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.

I know it’s been a month, but I’ve still had a few posts on the backburner from my London trip. You didn’t think I’d stop posting without something on Heathrow’s Terminal 5, did you? I spent a fair bit of time in the terminal and it is an impressive place, for the most part. Of course, it was absurdly expensive to build, but as I wrote on BNET, the price may have been justifiable in this case. Shocking to hear me say that, I know, and I’m sure there were ways to cut down on cost, but much of it was unavoidable.

Most of you know Heathrow as that awful place where congestion is such a part of life that your plane has to circle a couple times on arrival and when you do arrive, your bags immediately get lost. That’s why British Airways was so focused on building Terminal 5. Heathrow’s previous arrangement had Terminals 1, 2, and 3 in the central terminal area between the two runways. Terminal 4 was on the south side of the airport, completely away from the other three. BA’s long haul operation was in Terminal 4 and its short haul operation was primarily in Terminal 1 and that meant trouble.

The long distances made for all sorts of problems. Yes, bags got lost frequently and connections were long and painful for people as well. Terminal 4 was a nightmare because being on the far south side meant that to get to and from the north runway, BA airplanes had to cross the south runway. That was a very time-consuming process at an airport that operates at maximum capacity. The parking areas were also very tight, so like Delta at JFK, BA had traffic jams between its own airplanes that caused delays.

So BA worked with airport operator BAA to build a more than £4 billion new terminal to the west of the existing central terminal area. That became Terminal 5. Why didn’t they build Terminal 4 there? Well, there was a big sewage treatment plant and that had to be relocated along with a bunch of other stuff. That’s one of the reasons that the terminal was so expensive. There was a ton of site prep work.

But now Terminal 5 is built and it’s a great place. There is the main terminal area T5A and then two satellites connected by an underground train, T5B and the soon-to-open T5C. I arrived in T5B, as do most of the US flights, and found that the scale of the terminal was not noticeable upon arrival. You are shuttled through a series of escalators and trains, and when you finally come out, the arrivals area is a very small place with just a couple of shops. There are in-terminal connections to the Tube, the Heathrow Express train, the Sofitel Hotel, and a ton of buses that take you all over. It works very well, though the up and down of the escalators can be somewhat confusing after a long flight.

The departure level is where you really sense the size and feel of the terminal. The ticketing area is enormous and it lies in a huge open space. The concept has you check in at podiums and then keep walking through to a wall of shops at the back. Security sits on both sides, and I’m told that if the line on the left side is long, go to the right where the premium check-in areas are. Those may be shorter.

Once through security, you come in on a mezzanine level above the departure areas. There are a couple of shops and restaurants up top but much of the action is down below. Once you descend to that level, you get that trademark Heathrow shopping experience where you’re completely overwhelmed. It’s just crazy how much shopping they are able to shoehorn into that place. If you’re a fancy pants flier, you can head to the right where the bulk of the lounges are in the terminal. This is one place where the smooth flow is interrupted. Instead of just walking from the mezzanine into the lounge, you have to go down and then back up to reach that area. Goofy.

There are two large Club World and First Class lounges that also welcome BA’s elites. They’re large, light, and have a ton of options including things like food and champagne bars. Then there’s the Concorde Room. This room is only for First Class passengers and it is old-school. It uses a lot of dark wood, has a fire burning, and is a very quiet place unlike the other First Class lounge. It’s traditional British luxury at its best. The room has a full service dining area and an excellent balcony area where you can look over the little people down below. It also has a couple of private day rooms for those with long layovers. Unfortunately, I wasn’t allowed to take any pictures in any of the lounges.

Back with the normal folks, I found there to be plenty of seating. T5A is where the domestic flights go from so you see a lot more narrowbodies there. To board, you actually descend another level to the gate itself. It flows well. If you need to go out to the satellites, you descend to the train which takes you there. There are some shops and a lounge (on T5B) for people, but you shouldn’t go out there unless you know your gate. Once you go out to T5B or C, you can’t come back to T5A. It’s happened before and apparently required BA’s staff to step in to help figure out a way out without going into the customs area.

Underground, there are apparently several stories of a baggage system that does what Denver’s system was supposed to do before the airlines gave up on it. The result is that lost bag numbers have plummeted and on-time percentage has spiked. When the snow/ice storm hit in December, BA had to cancel scores of flights like the other airlines, but while other terminals had to set up tents to deal with all the stranded passengers, BAA built Terminal 5 to have enough extra space that it wasn’t necessary.

According to BA, the cost savings have been so huge in terms of improved on-time performance, shorter taxi times, and better baggage numbers that it is easily paying for itself, even with the large increase in costs at the airport. In that sense, the savings justify the insanely high cost. Could they have shaved a billion off the place with a less grandiose design? I would assume that there could have been more savings and I wish they would have taken advantage of them. Then maybe airlines like bmi wouldn’t feel so much pressure to drop shorter haul flights because the costs have gone up too much.

But Heathrow is still constrained with two runways and the government has opted to ignore the problem and refuse a new runway. That means Heathrow will continue to see more and more long haul at the expense of short haul so the cost doesn’t have as much of an impact in those cases. For passengers, the experience is certainly a good one, and it’s nothing like it used to be.

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