Lufthansa Now Owns bmi, Time to Talk to Virgin Atlantic?

Lufthansa has owned a 30% share in UK-based airline bmi for some time, and now bmi chief Sir Michael Bishop has exercised his option to sell his 50% (plus one share) stake to the airline for a whopping 400 million euros. That’s no chump change – you know he’s a happy man to be getting out with that kind of money at this time. So now, Lufthansa has to figure out what to do with the airline which has 12% of all slots at Heathrow. Here are some possible options:

  • Keep it Going – Lufthansa could continue to operate bmi as is, but this is highly unlikely. The airline is wasting slots on many smaller short haul routes, and it still has no Transatlantic presence out of Heathrow. Something will change. Besides, they’ve already announced the long haul Manchester flights go away in the New Year, so things are changing no matter what.

  • Bring in Lufthansa’s Brand – Lufthansa could try to pull an Air France-style setup where bmi would disappear and Lufthansa could become a major player under its own name, especially on Transatlantic flights from London. This isn’t likely to have positive results, as Air France has shown. And there’s no reason to kill whatever local brand-loyalty there is already. I think it’s unlikely.

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  • Sell Pieces – Lufthansa could decide to cut out the pieces it likes. Maybe it wants to keep all the London slots and sell everything else to another regional carrier in the UK. I’d see this might be plausible and then it could keep what it wants to develop out.
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  • Tie Up with Virgin – This one could easily happen along with the previous one. Take the London slots, merge with Virgin Atlantic, and create a very strong London brand that’s far greater than what Virgin has now. Oh, and yes, bring Virgin Atlantic into Star Alliance. Virgin is clearly interested. Virgin’s CEO even says:
  • Everyone has speculated that it would make sense for Virgin Atlantic and BMI to combine their long-haul and short-haul networks. There is now a major opportunity to do that. I am sure that Lufthansa realises this could be a really good example of the right industry consolidation.

So, we’ve got a very interesting situation developing over there. If Virgin joins with Lufthansa, this would be a great gain for the Star Alliance and it would clearly not make BA happy. I’d say that might be the best bet right now and it’s one that Star Alliance members should be happy about. Since London Transatlantic flying is really hurting right now in the financial crisis, the time might be right to make this happen for a relatively low price.

Edited 11/6 @ 526p to reflect the purchase price of 400 million euros and not the absurdly low 400 euros. Oops.

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