The UK's bmi believes that its strategy of dividing its business into mainline, low-cost and regional segments will begin to pay dividends with a return to the black next year.
If the market continues to pick up as it has done in the early months of the year, bmi hopes to achieve breakeven this year and return to sustainable profitability in 2005. Last year, the bmi group, which includes its low-cost venture bmibaby, bmi regional and an expanding range of transatlantic services from Manchester, halved its pre-tax loss to £9.8 million ($18 million). "This is the first time we have reported two consecutive years of losses," says bmi chairman Sir Michael Bishop.
Having seen its revenues climb by 6.6% to £772 million, bmi was hit particularly hard by the effects of the Iraq War and SARS in the early part of 2003. According to Bishop, the loss of transfer traffic at its London Heathrow hub from its Star Alliance partners and other interline carriers cost it over £17 million in lost revenues and was the main reason for delaying its return to profitability.
Bishop believes bmi's segmentation strategy is beginning to pay dividends, especially in terms of passenger numbers. While the bmi full-service offering saw growth return, bmibaby's contribution of 2.9 million passengers helped the group surge to 9.4 million passengers in 2003, and bmi regional continued to grow as it added new routes. The strategy "gives us incredible flexibility in developing route networks", he says.
"The full-service model is still in demand and made a contribution in profit terms," says Bishop. Over the last two years cost-cutting efforts mean that unit costs at bmi have come down by 15% enabling it to retain a 20% cost advantage over British Airways.
Bishop expects bmibaby to move into profit next year, its third full year of operation. It has the same unit costs as easyJet, he said, but has not been experiencing the same yield erosion that other UK-based low-cost carriers have been reporting recently.
Bmibaby has just moved into London Gatwick for the first time with services to Cork and Prague to enable the airline to break into the slot pool at this airport, says Bishop. But bmibaby's expansion will be paced so that it meets its financial targets. "We have been exceptionally careful with bmibaby not to overlap with our full-service business," adds Bishop, a policy in contrast to that BA pursued with its former low-cost venture Go.
Although bmibaby now has its own Air Operators Certificate so that it is "becoming in every sense" an airline in its own right, bmi has no timescale for a possible flotation of the business, he says.
Bishop is looking for bmi mainline to grow by 10% this year. The extra capacity is being achieved by increasing the utilisation of its aircraft rather than by taking delivery of new ones. "In 2003 we had the strongest growth in capacity we have had for many years - we are sweating the assets of the business," he says.
In 2003, bmi had a much more successful year on its Airbus A330 transatlantic services from Manchester to Chicago and Washington, says Bishop. "They are at a point at which they should move into profit if the market continues to pick up."
The carrier has just started a new route from Manchester to Toronto in partnership with Star Alliance partner Air Canada, and will add services to Barbados, St Lucia and Antigua later this year. Under the restrictive UK-US transatlantic bilateral, bmi is prevented from operating to the USA from its base at London Heathrow, and Bishop sees no immediate change there despite the on-going open skies talks between the USA and Europe. "I see no reason to be particularly hopeful of an early resolution to the EU-US negotiations," he said.
For the time being, Bishop brushes away the long-running press speculation that talks are under way between bmi and Virgin Atlantic Airways on a merger of the two carriers.
Virgin chairman Sir Richard Branson has made no secret of his ambition to team up with bmi, but Bishop says there have been no talks between the two since May 2003, and that they retain an informal level of contact but nothing more.
MARK PILLING LONDON
Source: Airline Business
