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

BMI, Lufthansa, Mergers/Finance, Star Alliance, 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.


  • 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.

  • 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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14 comments on “Lufthansa Now Owns bmi, Time to Talk to Virgin Atlantic?

  1. Don’t believe everything that Virgin says. The CEO’s quotes smack of an airline that hasn’t been invited to the party, and that’s wetting its pants over a potentially energised competitor… bmi has 3-4x more slots than Virgin at LHR, and has historically never competed with VS. Heck, even Lufthansa has more slots than Virgin. If LH wanted to make waves at LHR, it doesn’t need any help from Virgin. And Virgin has never shown any signs of wanting to align with Star in the past

    So, while it’s not entirely clear what LH wants to do (beyond selling the regional and bmibaby low cost operations), there is no certainty that VS will be part of any future strategy. I’d put more money on LH recouping some of their outlay by selling slots to the highest bidder at LHR… which is, of course, BA

  2. 400 Euros for an airline…I would do that anyday. Is it per share (unlikely) or did you forget a million/billion?

  3. I think this could work for Virgin – personally I think they are kind of stuck in a bad situation right now with all big three alliances having/applying for antitrust immunity, and this could be a great opportunity.

  4. @Dan … it could definitely work for Virgin… But it’s not up to Virgin! It is strategically compromised and isn’t in a cash position to buy any bmi assets. So Lufty holds all the cards – and why should they bail Virgin out?!

  5. VS is 49% owned by Singapore (Star) and are in T3 at LHR which is until 2012 at least, a Star terminal. LH are moving into T1 with bmi and the rest of the Star kids. Not sure where this is going other than there’s definitely already some synergy there. But kt74 is right – this is up to LH, not VS.

  6. Simon, the SQ link is a good point. I seem to recall that their CEO commented recently that their stake in VS had not been performing as they had hoped and they were going to put it on the market. Could they possibly approach LH to take over that stake while LH then effectively merges bmi and VS to create an integrated British brand?

    Hmmm, I suppose a lot will hang on what SQ decide to do with that 49 per cent stake. Should be interesting!

  7. Total side comment, but did you know your picture in the Canadian garb made it onto the Southwest Airlines Video Blog about their Halloween festivities? You should check it out at their blog website! It’s a great video, too!

  8. Thank you, everyone, for correcting my stupid mistake on the amount. It was 400 MILLION. I would have fixed it earlier, but I was on the road all day long.

    Artie – Thanks for pointing out the video!

  9. I for one hope they retain the bmi brand and cabin crew/pilots, in whatever guise. I’ve been flying their LHR-DUB route weekly since June and have nothing but admiration for their professionalism, friendliness and general all-round good egg-ness.

  10. If LH do move to T1 along with most of the other Star Alliance members that means a whole bigger group of passengers will get to experience the misery that is boarding a plane from the new T1 gates. I flew out of T1 yesterday (LHR-IAD) and if anything it was even worse than in July when they tried to board a LHR-DEN and a LHR-JFK (I think, US Airways) at the same time, from adjacent gates, with passengers from both flights muddled up together. Yesterday, the flight was not full, but the gate was absolutely rammed. People couldn’t get on the plane, people couldn’t get passed the gate (50) to get on their LHR-ORD flight at gate 56, it’s a complete cesspit of a building. OK, it looks pretty but is far from fit-for-purpose. The gates that LH might inherit from BMI are not that cool either, although there is a larger communal area at that end of the terminal that has great views of the runway. The other thing that is a major bummer since the move from T3 is that UA Premier members (that are UK residents) can no longer use the lounge as it is a Star Alliance lounge, not a Red Carpet Club. That small perk meant a lot to UK fliers. The UA rep I spoke to said that was the biggest complaint that they’d had since moving – I’d still rank the utter chaos that boarding a flight from those gates as being even worse than losing that last remaining perk. Shocking. The whole airport is a disaster.

  11. it will be a sad day if LH get rid of BMI as this has been a very reputable airline ,flying for a very long time ,

    i think LH should keep BMI under there wings .

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