Last week, it was announced that British Airways parent IAG had won the lottery, so to speak. The group has now reached an “agreement in principle” with Lufthansa to buy its bmi subsidiary. This is all about one thing: slots at Heathrow. We don’t know if this will be completed or not, but if it goes through, it’s a big move. It’s obviously great news for BA, but there are other winners and losers here. Let’s take a look.
The general assumption here is that the purchase will effectively just add slots to the IAG portfolio at Heathrow. IAG (owner of British Airways and Iberia) will see its slot holdings rise from 45 percent to 53 percent. It’s expected that BMI regional will be sold off as will bmiBaby, the low cost airline. That is, however, assuming anyone wants to buy them. If this scenario plays out, here’s who wins and who loses.
bmi – Mixed
Shall we start with the most obvious, bmi itself? The airline has languished for years as a distant second fiddle in the UK behind BA, but people did like the frequent flier program and it gave Star Alliance fans a good base within the UK for travel. Still, there wasn’t much hope that bmi would survive on its own, so having the airline sold off as a whole instead of taking it apart, piece by piece, means there is some hope for those who work at the airline today. Of course, there would have been a much greater outcome for those folks had someone like Virgin Atlantic taken over. This is one of those, “could have been worse, could have been (a lot) better” scenarios.
British Airways – Winner
The most obvious winner here is British Airways. Being based in the anti-aviation UK is not easy, and it can’t grow capacity to save its life because the government is too blind to understand how important it is. BA will now get its hands on a nice chunk of slots at Heathrow so it can finally grow. According to management, BA is eyeballing east Asia destinations like Korea and Vietnam, so that will give BA the ability to better compete with foreign flag carriers. It should be noted that BA will still just have over 50 percent of slots at Heathrow, so it’s hardly a massively dominant position. But it will increase concentration, and that will certainly get some hard scrutiny from the competition authorities.
Virgin Atlantic – Loser
The biggest loser by far is Virgin Atlantic. Virgin had hoped to purchase bmi to give itself some heft and possibly as an easy way in to an alliance partnership with Star. This had the makings a big coup for both sides. Star would gain a stronger player in London, Lufthansa would be rid of the money-losing ownership stake, and Virgin Atlantic would finally have a strategy on how to compete going forward. But it’s not to be. Virgin Atlantic’s bid wasn’t high enough, so instead all those slots will go to Virgin’s arch-rival. I’m sure we can expect to see some slogans painted on the back of Virgin planes, maybe “bmi + BA = no way”? Virgin’s best hope now lies with the regulatory agencies.
Lufthansa – Mixed
I think of bmi like a vampire that’s slowly draining Lufthansa’s blood. After being forced to buy bmi two years ago, the long nightmare is over and Lufthansa will get a nice little payday out of the sale. But it’s also enabling one of its biggest European competitors, BA, to become more effective. With these slots, BA can ramp up and provide better schedule coverage. It can also woo Star Alliance loyalists in the UK away because that simply isn’t much of an option anymore.
Other Star Alliance Airlines – Loser
The impact is not as great for other Star Alliance airlines, but over all, this is bad for them. It helps British Airways to build a bigger and better strategic hub at the expense of a Star Alliance presence in one of the most important cities in the world. It cuts down on options for Star loyalists and makes BA stronger. For that reason, Star members can’t be happy, mostly because they didn’t have a financial interest in that sinking ship. They just wanted to take connecting traffic from the airline and let Lufthansa suck up the losses.
UK Travelers – Mixed
Finally, let’s talk about the traveler. The bad news is that any Brits who liked to fly on Star Alliance airlines will now have their options dramatically reduced. And to make things worse, the next best option is just a bigger and stronger British Airways. For some people, bmi provided a good, more manageable option than BA with a nice little mileage program to boot. Those people will be sorely disappointed by this.
On the other hand, we have people who only flew bmi because they had no choice. For example, if you had to fly to Casablanca or Beirut, BA wasn’t an option. In fact, North Africa, the Middle East and some of the former Soviet republics in the south were bmi territory. Though BA seems to be hoping to do more in the Far East with these slots, I imagine that at least some of the existing bmi cities will be able to hold on to service with BA. That can be good for travelers, though it remains to seen what fares would do.
Customers will also pay the price in terms of the Heathrow operation. BA squeezes as much as it can into its Terminal 5 at Heathrow with the rest along with its oneworld partners stuck in Terminal 3. With all these new flights, BA will likely once again be spread across the airport, making connections more annoying for travelers once again. Will they need to keep a presence in Terminal 1 where bmi is today? Ugh, that would be a pain.
Now we just sit back and wait to see if this actually goes through. Will the UK require massive slot divestitures that make this deal a no-go? It wouldn’t shock me. If that happens, then maybe Virgin Atlantic can step back in and make a go at it. I anticipate there will be a lot of fighting before this whole thing is said and done.