Virgin and BMI

[The Big Easy]

I know this one has been beaten to death but....... A very good source tells me that Branson and Bishop held further talks this week and are getting closer to a takeover deal !! Any news?

TBE.

[Toilet_Town]

I fully expect to wake up one morning to find BMI/VS have announced a deal.

No doubt about it.

:cool:

[Count von Altibar]

It's got to happen because everybody's talking about it so much! Makes so much sense in the UK aviation scene.

The Count

[Trolley-Dolly-Babe]

I hear the call centre at NEMA is the next thing to go, why would Virgin want a bunch of reservations staff at NEMA anyway if this merger happens? Apparently, they're already seeing what they can offer as redundancy in the counting house at Donington Hall.

I think it would all slot into place nicely, leaving the Bishop with his bmibaby to play with instead of loss-making mainline.

[keepitlit]

Trolly

Re:"I think it would all slot into place nicely, leaving the Bishop with his bmibaby to play with instead of loss-making mainline."

I think you need to get your facts right,Mainline made a profit but other parts of the company brought the group into an overall loss.

I heard a meeting with Virgin crews was to take place last thus any truth in it.

Rgds K.I.L.:ok:

[Trolley-Dolly-Babe]

K.I.L.:

Think about it for a moment, bmibaby fares are often more expensive than mainline fares.... how can mainline be honestly making a profit!!!

Its all smoke and mirrors if you ask me. Thats what they pay expensive accounts for, to massge figures and make it look like they're in profit when they're not. If you had access to the revenue on these flights (and I did!) you would see most mainline flights are full of people down the back who've paid tupence halfpenny to travel on a internet only fare.

Why do you think mainline ditched most of their in-flight service apart from biscuits and drinks...? No money maybe???

[Digitalis]

I don't understand at all why it's 'obvious' that there should be a merger between BMI and Virgin. Virgin is a profitable premium long haul carrier with probably the strongest brand image in commercial aviation. BMI is (currently) a struggling provincial, essentially shorthaul, carrier with almost zero visibility outside UK and a workforce whose morale seems in terminal decline.

Full service shorthaul carriers in Europe are on the slippery slope toward extinction. Full service on flights of less than three hours duration is likely to become a relatively rare, niche operation as the great unwashed public continues to demand more and more utlitarian air transport. In other words, the conventional market for BMI is disappearing, fast. What's the point in Virgin buying into this dying breed - and diluting the brand at the same time? Virgin Group doesn't seem to want to be in the low cost market in Europe either - it's recently tried to divest itself of Virgin Express. I suspect that Virgin (and Singapore - 49% owners of Virgin Atlantic) don't appreciate the brand devaluation that association with the low cost market brings.

No, the only thing that Virgin Atlantic wants from BMI is slots - and I reckon the Bish will make Branson work very hard for them! As for meetings with the crews at Virgin - Virgin doesn't ask it's crews about strategic business decisions! Last Thursday's meeting was nothing to do with BMI - or any other airline.

[Young Paul]

"The conventional market for bmi is disappearing fast."

That would be why load factors are increasing then, whereas loco load factors are decreasing.

That would be why bmi's fares are nearly as low as the loco ones.

That would be why the bmi brand now has higher visibility than it ever has before (still not great, though!).

But I agree that the major asset is the slots at LHR.

[GOLF-INDIA BRAVO]

BMI has a top class long haul operation out of Manchester which is growing all the time and carring very good loads

Golf India Bravo

[Lite]

I never really understood why bmi decided to allow bmibaby to grow an operation out of Manchester Airport, instead of expanding the shorthaul operations of bmi and bmi regional.

Whilst I can imagine there are going to be few people coming in from ORD/IAD that are going to be travelling onwards to IBZ/PMI/AGP, surely expanding the british midland brand, as well as offering a hub-and-spoke base, from a much less congested airport than London meeting the longhaul flights would have been better?

Not only does bmibaby not allow passengers to have connections to/from mainline (unlike zip by Air Canada or ted by United), but it dilutes the brand in the market.

Could someone perhaps explain management's decision?

I'm glad to see bmi are back on track to profitability & I think they have an excellent product to offer either as an individual company or as virgin europe.

