British Airways - 2
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BA are paying a lot less than the originally planned £172.5m to acquire the whole of BMI and for an organisation of their size this is small beer. The raising of finance via bonds for such a small sum is nothing to do with difficulty of obtaining loans, but everything to do with opening up a new financing stream that lowers their average cost of capital.
I think they're testing the water ahead of deciding on their long-fleet replacement plans, which will need serious amounts of financing. This is more so, if they're planning to carry this out at an IAG level, to include Iberia's fleet replacement requirements.
I think they're testing the water ahead of deciding on their long-fleet replacement plans, which will need serious amounts of financing. This is more so, if they're planning to carry this out at an IAG level, to include Iberia's fleet replacement requirements.
Uncle Pete
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Interesting to note that up to 31 paired slots are valued by Moodys at up to £454m.
Can't remember how many paired slots they got with the acquisition of bmi.
MP
Can't remember how many paired slots they got with the acquisition of bmi.
MP
Last edited by MaximumPete; 15th Jul 2012 at 09:47.
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Any ideas as to how many transfer pax are generally required to make a LBA- LHR profitable?
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The fewer connecting the better the route is likely to do and survive. They need commuters paying £300 + return in numbers.
Connections MAKE NO MONEY for the domestic leg especially using the BA accounting methods.
Too many connecting and the route/slots WILL be transferred elsewhere plain fact.
Connections MAKE NO MONEY for the domestic leg especially using the BA accounting methods.
Too many connecting and the route/slots WILL be transferred elsewhere plain fact.
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rutankrd
If an airline were to look at the cost v profit of the domestic flight in isolation ignoring the feed onto other services, it would not be interested in such a service.
For BA their primary interest is the feed to long haul, so each passenger needs to be looked at over the whole journey e.g. LBA LHR, LHR LAX, what was the overall contribution.
If the whole journey does not yield a return this is an issue. But if it does it means profitable revenue for BA and a passenger who doesn't fly with other carriers such as KLM, Lufthansa etc who offer connections from a range of airports.
Domestically on point to point, to make the domestic point to point work BA has to charge pricey enough fares and it is faced with stiff competition from both air and rail for most of its domestic flying programme, so my point is the long haul feed is BA's primary concerns on domestics, but LBA it is my view that BA is making all the right noises at this time to keep competition authority happy. Finally, I understand that bmi MAN LHR capacity is being transferred to LBA so in effect the size of the offer overall in terms of capacity is not changing over the 2 destinations split between MAN and LBA.
EI-BUD
Connections MAKE NO MONEY for the domestic leg especially using the BA accounting methods
For BA their primary interest is the feed to long haul, so each passenger needs to be looked at over the whole journey e.g. LBA LHR, LHR LAX, what was the overall contribution.
If the whole journey does not yield a return this is an issue. But if it does it means profitable revenue for BA and a passenger who doesn't fly with other carriers such as KLM, Lufthansa etc who offer connections from a range of airports.
Domestically on point to point, to make the domestic point to point work BA has to charge pricey enough fares and it is faced with stiff competition from both air and rail for most of its domestic flying programme, so my point is the long haul feed is BA's primary concerns on domestics, but LBA it is my view that BA is making all the right noises at this time to keep competition authority happy. Finally, I understand that bmi MAN LHR capacity is being transferred to LBA so in effect the size of the offer overall in terms of capacity is not changing over the 2 destinations split between MAN and LBA.
EI-BUD
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We are not disagreeing .
BA need to balance to P2P - Profitable element with connecting traffic , however the bean counters in watership down simply don't allocate sufficient portions of revenue on the connecting domestic element and therefor the domestic services inevitably book loses (So do many of BAs European routes for the same reasoning)
In the case of LBA you are quite correct that there is actually no increase in slots since they are transferred from Manchester's allocation
(Combined there is some increase in overall capacity as both will be exclusively A32x rather than the current bmiR Brazilians deployed on several Manchester services)
What does disappoint is the lack of early LBA-LHR and late LHR- LBA timings as these may miss some of that valuable and high paying domestic commuter traffic.
Weakening the potential profitability/reduced loses.
The mid term viability is in the balance and the slots may yet disappear elsewhere.
As i said too MANY connecting and it WON'T last long.
