ANALYSIS: Redistribution of BMI network almost complete

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Almost a year since International Airlines Group (IAG) announced its acqusition of BMI from Lufthansa the shake-up of the UK carrier's former route network is almost complete.

News that Virgin Atlantic has picked up the Heathrow route rights which IAG was forced divest as part of securing clearance for the acquisition is the latest step in the redistribution of the BMI network. That redistribution has also involved IAG unit British Airways taking on some routes, the disappearance of BMIbaby and a renewed business plan for BMI Regional as an independent carrier.

The original BMI operation comprised its mainline services, its regional unit and low-cost carrier BMIbaby.

DOMESTIC 

To satisfy competition concerns following IAG's acquisition of BMI from Lufthansa, BA has released daily slots on routes where competition was impacted. Virgin Atlantic has now secured 12 of the 14 remedy slots at Heathrow – the other two have been leased to Russian carrier Transaero.

Virgin will use some of the slots to launch domestic flights linking Scotland with the UK. The UK carrier has already announced plans to serve Manchester from the end of March and to serve Aberdeen and Edinburgh as the second stage of its domestic operations. BMI’s Heathrow domestic network had included flights to Aberdeen, Edinburgh and Glasgow, as well as Manchester.

BMI domestic network (Dec 2011) 

 bmi domestic network dec 11
 Source: Innovata Flightmaps Analytics

Virgin's move into short-haul routes is one of necessity more than desire given it previously codeshared with BMI on these flights to help feed its own long-haul services.

“We are not under illusions that it’s about making money flying short-haul sectors,” Virgin chief executive Steve Ridgway explained in a recent interview with Airline Business. “This is about making sure our network performs as strongly as it can about servicing our partners, many whom were previously served by BMI.”

MOSCOW

Flights from Heathrow to both Aberdeen and Edinburgh were included in Virgin’s pitch to the European Commission for the slots. This also included services to Nice and Moscow – two more of the routes where competition concerns were raised.

But a rethink seems required on the latter after Virgin lost out to EasyJet in the recent UK award for Moscow rights formerly held by BMI.

"We've got the slots for Moscow, but we don't have the bilateral right to fly to Moscow," a spokesman for Virgin says. "We need to talk to the [Civil Aviation Authority] and the Competition Commission about that, and work out exactly what's happening with those slots." Confirmation of its short-haul network is expected shortly.

EasyJet, having been awarded the Moscow rights, plans to serve the Russian capital from London Gatwick rather than Heathrow. BA also handed a pair of slots to Russian carrier Transaero, which had codeshared with BMI on Heathrow-Moscow flights since it launched the route in 2006.

Without Moscow rights, Competition RX, the body responsible for monitoring IAG's slot remedy process, might ask Virgin to switch its Moscow plans to either Cairo or Riyadh - two other cities earmarked for the slots. It could alternatively hand some of the 12 slots back to a competitor.

MEDIUM-HAUL

Services to Cairo, Moscow and Riyadah were all part of the former BMI medium-haul network and were already served by BA. The latter has, through the acquisition, also picked up a string of routes it did not already operate.

BA has taken on flights from Heathrow to Agadir, Almaty, Amman, Baku, Beirut, Freetown and Tbilisi from the former BMI medium-haul network – which itself stemmed largely from its 2007 acquisition of British Mediterranean. BA has been operating these flights under its own name since the start of the winter season in October.

BMI medium-haul network (Dec 2011) 

 bmi international dec11
 Source: Innovata Flightmaps Analytics

Competition concerns on the Amman slot were addressed by a commitment to end existing codeshare on the route with Oneworld partner Royal Jordanian

But as one of its driving forces was to use the slots to better manage its own network and develop long-haul operations, BA has ditched a string of other routes formerly operated by BMI. These include Heathrow flights to Addis Ababa, Amristar,  Bishkek, Casablanca, Damascus, Dammam, Khartoum, Tehran and Yerevan. BA has also dropped BMI’s Heathrow connection to Marrakech – a city it continues to service from Gatwick only – while it already operated flights to Jeddah.

British Airways says the integration of BMI is 90% complete, and running ahead of schedule. It forecasts the former BMI operation will break even in the second half of next year – six months earlier than originally anticipated. It says BMI was losing €200 million ($260 million) annually when it completed the acquisition in April, but is on target to contribute €100 million in operating profit annually by 2015

"We're starting to move into the 'optimise' phase," says BA chief financial officer Nick Swift.. BA started optimising the BMI schedule at the beginning of the winter season in October and this will continue next year.

Swift says that "plugging BMI into the BA machine" has resulted in "some good feed" on transfer flows. Revenues on one route – which he declines to identify – are up 37% on a 17% capacity increase, while there is evidence of improved performance on flow to key US destinations.

REGIONAL

BA has also taken on some of BMI’s short-haul routes from Heathrow. It is operating Bergen and Stavanger in Scandinavia, the German city of Hannover, Dublin and Belfast City have all joined the network.

BA already served a number of other BMI short-haul routes from Heathrow – Basle, Berlin, Frankfurt Lyon, Nice and Vienna – but these did not raise the regulator’s concerns because of the strength of existing competition. In the case of Basle, that was helped by launch of Swiss International Air Lines flights on the Heathrow-London City route in May.

BMI international short-haul network (Dec 2011) 

 bmi regional routes dec 11
 Source: Innovata Flightmaps Analytics

BA has not looked to pick up the BMI routes from outside of Heathrow. These have remained in the domain of BMI Regional. The latter, the only operation now carrying the BMI brand, has been reinvented as an independent regional carrier after it was acquired by Sector Aviation Holdings earlier this year.

The airline’s management, which includes executive chairman Ian Woodley who founded its predecessor Business Air, has retained much of its previous network. This includes Scottish flights to Nordic pair of Esbjerg and Copenhagen, and connections from East Midlands airport to Frankfurt and Brussels, as well as a number of domestic flights linking cities outside of London.

BMI Regional has been operating as a fully independent carrier since October and has already added a number of new routes, less dependent on feeding Star Alliance hubs. These include Aberdeen-Bristol and Manchester-Antwerp services.

BMI Regional network (Dec 2012) 

 bmi regional network dec12
 Source: Innovata Flightmaps Analytics

LOW-COST SECTOR

The final part of the BMI empire was its low-cost arm BMIbaby. IAG made no bones of its lack of interest in operating a budget carrier out of the UK regions and promptly put the unit up for sale. When no buyer was forthcoming, it closed the BMIbaby operation in September.

BMIbaby had operated a series of flights to domestic and European cities from Birmingham and East Midlands airports.

BMIbaby network (Dec 2011) 

 bmibaby dec 11 network
 Source: Innovata Flightmaps Analytics

Much of the slack has been taken up by other carriers. UK leisure operator Monarch Airlines opened a base at new East Midlands base in late summer, launching flights to Mediterranean destinations including Malaga, Alicante, Palma de Mallorca and Faro. Monarch also expanded its operations from Birmingham.

Ryanair too stepped up its presence at Birmingham, including services on the former BMIbaby route to Palma de Mallorca, while Flybe added services this winter from East Midlands to Amsterdam Schiphol, Paris Charles de Gaulle and Jersey.

Additional reporting Martin Rivers