British Airways has revealed more details of how it will integrate Bmi over the next few months and years. Rob Gill looks at BA’s latest plans following last month’s acquisition of the loss-making airline
British Airways and its parent company IAG see the successful capture of Bmi from Lufthansa as a way to “transform” its operations from Heathrow.
The company has agreed to give up 14 slots at Heathrow to get the deal rubber-stamped by the European Union’s competition regulators which still gives IAG 42 of Bmi’s Heathrow slots which represent just over 50% of the airport’s total.
BA’s chief executive Keith Williams said: “We have always seen Bmi as a chance to transform Heathrow for both IAG and British Airways. The Bmi slot portfolio is 56 slots which are evenly spread throughout the day. This gives us a number of possibilities to maximise our operations.
"The Bmi acquisition gives us tremendous opportunity across London to maximise flying between Heathrow, Gatwick and London City.”
BA has already announced a series of moves including plans to cut up to 1,200 of mainline Bmi’s 2,700 employees, as well as revealing a handful of planned new routes.
Here are details of the airline’s plans over the next 12 months and beyond:
Summer 2012
BA has been quick to reassure Bmi customers that the airline’s mainline summer schedule is going ahead as planned with an advertising campaign stressing that it is “business as usual” and “customers can book with confidence”.
Although routes and timings have yet to change, BA has already announced it will be switching nine destinations to BA codes and flight numbers from May 23. The second phase of Bmi destinations to complete this move is planned to take place in mid-June.
“In these early steps of integration, we are getting hold of the pricing and inventory as well as ensuring clear communication with the customer,” said Williams. “We have done some advertising and contacted customers to reassure them on the summer 2012 schedule.”
Another move that will take place over the summer is that Bmi services switching to BA flight numbers will become part of the Oneworld alliance.
IAG chief executive Willie Walsh said there was work to be done in attracting back former Bmi customers as the brand had been damaged by the uncertainty over its future during the last 12 months.
“We need to rebuild the customer base in Bmi which has deteriorated quite rapidly in 2011 and the early part of 2012,” said Walsh.
“The revenue performance was very poor and the seat factor for Bmi out of Heathrow was in the 50s which is appalling for Heathrow. We have a bit of a job to build that up again. We are starting from a very weak base for Bmi.”
Winter 2012/13
The integration of Bmi into BA is expected to really gather pace for the next winter season.
“We have already announced we will by flying to Seoul which we have been able to do by freeing up Bmi aircraft and rejigging our schedule,” said Williams.
“We have also announced London City to Aberdeen which will offer 15 flights a week and we will transfer Marseilles from Gatwick to Heathrow.”
Other destinations planned include flights from Heathrow to Leeds-Bradford, Rotterdam and Zagreb, subject to reaching agreements with those airports.
The winter will also see the retiming of services as well as adding more frequencies to key BA routes and the beginning of the conversion of short-haul slots to long-haul services.
Overall, BA expects to launch 18 new routes from Heathrow for the coming winter including three domestic, six short-haul and nine mid/long-haul flights. These will include 13 routes currently operated by Bmi.
BA will also add extra capacity on eight existing routes from Heathrow on three domestic, three short-haul and two long-haul routes. Three of these routes are currently operated by Bmi.
No more details have been revealed yet, although the winter schedule is to be announced next month (June).
What happens to the 14 Bmi Heathrow slots that BA is giving up will be decided by an independent “slots trustee” although the company only expects rival airlines to be interested in taking them from summer 2013 onwards.
IAG boss Walsh added: “We expect there to be interest in utilising the slots. Our expectations for the 14 slots are that they will be taken up fully by competitors starting from 2013.
“Our expectation is that we won’t see interest in utilising them through this winter. The slot trustee will facilitate that process.”
Medium-term plans
BA describes expanding its long-haul network as “the prize” to be gained from its purchase of Bmi. But only around one-third of the 42 slots are expected to be used for long-haul flights over the next few years, with the majority being new short-haul services.
“The way we intend to use the slots reflects the fact that not all the slots can be used for long-haul and also the ratio between short and long-haul within our network at the moment,” said Walsh. “To sustain an effective long-haul network you have to have a short-haul network to act as a feeder.
“We could use more of the existing slots for further long-haul expansion but new long-haul routes tend to require higher volumes of transfer traffic.”
BA also sees more opportunity for growth and new routes as it takes delivery of its Boeing B787 Dreamliners and Airbus A380 superjumbos over the next few years. BA is currently due to receive the first deliveries of both aircraft next year.
“The arrival of the B787 and A380s - and the flexibility around our B747 and B767 fleets - will give us the ability to grow as we see the market capability to grow,” said Williams.
With the integration of Bmi, BA will initially operate across three of Heathrow’s five terminals – one (Bmi’s existing base), three and five.
Williams added: “Bmi had been due to go into the new Terminal 2, but we will have to evaluate the options to see what’s the best position for the airport and BA in terms of operations.”
Costs of integration
IAG expects that the integrated Bmi operations will begin making money from 2014 and contribute €100 million in operating profit in 2015.
Williams said: “Bmi has been a significantly loss-making business – it has been making double-digit losses since Lufthansa took it over.”
Bmi is expected to make an operating loss of €150 million for the rest of this year since the change of ownership in April. Restructuring costs are expected to be around €90 million in the current financial year with another €25 million in future years.
“Most of the costs will be redundancy costs this year and there are some additional marketing costs with us having to contact Bmi’s customer base,” added Williams.
“We think there is €300 million in turnaround benefits from Bmi through increased revenue, network contribution and cost improvements.
“Half of the cost savings will come from employment, IT and marketing. There is also the ability to achieve some improvements on Bmi routes. There should also be some contribution from long-haul flying and improved connectivity.”
IAG was originally contracted to pay Lufthansa £172.5 million for Bmi. But this has been “significantly reduced” because of Lufthansa’s failure to sell no-frills subsidiary Bmibaby which BA now intends to shut down in September unless a buyer can be found for the business.
Aberdeen-based Bmi Regional was sold for £8 million to a Scottish-based consortium last week.
ba.com