Formally British Midland Airways, bmi is a fully-owned subsidiary of Lufthansa and is based at London Heathrow Airport. The carrier flies to destinations within the UK, as well as in Europe, the Middle East, Africa, Asia and Saudi Arabia. In 2007, bmi bought British Mediterranean Airways which has enabled the airline to serve a broader range of mid-haul destinations. bmi is a member of the Star Alliance.
Location of bmi main hub (London Heathrow Airport)
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British Airways and parent company IAG are both ahead and behind on their incorporation of bmi, acquired in 2012 with integration commencing later that year. Financially, BA is ahead, with bmi contributing about GBP30 million of profit in 2013 (all earned in 2H2013) from a previous estimate of a GBP50 million loss. BA looks well on schedule to meet its original goal of having bmi contribute EUR100 million (GBP83 million) of profit in 2015.
But that stronger financial performance may indicate BA has not moved to open new long-haul destinations as quickly as previously implied . Such additional points carry substantial start-up costs but can offer larger profits, helping BA and IAG meet their commitment for better return on capital. Since northern winter 2011/2012 BA has opened from Heathrow only three long-haul destinations: Austin, Chengdu and Seoul Incheon. No others have been publicly announced despite BA highlighting the medium and long-haul growth opportunities bmi would bring - although this was always a long-term objective.
The largest changes to the former bmi operation are decreases to three domestic routes (Aberdeen, Edinburgh and Manchester) - although Virgin Atlantic has more than backfilled capacity. BA has also cut a number of bmi's North African routes while expanding to a number of European points, no doubt a slot holding exercise until long-haul opportunities are able to be realised.
bmi regional’s plans to enter the Norwegian domestic market, together with its recently commenced contract flying for Flyglinjen in the Swedish domestic market, highlight its ability to find new regional niches. Seven of its top 10 international routes are monopolies and it has announced 11 new routes in just over a year since its sale by IAG to Sector Aviation Holdings in Jun-2012.
bmi regional’s target is to be profitable in its second full year of operations and its chairman said in Jun-2013 that it was fast approaching a cash neutral position. Not surprisingly, this implies that it is loss-making, and that it will benefit from a focus on unit costs: CASK is king in the airline sector. Once it does start to generate cash, it may consider its fleet replacement options. Not only is the fleet ageing, but also the size of its Embraer jets (50 seats and fewer) are a challenge in matching the unit costs of competitors.
British Airways now holds more than 50% of the slots at capacity-constrained Heathrow, thanks to its bmi acquisition. Nevertheless, BA had managed to grow its holding for years, mainly due to secondary slot trading. After years of uncertainty over its legality in EU law, the EU clarified its position in 2008 and allowed the practice. It went on to commission a 2011 study which concluded that slot trading had clear beneficial impacts at Heathrow.
In this report, CAPA analyses the small proportion of the total number of Heathrow slot trades where slot values have been reported in the media and elsewhere. For many years until the mid 2000s, the average traded value per daily slot pair calculated from such transactions was around GBP4 million. A series of trades at more than GBP20 million per pair captured headlines in 2007 and 2008 before the market went underground. Surprisingly, after such a long quiet period, 2013 has seen two deals valuing Heathrow slots at GBP15 million per daily pair.
In a couple of weeks bmi regional will cut the umbilical cord with parent bmi and start operating as an independent regional airline under a new ‘BM’ IATA designator and a softly revamped branding. The airline’s network will encompass four UK domestic routes and 11 European routes.
The decision to enter the market carefully and not with a dazzling big bang proves a responsible management that is fully aware of the prevailing challenges faced by regional airlines in Europe. Airline members of the European Regions Airline Association (ERA) recorded a 2.9% decline in scheduled passenger numbers and a 5.5% fall in scheduled RPKs for 1H2012, showing a drop in demand that reflects the current economic climate and uncertain outlook.
The formal split from bmi on 28-Oct-2012 follows the acquisition of the Aberdeen Airport-based regional airline by Sector Aviation Holdings Ltd (SAH) in May-2012 and the preceding purchase of bmi by British Airways’ parent company International Airlines Group (IAG).
Virgin Atlantic Airways has always had an independent approach and part of the carrier's DNA is giving British Airways a run for its money. But competing with its larger archrival is becoming increasingly difficult as British Airways (BA) has considerably enlarged its London Heathrow slot portfolio through the acquisition of bmi, giving it more scope to grow at the congested airport. BA also benefits from antitrust immunity with its oneworld partners on trans-Atlantic routes.
Passenger growth at Virgin Atlantic has stalled as economic uncertainty has settled over Europe. The company accrued a pre-tax operating loss of GBP80.2 million in its latest fiscal year ending 28-Feb-2012, reversing a GBP18.5 million profit recorded in the previous 12 months. Revenue for the company, which includes Virgin Atlantic Airways and tour operator Virgin Holidays, rose 3% year-over-year in FY2012 to GBP2.74 billion but, as CEO Steve Ridgway noted, “with the prevailing uncertainty in the economy, sky high fuel prices and a 25% hike in our air passenger duty fees, converting this sales growth into profit has not been possible”.
International Airlines Group (IAG) is drafting a comprehensive restructuring plan for Iberia that will include short-term downsizing, network reshaping to deliver higher unit revenues and a re-evaluation of all aspects of the business. Job cuts will be an inevitable consequence of the overhaul. Efforts to address the Spanish carrier’s uncompetitive cost structure are not new and date from before the merger with British Airways (BA) in Jan-2011, but results have been insufficient and losses are spiraling out of control as the economic crisis in Spain worsens and the onslaught of LCCs persists.
While Iberia’s pilots continue to fight change other legacy carriers are restructuring and this is threatening Iberia’s leadership position in the Europe-Latin American market. The doubling of the departure taxes at Iberia’s main Madrid and Barcelona bases since 01-Jul-2012 is putting salt on the wound and diminishing the airline’s appeal.