[mattredd]

If they do announce a tie up don't be surprised if BA tries to buy one of the airlines. With the way the industry is competiton concerns might not be as tough as they once were.

[Digitalis]

"The conventional market for bmi is disappearing fast

That would be why load factors are increasing then, whereas loco load factors are decreasing.

That would be why bmi's fares are nearly as low as the loco ones.


Young Paul you make my point for me! The reason that BMI's fares are now coming down is because BMI is having to strip costs out of the operation in order to compete with the loco's. Whatever label you stick on it, BMI is having to become a loco operator by default - therefore proving that its conventional (full fare, full service business travellers) market is disappearing, or should we say 'evolving'? It's good the hear that the load factor is increasing, but what about the yield? I'd guess that the average yield per passenger is a fraction of what it was five years ago, which will inevitably impact profits. And, from the passengers' point of view, what market is BMI operating in? It's not clear from their advertising, and I think that leads to confusion. Sure, the sophisticated internet-using traveller will get online and compare fares from all suitable airlines, but the majority of airline passengers are not that sophisticated, and will assume that they have to go to a loco to get a low fare - hence, I imagine, the rationale behind BMI Baby.

BMI has a top class long haul operation out of Manchester which is growing all the time and carring very good loads G-IB, BMI's nascent longhaul operation is not bad at all, but it is very small and relatively insignificant compared to the rest of the airline. The recently-anounced Caribbean operation suggests that BMI are preparing to leave the business-oriented North American market (or at least, limit their ambitions there) and are intending to chase the charter airlines' holiday operations. To me, this is a strange decision as BMI is not part of a holiday operation and has no umbrella organisation to help absorb the costs of such a start-up - and the fares yield on this kind of operation is historically very low. Unless they've tied up a big deal with some cruise liner operator(s), I find it difficult to believe that they can make a profit in this market.

If they do announce a tie up don't be surprised if BA tries to buy one of the airlines. With the way the industry is competiton concerns might not be as tough as they once were mattred there is no way that BA would be allowed to absorb BMI or Virgin, even if their shareholders were persuaded to finance such a deal (which I think would be very difficult). The industry is not in such a dire strait that the Competition Commission would ignore all its founding principles! In any case, if Virgin were to take over, or merge with, BMI, I think the combined company would be rather too large for BA to swallow; the additional debt that BA would have to take on would be indigestible for their banks and investors. Also, as both Virgin and BMI are private (not traded) companies, BA cannot buy what is not for sale.

[mattredd]

Digitalis I meant that BA would buy one of the companies and scupper the deal. I know BA are very keen to reduce their debt but this would be a very rare event where they could gain more control at heathrow and I think the banks would see the logic in the deal.

I think there would be a very good chance of the competiton authorities allowing this to get through as the EU let the AF + KL merger through and the UK might as well because of all the LCC competition.

As for both being private companies, they still have owners and if BA offered a good deal to say Bishop then BA could still pull it off.

[SNNEI]

mattredd,

I see your logic about this being desirable for BA, but there is one very big difference between BA and AF/KL.... Paris and Amsterdam have a hell of a lot more capacity and capacity to grow than Heathrow.

Sorry mate, but couldnt see it being allowed myself.

[alterego]

The Virgin merger has been talked about since Pontius was Chief Pilot. Lets just wait and see...

Funny there are mainly BMi people talking about this!

[flymeagain]

Well Digitalis, BMI Longhaul opp for the caribbean has landed two large contracts. One with P & O, and the other with Virgin Holidays. Also the loads (especially in the premium cabins are doing extremely well. For example on the 22nd of Dec "The Business" cabin is already full with 6 on waitlist!! Not bad considering they only announced the route over a month ago!! Heard that they are getting ready to announce Delhi and Mumbai, and they are looking at MAN-JNB-CPT, which would be full all the time if done in co-op with new Star Alliance member SAA, I'm sure if given a choise between AV8 air or BMI, I know who I'd choose. I flew BMI from Man to ORD on my way to LAX few years ago in "C". Have to say it was one of the best business classes Ive flown in, put Virgin BA, AA, DL, EK, TG all to shame (all of whom I fly with on a regular basis). Being a travel journalist for the past 6 years, its nice to see an airline growing on its reputation for service. That's why I (sorry, we) gave it five stars in a survey last year for a top travel magazine!!

