And the plot thickens
ABTN.co.uk - First for business travel news and independent advice on business travel
--------------------------------------------------------------------------------
Sun 3rd August 2008
Comment: Where now BMI?
The remorseless process of consolidation by European airlines continues. The proposed union of British Airways and Iberia follows hard on the heels of the Lufthansa takeover of what had been Swissair, plus the one-sided merger of Air France and KLM. Last Tuesday Madrid was chosen for the announcement, a curious option of both venue and date bearing in mind BA’s quarterly results were planned for publishing only four days later. In fact British Airways financials could have been far grimmer bearing in mind, as CEO Willie Walsh put it, “We are in the worst trading environment the industry has ever faced”.
Should the BA/IB relationship go ahead one must ask where does this leave bmi, the former British Midland Airways? Bmi holds around 14% of the slots at Heathrow, BA’s core hub and the world’s busiest international airport.
Sir Michael Bishop is the chairman and majority shareholder of bmi. For over a decade he fought for “Open Skies” on the North Atlantic and eventually won. He was expected to leap into the air earlier this year with a multitude of routes claiming victory in one of the longest running air transport disputes in history.
Not so the canny Sir Michael. With the takeover and consolidation of the former BMED (a BA franchise operated by British Mediterranean) in full swing, a lack of the right aircraft at the right price, and no US partner available in New York, his policy was clearly wait and see. It is proving right. A London – New York gamble at this stage might have been a route too far.
The new bilateral has coincided with an unprecedented rise in oil prices. Three small transatlantic business class only airlines have gone. Others too. Carriers are chopping routes with a venom. BA has announced significant cutbacks.
Where does all this leave bmi and how does all this fit in with the proposed merger? Sir Michael is now 66 and has been with the airline since 1963. The airline is owned 50% plus one share by Bishop and his colleagues, with Lufthansa holding 30% and SAS the balance of 20%. SAS been quoted as putting up its stake for sale but it would require “due diligence” and bmi says that to date no such permission has been requested.
As far as bmi is concerned does Sir Michael remain as the part time and very influential chairman and become essentially non-executive, or does he sell his interest to others? Will BA/IB influence him? British Airways could buy the carrier, and take its interest at Heathrow to over 50%, still very much in line with the slot distribution at Paris Charles de Gaulle (Air France) and Frankfurt/Munich (Lufthansa).
The merged AF/KLM has worked well, but Paris dictates. The joining of British Airways and Iberia is something else. On the face of it one can see an ideal situation. The coming together of two empires. BA is a major force on the North Atlantic, Africa and the Middle and Far East. Iberia dominates the South American connections. Both operate essentially non-competing business routes in Europe, and are individually members of the Oneworld alliance.
But you also have to ask the question “what’s in it for BA?” Surely the airline must have plans to strengthen its once mighty South American route network and persuade European-bound passengers to hub direct via Heathrow rather than Madrid and visa versa. The benefits for Iberia are obvious. A partnership with a bigger, stronger and more commercially successful airline feeding traffic into and out of its key location.
But it also means the combining of two cultures, and this is the rub. British Airways is no longer the aggressive, some would say superior airline, of yesteryear. Under Willie Walsh it is a low key operation fighting in a different world. Yes it does have flair and imagination, the aforementioned Open Skies service up and running and London City – New York proposed, but somehow it does not get the message across. Iberia is loss making with traditions somewhat different. However the two airlines have had a relationship for over a decade.
Mr Walsh, formerly with Aer Lingus, was a controversial choice as CEO in May 2005. In very difficult times he has had some success with BA, ruthlessly dumping executives accused of fare pricing irregularities, and likewise admitting failure by axing those involved with the T5 fiasco. The pension fund has been sorted out and the airline’s relationship with the pilot union seems tenable. BAA (Ferrovial of Spain), owners of T5, appear to have got off lightly regarding criticism from their client BA, but did Walsh have one eye on the future and Spanish relationships?
Willie Walsh’s opposite number at Iberia, Fernando Conte, is also the chairman of the airline. He is a multi-lingual Mexican, noted for his hands-on style. An engineer by training he has been a board member of Iberia since 2001 and CEO from 2003. Does he have further aspirations? Wednesday 3rd December sees Mr Conte due to speak to the Aviation Club in London. It could be interesting.
What happens now? The combined BA/IB could work and would afford considerable savings on the bottom line. However the Spanish takeover of BAA has in many people’s eyes been a failure with plenty of questions unanswered.
A strong and healthy British Airways is essential for the future of the United Kingdom. No matter whatever others might say it is Britain’s flag carrier. Does the country want to risk overseas control?
British Airways has reached a crossroads and Sir Michael has come a long way since joining the fledgling British Midland as a 21-year old trainee. Could it be that he completes an illustrious career not only as chairman of bmi, but also as leader of Europe’s largest airline? It would be one last challenge worthy of the man. And a goal worth achieving.