UK carrier bmi is not going to the USA next year saying it needs to concentrate on bringing BMed into the fold
After years of vociferous campaigning for transatlantic route rights from London Heathrow, bmi chief executive Nigel Turner has detailed the reasons behind his eastbound strategic focus, claiming that this is the smart - rather than emotional - business decision for the carrier.
Bmi chairman Sir Michael Bishop ran a passionate campaign for transatlantic rights from Heathrow and was quick to welcome the Open Skies deal brokered earlier this year. But the Star Alliance carrier has unexpectedly deferred its long-sought transatlantic launch from London Heathrow until at least April 2009.
It gives several reasons for this decision, ranging from the state of Heathrow to its desire to integrate and develop its newly acquired eastbound network. "We've not given up on America, we've just not jumped in at the first opportunity," says Turner. "I think actually that's a smart decision the emotional business decision might be the exact opposite.
BMed consolidation
"But we've looked at the figures, we've looked at the strengths of our company and what we've considered is that the best thing to do is to consolidate the BMed routes under the British Airways franchise into bmi, to spend all our time and resources doing that and turn our attention to America in 2009," he says. Bmi acquired BMed two months before the Open Skies deal was sealed. This meant bmi was forced to choose between its eastbound and westbound ambitions to avoid fighting on two fronts simultaneously.
Turner claims everybody was caught off-guard by how quickly Open Skies came through, following many false dawns. "The fact that we don't want to do it the minute [Open Skies] becomes available doesn't mean the strategy is flawed, and I don't think we were tripped up. We are just taking it in our own time. We're going to do it at our own pace and do what's right for bmi."
He insists the move is a deferment rather than a cancellation, and that transatlantic flights are very much part of bmi's strategic plan. Instead bmi plans to leverage its Star Alliance membership across the Atlantic. Turner says Star, which has a strong transatlantic presence through US Airways and United Airlines, has welcomed bmi's new focus to the east where the alliance has a comparatively weaker presence: "There is no point in duplicating things as far as Star is concerned.Star is very, very important to bmi. It is integral to our strategic direction, integral to our future."
Bmi is just under 50%-owned by Lufthansa and SAS, with the remainder belonging to Bishop. But SAS plans to sell its 20% stake once a loss-making joint-venture - the European Co-operation Agreement (ECA) - between the three carriers comes to a close at the end of this year.
Meanwhile, United and bmi recently won anti-trust immunity with their transatlantic Star partners, effective from March. Asked whether there was a chance United could acquire the 20% SAS stake in bmi, Turner says: "In a literal sense yes, there is definitely a chance United could buy that stake. I think we are very important to United. We are very important to Star. Would it make strategic sense? In so far as we are a Star partner, yes. In so far as it would help cement our partnership with one of our western allies, yes it would."
Turner says the idea is an "interesting concept" which would not cut across any of the strategies bmi is following, and that SAS would not act against bmi's interests in the sale, but he is not aware of any specific talks.
Lufthansa looks on
Lufthansa chief executive Wolfgang Mayrhuber says raising its 30% stake in bmi by acquiring the SAS holding is an option it is considering. If either Lufthansa or United were to take the stake, this could indirectly fulfil bmi's transatlantic ambitions and give the alliance a meaningful transatlantic operation out of Heathrow.
SAS Group head of investor relations Sture Stolen declines to comment on prospective buyers, but he says: "We see this very much as a 2008 issue, because of the [loss-making] joint venture. While we are still involved it is difficult to complete the sale. We want to see that end before we go into the process."
From October 56% of bmi's network will be medium- and long-haul. Bmi deputy chief executive Tim Bye says this will cushion bmi's exit from the seven-year ECA: "I think [the financial impact of the end of the ECA] remains to be seen. We are starting the budget process for next year and clearly the transition of the route network is part of the strategy to rebalance our portfolio and deliver a better result standing on our own. We recognise that a 100% focus on domestic and short-haul European routes is not a long-term strategy for a Heathrow-based carrier. Whether it had the ECA behind it or not, I think we would be going for the same strategy." Bye says privately-owned bmi never has - and never will - disclose the costs or benefits of the ECA.
Source: Airline Business
