IAG sees loss-making BMI generating €100m earning in 2015

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International Airlines Group (IAG) expects its BMI acquisition to start contributing positively to its earnings by 2014 and to add €100 million ($129 million) at an operating level the following year.

The British Airways parent expects BMI to incur operating losses of around €150 million this year, alongside €90 million in restructuring costs. The latter comprises the bulk of the €115 million restructuring costs IAG is anticipating from BMI, which it formally acquired last month. BMI had racked up losses of around €200 million in 2011, the bulk of which came from its mainline operations.

"Unit revenues had been low, particularly for a Heathrow-based carrier and equally load factors were low, and the issues have been exacerbated by the high oil price and the problems in the Middle East and North Africa which covered a number of routes BMI flies," explained British Airways chief executive Keith Williams during an IAG first quarter results conference call today.

"What we see at the current run-rate, post acquisition 19th April, you ought to expect an operating loss of something in the region of €150 million [from BMI]."

IAG chief executive Willie Walsh adds: "The main issue in relation to restructuring is we don't get the benefit of the restructuring until the end of this year.

"Part of the problem on the revenue side is the performance has been deteriorating amid the uncertainty around the ownership of BMI. The revenue performance was very poor and that was reflected in some of the seat [load] factors," he says. "I think we are being realistic. We are starting from a very weak base with BMI."

But BA remains confident of the longer-term benefits from the acquisition and its key Heathrow slots. "Financially BMI has been significantly loss-making but we can see ourselves transforming the business to make it earnings accretive by 2014 and adding a €100 million EBIT to our numbers for 2015 and increasing beyond that," Williams says. "We see around €300 million of turnaround benefits and that is split around three buckets; a revenue benefit, a network contribution and a cost improvement.

"With regard to turning the business round. Given the scale of the losses the first step we have had is to integrate the business into British Airways as quickly as possible," he says.

Work on the integration has already begun, with the first route changes already being introduced including the launch of flights to the South Korean capital Seoul.

"Our long-term prize is to grow the long-haul network out of Heathrow. As a rule of thumb, two-thirds of the [BMI] slots would stay short-haul and a third would go to long-haul over time," says Williams, in line with the current BA network split at Heathrow. "That process has already started with Seoul, and is made possible by the arrival of the [Boeing] 787s and [Airbus] A380s."

Meanwhile work is moving ahead on integrating BMI's fleet. "[The] BMI mainline operation today has 27 aircraft. They are compatible with the BA fleet, except for two A330s and we have already said we are not interested in flying those aircraft long-term. Work is already under way to put the aircraft into BA livery and the first aircraft should come out of the shed this month," says Williams.

Alongside the BMI mainline operation, IAG also acquired BMI Regional and budget brand BMIbaby. IAG has since struck a deal to sell BMI Regional. It has also cut a number of BMIbaby flights and has said it is considering shutting down the operation by 10 September if a buyer is not found.