[Young Paul]

The fare structure for the Caribbean is also different from North Atlantic. The flight length is about the same, but the basic return fare is about twice as expensive - which might suggest that they intend to make money on leisure, rather than business.

I don't think there is any evidence that bmi intends to leave the North American business market - although it continues to juggle around to optimise the income from it.

I agree that yields and profits are down on shorthaul - hardly an insightful comment - that's obvious from the "profits" that have been declared in the last few years! However, costs are also being reduced (not least by going to single fleet from LHR) to match. And although the shorthaul product is now cheaper than it used to be, it is very definitely not low-cost. They still provide free food and drink appropriate to the flight and time of day; they still provide allocated seats; they still provide a newspaper - even in economy (okay, so what - it's pence - but it's service!); they still provide a flight connection service and support - which is the really big thing that locos won't ever offer; they have a service standards guarantee which is detailed on their website. You can still pay for a separate business class (or, more normally, the taxpayer can) if allowed by your employer's policy!

Of course you pay for what you get - but the point is that for only a few pounds more than the lowest cost of a loco flight, you could be flying from LHR (which against all reason is the preferred international airport in the UK!) with a non-low-cost service with pretty much all the bits and pieces that full service always had. And (see www.spotfare.com [once it is running!]) - if you need to travel tomorrow, you can probably get a seat on bmi for less than you would have to pay on easyjet on the same route.

[no, no, no]

flymeagain - how do you know so much about bmi's longhaul ambitions being a journalist - or do you have some good sources out there??????

India and SA would make sense though if it was true.

Also - how d you find out what advance bookings are like? Surely they don't let on if they are full in business with waitslits????? or am I missing something??

Re shorthaul, I read recently that bmi have launched the 3rd largest amount of European routes over the past 12 months, only beaten by Air France and I think easyjet.... launching the likes of Alicante, Venice, Naples and Inverness shows they are having success in leisure type places, but with them launching Aberdeen 5x a day it also shows that they also can go after the business markets - and from what I have heard from up north they are having quite an impact on the market.

Everyone seems to forget that they offer may business routings like Scotland, Amsterdam, Paris, Brussels, Leeds etc that are offered at high frequencies, therefore targeting the business sectors - the only reason they struggle for overall awareness is that they aren't a low-cost, nor a longhaul flag carrier, but for the people who fly on the routes they offer they do have very high awareness!!!!!! Especially with the market that travels several times a year - not just once!!!

And don't forget what impact that STAR has on them - they are also acting as a feeder airline to the likes of Thai, Singapore, United and Air Canada - just like BA's shorthaul do... it's just that they are connecting to an alliance and not just to themselves!!!

Regarding take overs - is this Virgin story ever going to be put to bed???? How many times do we have to hear it!!!!!! And no way would BA ever be able to take over bmi - the competition people would not allow one airline to control over 60% of slots - and provide the only feed in to Heathrow from Scotland etc....

[flymeagain]

No, No, No --
Quote:
" how do you know so much about bmi's longhaul ambitions being a journalist ".
You don't get to be a journalist without having people in the know!! if you didn't have sources, you'd have nothing to write about!! :hmm:

[Pembo330]

Just a quick note on the t/over rumour.

One thing Virgin doesn't have is a decent feed into LHR; BMI could provide that along with freeing more slots for further long haul growth. As someone who travels from the North, I often find it cheaper to connect in AMS, or via BA at LHR because VS don't offer decent feeds.

Still think this is all hear-say at the moment though and a deal is a long way off, at least.

[PAXboy]

I never really understood why bmi decided to allow bmibaby to grow an operation out of Manchester Airport, instead of expanding the shorthaul operations of bmi and bmi regional Because starting a new airline brings two unique things:
[list=1]
Start with new contracts. A clean slate is then written with the numbers that YOU want, not the ones that have been cobbled together over many years.
Free publicity. The press will tell the public about your new carrier for free, rather than you having to pay for tons of advertising to try and persuade the public that you are different to what you were before.
[/list=1]

[Digitalis]

Young Paul I agree that BMI's product is far superior to the loco's (and is good by anyone's standard), but I don't understand how they can reduce costs to the point where they can offer full service at an average fare less than EZ and Ryan, and out of Heathrow too! Something doesn't add up, and I can't see it continuing without some serious pain somewhere!