BA need to balance to P2P - Profitable element with connecting traffic , however the bean counters in watership down simply don't allocate sufficient portions of revenue on the connecting domestic element and therefor the domestic services inevitably book loses (So do many of BAs European routes for the same reasoning)
In the case of LBA you are quite correct that there is actually no increase in slots since they are transferred from Manchester's allocation
(Combined there is some increase in overall capacity as both will be exclusively A32x rather than the current bmiR Brazilians deployed on several Manchester services)
What does disappoint is the lack of early LBA-LHR and late LHR- LBA timings as these may miss some of that valuable and high paying domestic commuter traffic.
Weakening the potential profitability/reduced loses.
The mid term viability is in the balance and the slots may yet disappear elsewhere.
As i said too MANY connecting and it WON'T last long.
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rutankrd
Dont claim to be an expert in this area, but based on your last comment you have said:
If the 319s filled up on connecting passengers alone, are you suggesting that the service would be unprofitable? I would suggest if BA HQ take that view and dont consider the value of the sales of the onward flights it is a tad foolish. The value of the customer journey can not be judged based on the level of fare paid on a domestic rather than on the whole journey.
However, turn this to a bmi statement, where it only got the portion of revenue on the domestic then fed into partner airlines, that is a different story.
It is very short sighted if BA were to look at the revenue on a domestic flight in isolation and use that to consider its viability. The total revenue that arises from say LBA originating passengers to their final destinations V the cost of providing the service is the metric that matters most.
Incidentally, does anybody know what the percentage of passengers on say LHR GLA MAN and EDI would be connecting ie the ratio connecting to point to point?
EI-BUD
Dont claim to be an expert in this area, but based on your last comment you have said:
No amount of connecting traffic will make a domestic commuter/feeder service profitable period end.
However, turn this to a bmi statement, where it only got the portion of revenue on the domestic then fed into partner airlines, that is a different story.
It is very short sighted if BA were to look at the revenue on a domestic flight in isolation and use that to consider its viability. The total revenue that arises from say LBA originating passengers to their final destinations V the cost of providing the service is the metric that matters most.
Incidentally, does anybody know what the percentage of passengers on say LHR GLA MAN and EDI would be connecting ie the ratio connecting to point to point?
EI-BUD
If the 319s filled up on connecting passengers alone, are you suggesting that the service would be unprofitable? I would suggest if BA HQ take that view and dont consider the value of the sales of the onward flights it is a tad foolish. ........However, turn this to a bmi statement, where it only got the portion of revenue on the domestic then fed into partner airlines, that is a different story.
IATA used to do revenue division on interline fares by dividing the fare paid by the square root of the mileages of the individual sectors. This gives some additional advantage to the short sector compared to doing it just on a mileage basis, where the short domestic sector can just collect small change, notwithstanding that on standard fares alone the two sectors, looking at point to point fares might actually be close to equality. I have certainly bought tickets on BA where a London-Edinburgh return was more than 50% of what I had recently paid for London-Miami. But on a through ticket from Edinburgh to Miami, which would often be pretty much the same as just London to Miami, on a strict mileage basis the domestic leg would get less than 10% of the fare, on the square root basis it gets about 22%.
Now the flight from London to Edinburgh probably doesn't break even on the half load which is point to point, but if it were not for the millions of pounds of connecting revenue that the connection delivers to Heathrow it may well be not worthwhile at all.
So the real benefit is that you get both sets of passengers into one aircraft, and market an overall network from all points to all points. The same effect impacts Lond Haul connecting flights as well. I understand that BA's No 1 intercontinental/intercontinental connection is Mumbai-London-Toronto; the fare for that will, once again, be less than the sum of the two
You are quite right that BA gets the benefit of the whole revenue on most domestic connections, only a minority interline onto other OneWorld carriers, whereas BMI was mainly interlining onto United, Air Canada, Singapore, etc. This was a significant part of the BMI loss.
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I would also point out a little fact.
The VAST majority of BAs profit base remains generated via P2P into out of LHR
O&D and Corporate traffic in ALL classes ......
Connecting traffic and Oneworld interlining fills the void and pays to bills but its NOT where the profit is.
The VAST majority of BAs profit base remains generated via P2P into out of LHR
O&D and Corporate traffic in ALL classes ......
Connecting traffic and Oneworld interlining fills the void and pays to bills but its NOT where the profit is.
