Former UK Prime Minister, Margaret Thatcher, wasn’t a big fan of British Airways.
She famously pulled a tissue from her handbag and wrapped it round the tailfin of a model B747 to show her disgust for the revolving “ethnic” liveries at the airline’s 1997 rebrand.
But there was an airline the Iron Lady was fond of – British Midland, now bmi.
But like so many British brands before it, bmi is now set to enter the history books after German owners Lufthansa agreed to sell the carrier to BA-owner, IAG.
The carrier actually consists of three airlines – British Midland International, bmi Regional and bmibaby – only the former of which IAG intends to retain, the rest are expected to be sold with bmi being absorbed into its old rival.
The deal is reminiscent of when BA swallowed up British Caledonian – at the time Britain’s second biggest airline – in the 1980s after problems with its strategy led to a financial meltdown.
Bmi’s predicament is a far cry from its heyday when it operated to the USA, India and Saudi Arabia and competed with BA on lucrative long-haul routes.
With the purchase of BA franchise partner, British Mediterranean, in the 1990s, bmi inherited niche Middle Eastern routes to go with its portfolio of UK and European short-haul, its Bmi Baby low-cost operation in the English regions, and bmi Regional, its Scotland and northern England to London and Europe offshoot.
These gave bmi a reach into the Mediterranean, North African and Middle East markets that most regional European carriers could only dream of.
Flying high so to speak, in 2009 Lufthansa paid chairman Sir Michael Bishop a reported €368 million for his shares in bmi to fully take over operations, and the feeling was that German management (and continuing Star Alliance integration) would see to the airline’s fortunes. But not all went to plan, despite recent new route launches to Norway and Morocco.
“British Midland was my first employer,” reminisces airline analyst, John Strickland. “In the early 80s they were the new kid on the block in providing meaningful competition at Heathrow and a favourite of Thatcher. They were a friendly local airline, but they lost their way in recent years.”
Dr Rico Merkert, a lecturer in air transport economics and management at Cranfield University, strikes a phlegmatic tone on what went wrong: “One should ask what went right and wrong for Lufthansa, as they are effectively in control of bmi. I don’t think that they were ever serious about developing some sort of hub at LHR.
“In terms of its operations, bmi had relatively high unit costs (also as a result of its short sectors), pretty poor load factors (some 61% in 2010), but managed somehow to generate sufficient yields to make (apart from 2011) some profit on these routes (break even load factor of 59% in 2010, for instance).”
So what could the demise of bmi mean for the aviation market in the UK and further afield?
“BA’s parent IAG has made it clear that the real value of bmi’s slots is for use on new long-haul markets,” explains Strickland. “This doesn’t mean that all short-haul routes will disappear, but undoubtedly there will be rationalisation where there is excess and loss making capacity, on some UK domestic routes, for example.
“In the past British Midland was a key domestic competitor to British Airways at Heathrow, but the landscape has changed over the last 15 years with significant low cost capacity now available at other London area airports. BA will, however, need to keep adequate capacity on these routes at competitive prices due to their importance for feed to its long-haul network.
“It will take some time to work through the complexities of slot usage balanced against fleet restructuring, given that most if not all of bmi’s fleet is likely, in the long-term, to be disposed of. The British Midland brand is also likely to disappear by the end of the year,” he says.
IAG has made no secret of its desire to launch routes from Heathrow to Latin America and East Asia, which are currently much better served from FRA, AMS and CDG than from LHR, while duplicate routes to Belfast, Glasgow and Edinburgh, will surely be cut.
However, these are now likely to be lost as BA rationalises its network, which duplicates a number of bmi’s routes and would be more likely to reallocate slots for new long-haul services. Bmi’s [mid-haul routes] are likely to stay – they are some very niche oil-related markets, which would be valuable for any new owner.
“BA’s parent IAG has made it clear that the real value of bmi’s slots is for use on new long-haul markets. This doesn’t mean that all short-haul routes will disappear, but undoubtedly there will be rationalisation where there is excess and loss making capacity, on some UK domestic routes, for example,” says Strickland.
“In the past, British Midland was a key domestic competitor to British Airways at Heathrow, but the landscape has changed over the last 15 years with significant low cost capacity now available at other London area airports.
“BA will however need to keep adequate capacity on these routes at competitive prices due to their importance for feeding its long-haul network. It will take some time to work through the complexities of slot usage balanced against fleet restructuring, given that most if not all of bmi’s fleet is likely, in the long-term, to be disposed of. The British Midland brand is also likely to disappear by the end of the year,” he adds.
“Bmi used to be a key competitor in the UK market and specifically at LHR, but its significance has reduced as LCCs have become major players on domestic routes to London from other London airports,” says Strickland.
“Much depends on whether bmi Regional can be sold to this group of Scottish investors. But then any deal will exclude the slots at Heathrow. So any future bmi flights to and from London to other parts of the UK will have to go through one of the other London airports,” posits Merkert.
So what next for Lufthansa in the UK once it is rid of bmi? Will it look for another partner or continue to expand its own operations? LH is aggressively launching new BER to Britain routes (for example, to BHX). It also thumbed its nose at Heathrow by starting a route from FRA to Gatwick.
Lufthansa’s director of corporate communications for Europe, Aage Duenhaupt, told Routes News: “Lufthansa has a strong position in the UK and is not under pressure to make any decisions for new partners. We have just increased flights to the UK by adding Aberdeen and London Gatwick to the network. Other cities like EDI, BHX, MAN, NCL, LCY, LHR and INV are already linked to either FRA, MUC, DUS, HAM, STR, CGN and/or BER.”
Meanwhile, Merkert muses: “Regardless of whether IAG or Virgin Atlantic had acquired bmi, the slots at Heathrow will no longer be used for UK domestic flights. Whether that is so bad for the other regions in the UK remains to be seen.
“Given the capacity constraints at LHR and the diminishing chances of getting a third runway, I don’t see why the slots should not be used in the most efficient way. Anyone who wants to fly domestically to anywhere in the UK has at least four other London airports to depart from.”