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BA Parent Company IAG Gobbles up BMI, Snags More Heathrow Slots for BA

By Periscope @periscopepost

BA parent company IAG gobbles up BMI, snags more Heathrow slots for BA

BA in BMI bid.

International Airlines Group, parent company of British Airways and Iberia, announced Friday that it has reached an agreement to buy British Midlands airline (BMI) from its parent company, Lufthansa. The sale, which is expected to be complete by the first quarter of 2012, will successfully rid the German company of the money-losing airline and gain BA coveted slots at cramped Heathrow Airport, which is currently operating at full capacity after axing plans for a third runway. Financial details of the deal are still unclear, but according to Reuters, analysts are putting the value at around £300 million.

The news, however, hasn’t done much for IAG’s stock, which lost nearly 4 percent on the news, The Press Association reported, putting it at the bottom of the FTSE index. IAG’s purchase is widely being seen as a bid to increase its capacity at Heathrow in an effort to encourage growth after its sharp decline in third-quarter profits this year, driven down by higher fuel costs.

Bet-makers Paddy Power knows a trend when it sees one, which is why it’s now taking bets on which airline will be the next to fall into IAG’s hands. LAN Airlines is the 4/1 favourite, with Swiss International Airlines at 6/1, EasyJet at a distant 25/1 and RyanAir at 100/1.

Heathrow monopoly? This deal will, The Economist’s Gulliver blog said, tighten the grip BA and its OneWorld Alliance partners have on London’s biggest airport and reduce competition for flights between London and North America.  BMI is currently the second largest carrier at Heathrow, Europe’s busiest airport, and, as the blog noted, “If IAG were allowed to keep all of BMI’s takeoff and landing slots at Heathrow, its share of these would rise from about 45 percent to 53 percent.” BA Chief Willie Walsh, speaking to BBC Radio Friday morning, said that this would be a smaller percentage of slots than Lufthansa and its Star Alliance partners have at Frankfurt, or Air France and its Sky Team buddies have at Paris Charles de Gaulle. “True, but two near-monopolies do not justify a third,” the blog judged; Britain’s Competition Commission might agree and force IAG to sell off some of BMI’s slots.

Virgin, flyers lose out. Virgin, The Economist noted, is one of the major losers in this deal: The airline “had also expressed an interest, hoping to integrate BMI’s short- and medium-haul routes in Europe, the Middle East and Africa with its own transatlantic routes to form a strong, Heathrow-based hub-and-spoke network” and now, sees its rival sliding in to the Heathrow spot.  Travelers may also find themselves lacking in choices for airlines departing from Heathrow after the purchase; but more than that, The Economist noted, IAG’s deal is part of a larger trend of big airlines buying up smaller ones or flying subsidiaries, which can’t be good for competition. USA Today’s Boarding Area blog worried, too, that BMI flyers might be getting shafted: “[I]f you have a stockpile of miles, I’d get burning. Now.”

Asia, here we come. BA and IAG haven’t exactly had boom years in the last few, so why would a flagging airline want to buy another flagging airline? IAG Chief Walsh told reporters following the deal, “It is clear that bmi in its current form is unsustainable but we’re confident we can make a success of it…. We will particularly look to expand BA’s long-haul network … it will allow us to connect Heathrow and the UK to emerging markets, particularly in Asia and Latin America.”

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