Flight services group Alpha Airports - the firm which runs the new flagship duty free shop in Birmingham International Airport's terminal one - yesterday told shareholders it may have been victim of a fraud which could have cost it up to £2.5 million.

Alpha, which supplies catering and retail services for airlines and airports, would not elaborate on where the fraud may have taken place, saying it had only "very recently" been aware of the problem and that investigations were continuing.

It estimated the potential loss from the fraud at between £700,000 and £2.5 million.

Alpha said: "It has come to light very recently that the group may have been the victim of a fraud by a third party.

"If this information proves to be correct it may result in a significant exceptional loss to the group.

"Initial investigations show the potential loss is of the order of £700,000 but it could be as high as £2.5 million.

"The investigation is ongoing and the board anticipates having a clearer view of the size of the suspected loss by the time of the preliminary announcement."

In a trading update, the firm also said that pretax profits for the year to the end of January would be £17.4 million before exceptional costs, including the potential fraud loss.

This is up slightly against last year under new accounting rules.

Group turnover will be more than 12 per cent ahead of last year, it added.

Alpha Airports had earlier reported a 42 per cent drop in first half profits, which it partly blamed on the set-up costs of a new flight catering contract with American Airlines and a downturn in Asian business following the tsunami.

The company operates services at airports including Birmingham and Manchester.

Alpha's retail outlets are at 74 airports across 13 countries, including Turkey, Italy and Hungary as well as the UK.

They include Alpha Duty Free and 35 World News stores selling newspapers, magazines, books and confectionery. Other retail brands include Glorious Britain, which sells UK branded gifts at Heathrow, Gatwick and Stansted airports aimed at foreign visitors.

It also has airport cafes and restaurants including the Foodhall and the Deli Sandwich Bar brands.

Middlesex-based Alpha said UK airport retail sales rose eight per cent in the year, up from the 7.4 per cent increase the previous year, but that profits from its 150 shops and restaurants would be below expectations.

The company also blamed higher rents and major IT investment for the profits shortfall.

While the UK remains its cornerstone market, an international expansion was offsetting the lower margins seen at home, Alpha added.

Alpha said it had incurred a £2.5 million cost from the reorganisation of its UK Flight Services division, including the introduction of Blue Sky Service - its new in-flight meals division which uses disposable packaging and individual rubbish bags.

Its airline catering customers include Qantas and British Airways.

In October the firm reported it had lost a contract to provide in-flight meals to Thompsonfly, which Alpha yesterday said would save it £3 million in costs.

Alpha will be announcing preliminary results for the year ended January 31 on March 30.