United and Lufthansa fees to BMI

[Ukridge]

I realize that this article is focused on BMI, but I noticed that the next to last paragraph made a rather interesting statement regarding the fees that Lufthansa and United pay to their Star partners. I was a bit confused though as to how United could simply decide to pay less.
If BMI decides to form a liason with Virgin, how would that affect United at Heathrow - if at all?

http://www.guardian.co.uk/airlines/story/0,,1740452,00.html

 

[SoftLanding]

I realize that this article is focused on BMI, but I noticed that the next to last paragraph made a rather interesting statement regarding the fees that Lufthansa and United pay to their Star partners. I was a bit confused though as to how United could simply decide to pay less.
If BMI decides to form a liason with Virgin, how would that affect United at Heathrow - if at all?

http://www.guardian.co.uk/airlines/story/0,,1740452,00.html

Interesting article.

Sounds like BMI CEO is looking for a bid?! With the Heathrow slots, Virgin and Lufthansa would most likely not give in without a fight...

Also, earnings will be something to watch going forward. Will the strategy work, less passengers, but higher yields? One can claim that that startegy has worked (or at least is starting to) so far for the US legacy carriers. Smaller aircraft, less need for a lot of discounting.

 

[Ukridge]

It does indeed sound as if Sir Michael may be at the very least making an oblique hint of of a sale. Frankly, this is the first I have heard about this and had not realized that the loads have been declining. It sounds as if Lufthansa may have some sort of claim although I do not know how that would affect slot allotments.
I am starting to wonder if the talk of consolidation may be tipping toward something on a larger scale than just within the North American market.

 

[flyingcat]

Mr. Bishop has been dangling that carrot for years. Unfortunately he is too hard headed to see that every "fix" BMI has done has actually made things worse. Unfortunately he just does not want to realize that he does not know how to run an airline anymore.

Do the employees a favor and let wither LH or VS take over at least then they may have a shot at making some money from those who know how to.

 

[Platinum Steve]

It does indeed sound as if Sir Michael may be at the very least making an oblique hint of of a sale. ... although I do not know how that would affect slot allotments.

How does this work at LHR? Are these slots sellable? I seem to remember reading that they were not. Can any LHR approved airline make a bid on them, should BMI need some cash? Or would their slots have to stay under British control?

Also, is there a restriction on the types of flights associated with each slot (ie: slot A is only for intra-Europe, but slot B can only be used for inter-continental)?

Thanks.

 

[JFK777]

Sir Michael should cash out after a long and brilliant carrier. 200 million pounds is a lot of gravy for an english country gentlemen's pursuits. Virgin should buy BMI acquiring all the slots for local as well as intercontinental service. The A330 would fit nicely with Virgin's A340-600.

 

[SoftLanding]

How does this work at LHR? Are these slots sellable? I seem to remember reading that they were not. Can any LHR approved airline make a bid on them, should BMI need some cash? Or would their slots have to stay under British control?

Also, is there a restriction on the types of flights associated with each slot (ie: slot A is only for intra-Europe, but slot B can only be used for inter-continental)?

Thanks.

I would imagine the LHR slots would go to the carrier buying BMI, as long as that carrier did not have too much capacity at LHR already...

If Virgin bought BMI, they would most likely have to give some slots as they are second biggest after BA...

As far as I know, no restrictions on slot usage. (Except they have to be used.)

 

[Ukridge]

The holding of slots, particularly at Heathrow, is an extraordinarily contentious issue. The amount of "think-tank" money that is poured into this discussion is staggering and there has been some rather clever partisanship on all sides of this argument as bespoken by this article: http://www.iea.org.uk/record.jsp?type=news&ID=131
Here you see the basic premise that the slots should be re-bid to the highest offer with of course the Exchequer standing to gain a packet. I am not endorsing this article, but rather submit it as an example of what some of the thinking is. The Australians recently paid over 20 million pounds for two slots so Sir Michael would indeed be sent off nicely if he so decided to exercise this course.
The original idea of the slots (this goes back some time) was that there would be a corps of incumbents that represented a country's access to the airport. In other words, each country would be granted X slots for access with of course some receiving far more access than others. One merely needs to look at BA, Lufthansa, Air France, and Iberia being easy examples of the representation. The slots could then be bought and sold on a secondary market (with BAA approval) or even traded for a more advantageous time. Over the years there has been some shaping of this but the article is correct in describing what is involved. If I am not mistaken (Cosmo do you know?) United even sold slots to Lufthansa when they drew down their European operation.
Long answer but it is very complicated at the moment as it is a sticking point in the Open Skies negotiations.
You can Google Heathrow and slots and find a rich vein of information about the issue. The question for United would be is if it is using only 80% of its allocation at the moment and does it plan to sell off any more so others can do the flying.
Cheers

 

[Cosmo]

If I am not mistaken (Cosmo do you know?) United even sold slots to Lufthansa when they drew down their European operation.

