A binding agreement has been signed regarding the sale of Lufthansa subsidiary bmi to IAG (the consortium which owns British Airways and Iberia). The sale is still subject to regulatory clearance – no small issue considering the impact on slots at Heathrow – but the two companies expect the deal to close in Q1 2012. Lufthansa expects the impact of the sale to be off their books by the end of next year while IAG will spread the costs of the acquisition and restructuring over a three year period.
IAG only wants the mainline operations of the bmi portfolio. As part of the deal Lufthansa is still shopping the bmi regional and bmibaby units to other potential suitors. If the bmibaby brand is not unloaded there are "significant" price reductions to be accounted for. And Lufthansa is still on the hook for the pension plan of bmi employees. At the same time, IAG will receive up to 56 additional slot pairs at Heathrow, further growing their position as the largest operator there.
IAG CEO Willie Walsh offered up the following comments:
Buying bmi’s mainline business gives IAG a unique opportunity to grow at Heathrow, one of our key hub airports. Using the slot portfolio more efficiently provides the option to launch new longhaul routes to key trading nations while supporting our broad domestic and shorthaul network.
This deal is good news for the UK as we will maintain a comprehensive domestic schedule including Belfast. Our plans to expand our longhaul network would guarantee growth by making Britain better able to compete on a global scale. It will also help maximise Heathrow’s position as a world class hub airport.
Customers will benefit from access to new destinations, more convenient schedules, enhanced frequent flyer benefits and greater investment than had been possible for loss-making bmi.
Sure, maintaining the schedule is easy. The real question is what fares will look like without competition on the routes. It is rare that losing a competitor in a market makes things better for the customer.
I really do need to redeem the last of those Diamond Club points quite quickly.
Announcements from IAG and Lufthansa.
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Many, many years ago, I used to commute regularly between LHR and EDI. BA had a very expensive and crowded service, with no food and limited refreshments and that was it. Along came British Midland, now BMI. They served a full breakfast on the way up and cocktails, a full dinner and after dinner coffee and drinks on the way back. Check in was 20 minutes, or 10 at the gate. It was heaven, and fares were lower. Then BA retaliated with a similar offering (having always maintained that the flights were too short to do it). Slowly, they drove BMI from the route (hastened by EasyJet). Now, BA’s fares are high and the “service” has reverted to what it was before.
Competition is a wonderful thing. No competition is always bad news from the consumer, whether the consumer wants better service or lower fares, let alone both.
Agreed, NB.
Less competition is bad. Virtually nil competition is horrible. That said, if the company couldn’t actually provide that great flight experience at a price where it was able to remain in business then perhaps it was too good to be true anyways, even if it was rather pleasant.