As you read this, please be aware that what is written here aside from the link to the Bloomberg story, is strictly my opinion and not based on any information other than what is publicly available.
As reported by Bloomberg this morning, IAG has reaffirmed it’s committment to acquire the British carrier from Lufthansa’s airline portfolio.
If you read the Bloomberg article, it seems that IAG has already assumed that BMI will be sold to them. Some of their comments suggest that Lufthansa is desperate to sell BMI. I don’t buy it.
While no doubt Lufthansa has decided to take action with BMI and is actively looking to sell the airline, I suspect that it is not going to be rushed into a deal that it is not comfortable with. IAG seems to assume that a deal is all but completed, but that kind of hubris can sometimes backfire.
After all, Lufthansa’s success over the decades has come from meticulous planning and outstanding execution of its business plan. Lufthansa is not going to be rushed and give BMI away in a manner that would be detrimental to the German carrier.
Why is IAG assuming BMI is all but theirs? Especially in light of Lufthansa accepting an offer to negotiate with Virgin Atlantic? It is known that Lufthansa would rather sell BMI than to maintain it and that gives IAG disproprotionate leverage in dealing with Lufthansa. LH’s move to enter talks with Virgin could simply be to improve it’s negotiating position with IAG, but I hope there’s more to it than that.
What this LufthansaFlyer is hoping is that Lufthansa’s key decision makers and advisors are realizing that the sale of BMI to IAG has substantial implications that are detrimental to Lufthansa. By selling BMI to IAG, Lufthansa would be yielding 9% of the coveted Heathrow landing slots to a competing alliance in Oneworld who already has a monopoly in the UK. It also eliminates any near term hope of having a Star Alliance Hub in the UK which will hurt Lufthansa and her partners.
Should Lufthansa decide to sell BMI to Virgin, it would pave a very smooth road for Virgin to join the Star Alliance and bring her strengths to the team. If a deal to sell BMI included provisions for Virgin to join the Star Alliance, Lufthansa would in effect be keeping the landing rights in the family and could leverage them more efficiently than BMI had in the past.
They May Need Them….
One threat that I see as being substantial to Lufthansa is the expansion of middle eastern carrier service to Europe. Emirates is buying A380’s faster than Airbus can build them, and Etihad announced plans to take a 29% stake in Air Berlin.
Emirates has not been shy about their plans to become a dominant player in Europe and at this point at their current pace of expansion they may not face much competition. However, if the BMI landing slots can stay within Star Alliance, the Alliance has a fighting chance to stave off competition from the Mid East Airlines. Currently, the UK is one of Emirates most profitable and successful destinations and Star Alliance has little chance to change that based on how things are now. But if Star Alliance were to increase its presence in the UK it could begin to undermine Emirates and their plans for domination. These slots could be used to launch new Virgin Atlantic service to the middle east, and the slots can also be used to feed additional passengers through Munich and Frankfurt for destinations to the Middle East so that Lufthansa can take on any “attack” by the Middle Eastern carriers on German routes.
I’m hoping that money is not the only factor as Lufthansa is comparing proposals. As someone once told me sometimes, “Less Is More”. I know there’s more to these negotiations than I’ll ever be privy to, but I’m hoping that Lufthansa sees this as a great opportunity to grow and help the Star Alliance expand and is simply not selling to the highest cash bidder.