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Declaring an end to the matter and stating your opinion as fact does not give you credibility. MAN-LHR point to point isn't huge and I believe connections account for a majority on some flights. However I do not see BA pulling MAN-LHR, even if the route in itself loses money, ( I cannot say ), there' a whole lot of empty heavies leaving LHR if BA don't connect domestically. Strategically one may chose to carry a loss if there is a tangile benefit to another part of the business. Just so long as any loss is manageable and not of BMI proportions.
Rutankrd can you link to the split in profit p2p vs. connections as given LHR is all about connections, that will be good to see. Keen to learn if that data is out there, let's have a look.
Rutankrd can you link to the split in profit p2p vs. connections as given LHR is all about connections, that will be good to see. Keen to learn if that data is out there, let's have a look.
Last edited by Skipness One Echo; 16th Jul 2012 at 16:32.
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Skip i have no doubt that BA do make some commercial decisions to continue certain routes at a small loss especially where connections and corporate contracts allow/subsidise revenue streams.
As for Manchester well BA does continue to sell significant amounts of P2P each day.
Again the question posed was how much connecting traffic would be necessary to make a profit.
Well again the connecting traffic and revenue distribution in and of itself will NOT lead to profitability more rather add to losses on the domestic sector.
That is the point, the poster is under a misconception that connections would make the route profitable well they won't.
What is sure they will add bums on seats and also means BA are once again able secure/service corporates and other frequent flyers more effectively into/out of Yorkshire/Humberside.
Again what i am stressing that they NEED to capture local and or interline traffic at full fares if profitability is to be achieved and in addition to connecting traffic.
As for Manchester well BA does continue to sell significant amounts of P2P each day.
Again the question posed was how much connecting traffic would be necessary to make a profit.
Well again the connecting traffic and revenue distribution in and of itself will NOT lead to profitability more rather add to losses on the domestic sector.
That is the point, the poster is under a misconception that connections would make the route profitable well they won't.
What is sure they will add bums on seats and also means BA are once again able secure/service corporates and other frequent flyers more effectively into/out of Yorkshire/Humberside.
Again what i am stressing that they NEED to capture local and or interline traffic at full fares if profitability is to be achieved and in addition to connecting traffic.
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With the schedule on offer for LBA-LHR, BA will not be capturing too much full-fare local traffic. As is the case on MAN-LHR, they will therefore rely in large part on connecting traffic (not necessarily just at low fares).
And that's normal for a hub carrier, which looks at total profitability across its network.
No amount of connecting traffic will make a domestic commuter/feeder service profitable period end.
) I know another European hub carrier that expects at least 50% of short-haul passengers to its main hub to be connecting, and is happier if it's 60% or more. In other words: this connecting traffic (at reasonable fares) contributes to the profitability of the route. If they got 70% or 80% connecting they'd be even happier.
The question of whether the revenue from a connecting passenger is optimally allocated across short haul and long haul (whatever "optimally" means here) is a vexed one, not unique to BA (and WHBM describes some of the proration swings-and-roundabouts well above). But that doesn't take away from the fact that a connecting passenger is potentially worth a lot more revenue to the airline than a short-haul point-to-point one, and then it's for RM to decide which passenger is the more profitable one to sell the seat(s) to.
C.
Last edited by Cyrano; 16th Jul 2012 at 19:58.
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Quote: "Any ideas as to how many transfer pax are generally required to make a LBA- LHR profitable? Not even flymaybe managed to sustain the route, and that's with a prop, let alone a bus. Any BA rev-man lurking on here?"
If by "flymaybe" (good one!) you mean BE, they were not on LHR-LBA. It was BD until 2009.
If by "flymaybe" (good one!) you mean BE, they were not on LHR-LBA. It was BD until 2009.
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flybe stepped into London-Leeds after the BMI withdrawal with LGW-LBA but they couldn't make it pay. 16th Jul 2012 23:08Quote: "flybe stepped into London-Leeds after the BMI withdrawal with LGW-LBA but they couldn't make it pay."
That's surprising, how long were they on the route?
Apart from West Indies routes, suspect there would be very little connecting traffic at LGW, so they would have to rely mostly on O/D traffic. At LHR, BA can (and BD could) mix O/D and connecting traffic.
That's surprising, how long were they on the route?
Apart from West Indies routes, suspect there would be very little connecting traffic at LGW, so they would have to rely mostly on O/D traffic. At LHR, BA can (and BD could) mix O/D and connecting traffic.