Branson reaches for the sky as he bounces back from rail snub

Virgin's new departure from London to Manchester will be a plane, not a train. A week after Sir Richard Branson railed against losing the franchise on the West Coast mainline to FirstGroup, his long-haul airline has launched another venture into short-haul flying.

From Easter Sunday next year, Virgin Atlantic will offer three services a day, each way, between Heathrow and Manchester. Return fares start at £95 – £2 less than the lowest fare on British Airways, which has a monopoly on the air route. Virgin Atlantic's chief executive, Steve Ridgway, said: "Our new service will provide strong competition to overly-dominant BA, keep fares low and give consumers a genuine choice of airline to fly to Heathrow and beyond."

The move is a response to BA's takeover of BMI, and the subsequent decision to concentrate domestic flying at Heathrow Terminal 5. Currently, BMI services operate to and from Terminal 1 – walking distance from Virgin's base at Terminal 3. But from the start of the winter schedules in October, any passenger wanting to connect between a UK domestic service and a Virgin long-haul flight must take a bus or train transfer. Two-thirds of the one million or so passengers between Manchester and Heathrow are connecting with other flights, so a vast amount of business is at stake.

With its giant rival, BA, able to offer same-terminal connections as short as one hour, Virgin is at a significant disadvantage – particularly for time-sensitive premium passengers heading for destinations such as Hong Kong, Johannesburg or Los Angeles, which are served by both carriers,

To launch the new Manchester service, Virgin will take back some existing slots currently leased to Cyprus Airways. Virgin has no suitable short-haul aircraft, so will instead charter planes – complete with pilots and cabin crew – from another airline. This arrangement is common in aviation, and enabled easyJet to get off the ground in 1995.

The Manchester flight has been described by Virgin as "just the start" for a much larger short-haul operation. The airline is applying for all 12 daily pairs of arrival and departure slots at Heathrow that BA is obliged to relinquish following its takeover of BMI. Seven of these so-called "Remedy Slots" are ring-fenced for services to Aberdeen and Edinburgh, the other top performers from Heathrow in passenger numbers. Aer Lingus and Flybe are thought to be rival contenders for the slots. Full-service airlines struggle to make money on short-haul European routes: when BMI was taken over, it was losing an average of £38 for each passenger. Virgin Atlantic tried, then axed, European connections to Maastricht and Athens. But Paul Charles, Virgin's former director of communications, said: "If they can do it in a lower-cost way, it is possible for them to make a profit because they are running fewer services."

Next summer, British Airways plans 10 flights a day, each way, between Heathrow and Manchester. Its curt response to the Virgin move was: "We are confident that our excellent customer service and great value fares will continue to set the standard in UK short-haul aviation."

The Virgin announcement is unconnected to the loss of the rail franchise – though if it triggers a price war on the key London-Manchester route, travellers may be tempted from trains to planes. The lowest Virgin fare saves £200 on a full-fare train ticket between the two cities.