The problem with entering the Caribbean market (let alone the ambitions that flymeagain mentions) is that there are only 3 BMI A330s and, as far as I am aware, there are no orders in place for any more. They're going to have to spread those aircraft pretty thin! Have further orders been mooted?

The P&O tie-up expains one of the points I questioned, and a contract with Virgin Holidays is interesting. I know that VS postponed further expansion into the Caribbean because of lack of available aircraft and a training department already stretched to cover more pressing needs. How long can BMI keep the Virgin Holidays contract? A year or two may be enough to get them established, I suppose, but it must be a safe bet that the contract will go to VS once aircraft and crews are available?

Pembo330 Virgin used to codeshare with BMI for key connective routes into LHR. Does that not still exist? Even if not, it would not justify buying an airline to provide such a service!

mattred the Air France/KLM merger is not comparable to a BA takeover of either Virgin or BMI in that AF/KLM will not end up with a significantly greater proportion of slots at CDG or AMS - and will almost certainly have to give up slots to satisfy the Competition Commission. There would be absolutely no point (for BA) in BA acquiring either BMI or Virgin and then having to release all the inherited slots (which would certainly be required), even if either of those companies were for sale. And, I repeat, I don't believe that any investor in BA would welcome speculative commercial acquisitions at this time - that's why BA was (and probably still is) courting a quoted equal like KLM, where a merger through equity swap would achieve the aim of expansion without incurring further debt.

[Young Paul]

Mmm. Firstly, I think that bmi's average fare won't fall as low as the loco's. The point is that if you have a choice of paying £6 plus tax to go from EDI to LTN, or £11 plus tax to go from EDI to LHR, which includes all the bits and pieces that come with a bmi flight, and the ability to make a connection to anywhere in the world, all of a sudden bmi doesn't look so bad. Bear in mind that as a private company, bmi doesn't need to show the massive profits that EZ and FR do to maintain their shareholders' interest - it just needs to make a little money and keep increasing in value (and occasionally make and divest itself of assets). This isn't an analysis of the morality of private and public companies, just a comment on the status quo. Incidentally, I think that BA will have its work cut out - remember the statement by the boss that he wanted a 10% profit margin a while ago? Well, that's what it will take for shareholders to look as favourably on BA as on EZ and FR - though it's interesting to see what the effect was to the share price of a threat to the large profit margin of the locos.

There is a more subtle point. Bear in mind that Easy and Ryan have been making large amounts of money in the last few years from the last 10 seats sold on each aircraft - which were probably netting them hundreds of pounds (euros) per flight. But people are cottoning on to the fact that you probably don't need to pay £150 one way from Scotland to London - you can travel with bmi or BA for £60, even travelling tomorrow (www.spotfare.com is kind of up and running now - gives a one-off comparison). So BA and bmi flights are going to be slowly filling with medium revenue pax, whilst EZ and FR flights are going to be slowly losing high revenue pax. Also EZ and FR don't carry cargo .....

I think it's interesting that basically the full service airlines are reasonably bullish at the moment, whilst EZ and FR are issuing profit warnings. OK - it's all relative, they aren't predicting losses or anything like that - but they are realising that they are being given a lot more of a run for their money than they expected.

[Digitalis]

Yes, you're right. And BA and BMI probably can play a longer game than EZ and FR. EZ problems in the share markets today are indicative of the fact that their shareholders are beginning to realise that the game isn't so simple after all.

I seriously hope that BMI do pull through their current problems, but they will need more (and more public) support from Lufthansa and SAS, I think. Otherwise I can see some firesales of slots to Virgin - possibly under cover of some more codesharing announcements, which would keep the 'merger' rumours smouldering, and, incidentally, keep BMI's price high in the market should anyone else be interested!

In fact, sometimes I wonder if the merger rumour was started by Bish and Branson for their own amusement, to see how rumours develop on the grapevine! It could be true, if only they could stand each other!