Ukridge:

I'm not certain, but I believe that United leased its excess slots to Lufthansa back when it discontinued some of the flights (to TXL, MUC and HAM, IIRC) it inherited from Pan Am's former LHR-continental Europe operation. That said, I have no idea what the lease terms might have been.

More recently, United has sold 4 slots outright to BA and leased 2 other slots to Virgin for 5 years.

 

[Ukridge]

Thanks Cosmo. What is interesting about this topic is that those who have advocated that the slots be auctioned (or as BA would claim, re-auctioned) is that the alliances themselves would be able to bid on the slots and then distribute them to the carriers that they thought would best enhance the alliances profitability. The claim is made for example that Star would purchase X or Y slots and then determine how to best use them to the advantage of customer and company alike - thus bringing in an efficiency into the process.
One need not of course think too hard to put forth a counter to this proposal in that the Star may be a confederation, but it certainly is not yet a monolithic economic entity. So just how in the blazes would each member airline protect its revenue generation? The EU would be apopletic over the mere thought of this and how would smaller interests compete against the pool of money. Yet this type of argument is regularly trotted out under the guise of "solving" the slot issue at Heathrow.
The truth I am sure is somewhere to be found, but it is in hiding at the moment.
Which brings up another question as to why United is in such support of the Open Skies? What gain do they see for themselves?

 

[Cosmo]

Thanks Cosmo.

You're welcome.

Which brings up another question as to why United is in such support of the Open Skies? What gain do they see for themselves?

IMHO, there are four reasons for United's support of Open Skies, in increasing order of importance to the carrier:

1.) The relatively minor (in the grand scheme of things) ability to eliminate current operational impediments, such as flying IAD-DUB without a stop in SNN or flying DEN-LHR nonstop which Bermuda II currently does not allow;

2.) A general philosophy that favors agreements that eliminate governmental oversight of airlines' economic decision-making;

3.) The ability to strengthen and expand United's current antitrust agreements with its European Star Alliance partners without worrying about the U.S. and/or E.U. governments changing the standards for approval of such agreements or revoking them entirely; and

4.) The ability of a European carrier, most likely Lufthansa, to make a significant investment in (though not necessarily enough to take total control of) United.

I'm sure these are not United's only reasons for supporting Open Skies, but they are some fairly important reasons that came to mind quickly.

 

[Ukridge]

Again, thank you Cosmo. Your's is always a reasoned and informative response. I asked that specific question because as I was casually glancing over the information that has been put out on the net regarding the topic of slots, I noticed that United was supporting the U.S. government's position on Open Skies and of course this issue has a portion that is tied to that of the 'London' matter. Yet one of the talking points of the governments was that Open Skies would serve to "lower" air fares on trans-Atlantic flying. I was just curious why United would wish for something that would drive its yields even lower in this market. Your reasons however, (particulary #s 3 and 4) serve to explain that there is more to the story.

Cheers

 

[The Gopher]

Yet one of the talking points of the governments was that Open Skies would serve to "lower" air fares on trans-Atlantic flying.

For a quick open skies summary and what it means to US airlines:
http://www.cato.org/research/articles/firey-030924.html

"History shows that when U.S. airlines have greater freedom to compete with their European counterparts for trans-Atlantic customers, the Americans do very well."

MORE (from http://www.icao.int/icao/en/atb/atconf5/Se.../Whitaker.pdf):

"Labor Concerns
Many of labor’s concerns, fundamentally regarding potential job loss to foreign workers, can
also be addressed by existing and potential regulatory mechanisms. Barring foreign ownership
of U.S. carriers is unnecessary to address labor’s legitimate concerns. Relaxation of foreign
ownership limits would not relieve foreign-owned airlines from the requirement to be
“certificatedâ€￾ as U.S. airlines by the Department of Transportation. Regardless of ownership,
carriers would need to become U.S. airlines, even if they were subsidiaries of a foreign airline.
This required public interest certification, which is subject to ongoing review, subsumes a
requirement that U.S. carriers have adequate staffing by those qualified to work in the United
States and who are trained and licensed to U.S. standards. In addition, immigration law requires
U.S. carrier employees to be legally qualified to work in the United States.
In addition to the legal constraints on wholesale substitution of foreign labor, in fact, according
to a recent study there is only minimal wage disparity between U.S. and European carrier
employees.
In addition, job protection measures are legitimate subjects of labor-management
discussion in the context of any change in control of an airline."