Lufthansa Wants to Sell BMIBack to Forum
Hengli123, If you look at Virgin’s profit as a percentage of turnover it’s a very slim profit margin (of course that may be intentional for tax reasons),
Also, £500m in cash may seem a lot but that includes receipts from unfulfilled bookings. Plus airlines need a healthy cash reserve for unforeseen events and to keep suppliers happy and lines of credit open. It would also be unusual for Virgin to pay for an acquisition in cash as they tend to rely on other parties to inject capital into deals with Virgin providing the brand and marketing muscle.1 Sep 2011
If bmi are sold can anyone speculate what will happen to BMi Diamond Club? I have almost 200,000 miles. Should I use them, or if they are taken over by say BA will the miles transfer to their FF club. I note Austrian and Swiss when they were taken over by LH their FF clubs were merged into Miles and More2 Sep 2011
I don’t think Virgin Atlantic as an entity itself has enough cash for a wholesale slot acquisition (Singapore Airlines, which owns a fair slice of Virgin, does though and as Hippo states a lack of cash has never deterred Virgin in the past).
There was a “roadmap” set out by Lufthansa in 2010 which suggested bmi miles would become Miles&More by end 2011.
This hasn’t (yet) happened and I have a feeling (though no evidence) there’s possibly some murkiness about the accounting practices used between bmi the airline and bmi diamond club (always thought it strange that the “free catering” for Golds was “charged” to bmi diamond club meticulously when the airline can hardly do anything right when it comes to technical upgrades).
The more visible strategy to asset strip the airline for its valuable slot portfolio stacks up, especially against a background of ever-more fanciful route launches to places with more consonants than vowels.
Personally, I have been burning bmi miles as fast as is possible, although as they’re so easy to earn I have an embarrassingly sizeable balance to use up.2 Sep 2011
I have wondered previously whether if LH wished to divest themselves of BD if the other *A carriers would acquire a significant number of if not all the slots. It would be in their best interests to do that and prevent the all out BA monopoly that LHR would become.
SQ may in turn wish to lease slots to Virgin. Then again, we’ve been led to believe for quite some time that SQ wish to divest themselves of their stake so maybe that would not happen.
It seems like two major *A players are keen to divest themselves of UK based carriers. Perhaps if LH and SQ were to combine forces they may create something to be reckoned with but I don’t see that happening.
Thoughts?2 Sep 2011
Don’t know whether it’s possible to “lease” slots – I think it’s either use it or lose it, and that means sell.
Might be different if within the same Group, but Singapore and Virgin aren’t, technically, within the same Group.2 Sep 2011
It’s possible to “lease”. There are a number of slot leasing deals in place at LHR. BA for example will lease the QF’s that are released following reduction of QF services in LHR, until QF needs them to reintroduce services or disposes of them.2 Sep 2011
Yes it is possible to lease slots. This is what Qantas is doing with BA in respect of the slots for the HKG and BKK services that it is withdrawing from. Virgin also leases slots to/from other airlines.
LH may decide to lease out slots as an interim measure if it chooses to scale down BD, thus giving the opportunity to expand if (and it’s a tall order) it manages to turn BD around.2 Sep 2011
Easyjet have a number of slots to operate from Heathrow, so I am told. Their business model doesn’t work from Heathrow and therefore they lease the slots to another airline, for the time being.5 Sep 2011
Many of you will be aware of press reports mentioning that Lufthansa is considering a possible sale of bmi. You will also recall that during our previous meetings regarding the Lufthansa half year results, I spoke about the financial situation of our company. I emphasised that decisive actions are needed to address the financial challenges of our company.
The reasons behind these considerations and the current financial situation are due to the following factors:
The Middle East and Africa are important markets for bmi and we have been affected more than others by the political unrest in these regions
Increased fuel prices
The economic situation in the UK
These have all affected our business and therefore for reasons such as this Lufthansa and the bmi management team have to look at various options in order to best face these developments.
These options include the implementation of a more focused bmi business plan. As I have previously mentioned, we have now taken a fresh look at our business, including questioning how we do our business, in order to find better, more efficient and cost effective solutions to deliver a great service to our customers. The focused business plan details areas such as the markets we serve and sales and marketing initiatives. We have also detailed fundamental changes to internal processes, systems and the way we work. We want to reshape bmi so that it will be in a stronger position to deliver improved results.
One of the options being considered by our shareholder is a partial or total sale of bmi. This could be a prolonged process as it will include approaching different parties, due diligence exercises and regulatory requirements.
At this stage it is important to say that all the different options need to be explored and assessed and that no decision has been taken.
It is therefore our utmost responsibility to deliver improved results for bmi and because of this we will start to prepare the bmi focused business plan. We have the opportunity to strengthen bmi and demonstrate the value of our business to our shareholder.
Going forward we need to maintain the high level of service our customers have come to expect from bmi. We will continue to develop our route network, plus we will invest in key investment projects such as reconfiguring our aircraft and our IT infrastructure.
I can assure you that the management team and I are fully committed to navigating bmi through this challenging time. I will shortly be arranging staff meetings and I look forward to meeting with you. I count on your continued support.
Wolfgang Prock-Schauer5 Sep 2011
Unfortunately, I think the uncertainty will last for some time yet.
IAG is the only realistic buyer for bmi. But LH isn’t going to hand BD to IAG on a plate. And then there’s what do to with bmi baby, bmi regional, Donnington Hall, potential competition authority enquiries…10 Sep 2011
Lufthansa has started the sale process, probably due to the latest financial results. BMI lost £54 million in the last quarter, which is £38 per passenger carried. Full year losses are predicted to be much bigger than the £125 million they lost last year.12 Sep 2011
Even with the political lobbying and the privileged status I cannot see IAG being allowed to buy BMI on anti competition grounds. I do not see Virgin buying it on financial grounds but the hub spoke model could possibly make sense particularly if they did not purchase the brand just the concern and rebranded as Virgin. After all they have some experience short haul in Athens and Virgin Belgium also experience in Australia and USA.12 Sep 2011