Lufthansa will not break up UK operation BMI but reinforce the carrier by strengthening link to continental Europe and Star Alliance.

BMI lost £157 million ($242 million) in 2008 and new chief executive Wolfgang Prock-Schauer admits losses in 2009 were "slightly worse". But BMI is undergoing a restructuring programme worth £100 million, primarily derived from network adjustments and the shedding of 800 jobs, and he believes losses will halve this year.

Prock-Schauer says the airline’s "small size" has been a weakness and it has had strong competition from "advanced" budget carriers. London Heathrow, BMI's main base, is "not conducive" to short-haul operations, owing to its charging structure.

There is "no intention" of breaking up BMI’s mainline, regional and budget operations, he says: "We want to keep the three-airline set-up but [use] the synergies to make it as efficient as possible." Integration with Lufthansa and Star will give BMI the economies of scale which have been "absent".

While BMI's long-haul operation has been stripped away, Prock-Schauer insists that the airline will not be reduced to a Star feeder carrier. BMI's mainline network is "not as complete" as British Airways’, although it has a strong UK component and good links to the Middle East and Central Asia. There is little room to expand domestically from Heathrow but Prock-Schauer says: "I see potential in longer routes to continental Europe."

The regional division, with its oil links, is a "good complement" and Prock-Schauer says he "wants to keep a foothold" in the low-cost airline market. Budget airline BMIbaby will focus on East Midlands and other "niche" stations. Efficiency measures, he says, mean BMIbaby is meeting the same productivity levels with 14 aircraft as it did with 17.

Trading and leasing of slots has helped shore up funding. BMI admitted last year that it needed £190 million by November 2010. Lufthansa had agreed to loan £95 million and BMI, at the time, said selling its valuable Heathrow slots was an option if Lufthansa declined further support.

Prock-Schauer confirms that part of the funding is being "repaid with slots", but says slots have been sold "only within Lufthansa Group". He says that a "limited" number of slots have been leased out, which will return to the airline in one or two years and could be used for further expansion. Slot-trading has only been carried out to the extent necessary; the sale has "helped to fill the [funding] gap", he adds, and the remainder will be bridged by improving the airline's performance.

BMI will retain a degree of long-haul capacity but does not envisage a quick return to transatlantic operations. North America is a gap in its network coverage, admits Prock-Schauer, but there is the option of using partner airlines on these routes.

Source: Airline Business