such as Brussels and Paris. BA pilots have threatened to go on strike if the airline goes ahead with this plan, which the pilots say is a backdoor attempt tocut pay.

However, the open skies agreement is under threat from American politicians, who want to protect US carriers from takeover. The next phase of open skies calls for liberalisation of ownership rules from 2010, but Congress has said that it will continue to block European airlines buying a controlling stake in American carriers.

EU transport officials said yesterday that the next round of talks on open skies would begin on May 15. If there is no consensus, the whole open skies agreement could collapse, leading to a return to the old arrangements.

This could be an expensive failure for carriers such as Continental, which has paid $200 million for access to Heathrow by buying landing slots.

Virgin Atlantic has postponed plans to launch flights from other European cities until it has become clear whether open skies will last.

Another contentious issue is the introduction of a carbon-trading scheme for airlines. American carriers entering European air space will be forced to pay for their carbon emissions from 2012. Politicians in the United States are unhappy because America's carriers use older and less fuel-efficient aircraft.

New Heathrow routes

Air France: Los Angeles

United: Denver

Delta: New York twice daily, Atlanta

Continental: Newark twice a day,

Houston: twice a day

Northwest: Minneapolis, Detroit, Seattle

US Airways: Philadelphia

American Airlines: moving Dallas and Raleigh-Durham from Gatwick

British Airways: moving Dallas and Houston from Gatwick

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