A price war broke out today as major airlines slashed fares to their lowest levels since the Eighties.

Leading carriers have been forced to cut prices by up to 25 per cent amid fears that the economic downturn will lead to a post-Christmas slump.

British Airways announced its New Year sale with flights to more than 75 destinations coming down in price. A return flight to New York is now just £259.

Virgin Atlantic hit back by undercutting BA by £1 on fares to destinations including New York, Los Angeles and Chicago.

Return tickets to India have also gone down hugely following last month's terror attacks in Mumbai. BA has reduced prices to Delhi by £121 to £359, Mumbai by £91 to £329 and Calcutta by £71 to £359.

Big foreign carriers operating out of Britain, including Lufthansa and Emirates, are also reducing prices. Richard Tams of BA said: "There are real bargains to be had thanks to the combination of our New Year sale and the reduction in the fuel surcharge. We know from research that customers still rate their annual holiday as extremely important even in these difficult economic times, but obviously they want to make the absolute most of their money and this is a great time for them to do just that.”

Airlines have been hit hard by the economic downturn. Passengers numbers have fallen dramatically, especially in business class, their main money-spinner.

The Association of European Airlines reported a 9.3 per cent fall in passenger numbers in November compared with the previous year, and warned this month would be worse.

British Airways' profits in the first half of the year were down 92 per cent to £52 million. The company has seen business class travel down 10 per cent month on month for three months.

Lufthansa, which is seeking to woo more British customers, has cut return flights to Athens and Budapest via Munich or Frankfurt to £149.

Emirates has also cut the fare on thousands of seats. Return flights to Dubai are down 20 per cent to £326 from Gatwick, as are flights to Bangkok (£496), Beijing (£390) and Hong Kong (£412). BA to Dubai starts at £299 and Virgin is £1 less. A spokeswoman for the Association of British Travel Agents said customers should take advantage of the price war as charges will go up later in the year. She said: “There are some irresistible bargains for travel in the turn of the year campaigns. We know that the prices offered over the next few weeks may not be matched later on in the year, so, if you see a good deal, snap it up. Oil prices are low now, and so could be reflected in airfares, but they are very volatile and may well go up.”

Some travel agents have accused BA and Virgin of failing to lower the fuel surcharge enough. Paul Vasdev, of corporate travel specialists Expose Travel Management, said: “Oil prices are at their lowest in about four years when the fuel surcharge was around £10.

Since then the surcharge has risen to an average of £220 and, taking into account the very recent cuts, has come down to around £100-£130. Airlines were quick to raise surcharges when oil prices rose but they have not lowered them as fast or as far when they have fallen.”

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