British Airways Owner buys BMI from Lufthansa

British Airways owner International Airlines Group has edged out the rival bidder Virgin Atlantic to scoop BMI in a £172.5m deal. The deal is set to increase British Airways take-off and landing slots at Heathrow.

International Airlines Group has crushed arch-rival Virgin Atlantic’s dream of acquiring BMI by sealing the purchase of Deutsche Lufthansa AG’s unit with a 172.5 million-pound ($271 million) bid.

Last week, IAG announced that it had reached a binding agreement with Germany’s Lufthansa to acquire Heathrow airport’s second largest airline.

Buying the loss-making BMI from Lufthansa will append 56 slot pairs to IAG’s portfolio at UK’s leading airport, elevating its share from about 44% to 53%. This will consolidate the carrier’s position as the airport’s most powerful airline.

BMI has flights to Middle East, Europe and Africa and currently has 8.5% of the Heathrow landing slots, which is perhaps the biggest temptation for the buyers. BMI also has the BMI regional and BMIBaby, a low cost unit known to offer cheap flight tickets. Both these bmi units have no landing slots in London.

IAG, formed last year as a result of a merger between British Airways and Spain’s Iberia, is only interested in BMI’s mainline business. IAG warned there will be “significant price reduction” if Lufthansa is unable to sell the BMI Regional and low-cost bmibaby ahead of the deal closure.

Virgin Atlantic, however, is not pleased. Airline’s founder Sir Richard Branson has urged European competition authorities to block it.

Sir Richard was quoted as saying: “BA is already dominant at Heathrow and their removal of bmi just tightens their stranglehold at the world’s busiest international airport. We will fight this monopoly every step of the way as we think it is bad for the consumer, bad for the industry and bad for Britain.”

A spokesman for Virgin added: “If the acquisition is completed, it will tilt the competitive landscape dangerously towards BA and cast a shadow over the British travelling public.”

He also hinted that the deal will make it hard for customers to find cheap flights tickets from Heathrow.

“We will be asking the competition authorities to stop this deal and to protect the many millions of passengers on routes where BA and BMI currently compete. With Heathrow sewn up, BA can use its monopoly power to force up prices at the expense of the consumer,” he was quoted in different news websites.

The deal remains subject to clearance by competition bodies.

Job losses

BMI has a staff of more than 3,600 people but in the year 2010 the airline reported a £153m loss.

IAG chief executive Willie Walsh said: “Given the scale of BMI’s losses, there is an urgent need to restructure the business.

“Unfortunately, this will mean some job losses but we will secure a significant number of high quality jobs here in the UK and create similar new jobs in the future,” he was quoted in news reports.

Mr Walsh stated that the restructuring would be carried out over a period of three years.

Speculations about Destinations

Earlier The Guardian reported Virgin Atlantic‘s Sir Richard Branson as saying that “By implication (of IAG’s increased percentage of landing slots at Heathrow) IAG will become an even bigger swinger on long-haul routes such as the UK to the US, where it competes with Virgin Atlantic, and will raise fares”.

IAG reportedly declined all such speculations by stating that it plans to use bmi’s slots to operate long haul flights to China and other economically flourishing destinations.”

Willie Walsh said “Using the slot portfolio more efficiently provides the option to launch new long-haul routes to key trading nations while supporting our broad domestic and short-haul network.” British Airways, the UK’s flag carrier, offers air travel on its flights to over 150 destinations including intercontinental long haul flights.

IAG reckons that the deal may allow it to offer new flights to Indonesia, Korea and Vietnam, and boost its services to China.

Sources also indicate that British Airways will likely target destinations in Asia. Long haul flights to Malaysia and Korea and other high growth destinations would spell greater benefits for the airline in terms of market share and hence bottom-line.

BA has never served Incheon, the biggest hub in South Korea and the airline ceased its flights to Malaysia’s capital Kuala Lumpur in 2001 to focus more on Bangkok and Singapore.

But Sir Richard claimed this was a smokescreen. He said: “Claiming that this deal is about new markets from Heathrow is a smoke-screen.”

“This deal simply cuts consumer choice and screws the travelling public,” he said further.

Willie Walsh said he paid no attention to Sir Richard’s comments.

BA will be taking the delivery of 12 Airbus SAS A380 super jumbos and 24 Boeing Co. 787 Dreamliners in 2013 which will give the company surplus capacity to accomplish its plans for new intercontinental routes.