COLIN BAKER LONDON
bmi British Midland's decision to launch a low-cost subsidiary, christened bmibaby, at East Midlands Airport signals a significant new development in the battle between European mainline and low-cost carriers.
bmi's move has been seen in some quarters as a spoiling tactic, coming as it did in the wake of budget specialist Go's decision to make East Midlands its third UK hub. bmibaby's new managing director Tony Davis denies this, pointing out that bmi has been planning the launch for "a long time".
"The no-frills sector is developing rapidly. There is a geographical gap between the London satellite airports and Liverpool, which has not been well served by current no-frills airlines, he says."
bmibaby's choice of routes mirrors the destinations - mainly large Mediterranean resorts - flown by Go from its Bristol hub, and the two will be competing directly on the East Midlands to Malaga, Alicante and Faro routes. Davis denies that this is evidence of a "get-Go" policy. Four of the routes were previously flown by bmi, he says, with Alicante and Barcelona the only additions.
There are very few examples of low-cost carriers competing directly against each other and where they do, one or the other is often forced out. Go itself recently decided to pull its Dublin-Glasgow and Edinburgh services launched last year in direct competition with Ryanair.
bmibaby is the fifth budget carrier in the UK. Most observers believe that there will eventually be just two or three. In a recent report, Schroder Salomon Smith Barney said: "We would expect eventual consolidation of these new entrants to take place, especially in the UK where there appears to be some overcrowding, especially on routes to the Mediterranean."
Go and bmibaby will also be competing with the charter market on the Mediterranean routes. Although charter carriers cannot offer the same flexibility, they tend to have lower seat costs.
Rob Thomson, director of JMC Airfares, the seat-only arm of JMC Airlines, says that most of its capacity out of East Midlands is used for the all-inclusive tour business. He adds, however: "We are confident that the seat-only market from East Midlands will continue to perform well for us, with 2002 sales on the only competing routes already well sold."
Despite the initial Mediterranean focus, Davis denies that bmibaby will just stick to leisure-orientated destinations, leaving more business-orientated city routes to its parent company. He refuses to rule out competing directly with bmi. "It may be the case that the business traveller will need a different type of product."
The new carrier will begin operations with two Boeing 737-300s, and future expansion will be based around a single aircraft type, Davis says. The 737 is widely seen as the most cost-effective aircraft-type for no-frills operations. To take on Go, the new carrier will undoubtedly have to keep costs down.
It will hire its own staff - although some may come from bmi, which has made 600 employees redundant since 11 September. A fresh agreement has also been negotiated with East Midlands Airport.
bmi's launch has echoes of the decisions of KLM uk and British Airways to set up their own budget operations, namely Buzz and Go. The latter was spun off as BA decided to concentrate on its mainline operation. In addition, British European has only recently launched its flybe.com brand, offering low-fare seats across its regional route network.
Source: Airline Business
