How to buy Avios at a big discount

It is fairly common for airlines to run promotions selling their Miles at a special discount – 20-25% is a pretty standard figure – so it is not so surprising to see that British Midland have just announced a special 20% bonus deal on all purchases. 

However, during the Summer, Diamond Club Miles will be converted to Avios at a rate of one to one – and Avios cost more.

The standard price for 20,000 British Midland Miles is £255 – the same number of Avios would cost £335. That is a big discount already but if you add in the bonus 4,000 you will get by purchasing through the British Midland promotion, you are getting a very good deal indeed.

I doubt you will be able to get Avios at anywhere near this rate in the future. The promotion runs until 30th June.

BA move fast

British Airways is keeping British Midland’s summer timetable in operation but they are moving fairly quickly to make sense of their purchase.

The first of British Midland’s Airbuses is now being repainted in BA colours in Shannon with several others to follow this month. If they are going to use these on European routes in the BA name in future they will have to alter the seating configuration so that the rows at the front of the aircraft, used for Club, have 34 inches legroom as opposed to the 31 inches that is standard on the British Midland fleet.

They have also just announced the first new route resulting from the extra Heathrow slots. From this winter, they will be flying six times a week to Seoul. We would not expect a huge rush of new longhaul routes. It would be foolish to launch too many so quickly and, anyway, they do not have sufficient aircraft, but there no doubt other new destinations in the pipeline.

Meanwhile, the situation for the other two British Midland group companies looks pretty grim. It is hard to see anyone buying BMIBaby by the end of October when BA has said it will close the airline. Already, easyJet and Flybe are moving in on their routes. If someone does not make a move soon, there will be little left to buy. Nor can we see much of a future for British Midland Regional. If the rumoured deal does go ahead, then the buyers would surely have to slim the airline down substantially and, even then, it would face a very challenging future.

British Midland – the nuclear option

Press reports that Lufthansa are making threats to close down British Midland if European competition authorities do not allow IAG to take it over were dismissed as bravado by most. This is unwise.

Of course, Lufthansa would prefer to sell the company as quickly as possible and the threat is a pretty obvious tactic. The British government would not be too happy about all the unnecessary redundancies and a closure would be messy.

British Midland cost Lufthansa €285 million last year – and losses could be even greater if they have to keep it going throughout this year in a state of limbo.

Lufthansa has new and much more aggressive management than before. They have started talking tough to their staff in Germany and to other overseas subsidiaries. They have told Austrian Airlines staff they have to agree cost-cutting measures or much of the airline will be rolled into the lower-cost Tyrolean brand. The overseas acquisition spree of the previous management has hurt Lufthansa badly.

The new management is anxious to make a mark both on the main brand and ensure that its subsidiaries do not act as a drain on the group. They cannot afford to talk tough and back down.

If European regulators make conditions on a deal that force IAG to walk away or insist on delaying approval for several months, there is every reason to believe that Lufthansa will follow up its threat.

Virgin and British Midland

In recent years, Virgin Atlantic has done very little to increase its business but has spent an inordinate amount of effort in attacking British Airways for its attempts to grow. The latest effort to try to block their takeover of British Midland is no different.

Over the years, Virgin have had ample opportunities to buy or merge with British Midland but have – probably very wisely – not gone ahead. Now they are upset about BA getting British Midland. They don’t really want it themselves but don’t want BA to have it.

The argument they are using to block the deal on competition grounds does seem to have some superficial logic. They say that concentrating domestic routes on BA will lead to reduced choice and higher fares.

Unfortunately, this is a complete misunderstanding of the situation.

British Midland thrived as a shorthaul competitor to BA – in much the same way as Virgin did quite well as their longhaul competitor – but the airline business has changed. British Midland lost their position to easyJet who now provide much more effective competition to BA on shorthaul than British Midland ever did. That is why British Midland is in such a financial mess.

EasyJet currently operate 13 flights a day between London and Glasgow. That is more than enough competition for BA. The only other thing that can destroy these domestic routes is the government’s determination to tax domestic air travel out of existence. If BA take British Midland, Virgin will lose the opportunity to sell domestic add-ons to their longhaul flights but that is their problem. It really is not an issue for the competition authorities.

However, I have a solution which, if Virgin are serious, should keep everyone happy.

British Airways should be allowed to take British Midland but give up enough slots at Heathrow to allow Virgin to operate four return flights each day between Heathrow and Glasgow and Edinburgh. In return, Virgin should sign an agreement that they will operate these flights for at least five years.

That would have Richard Branson running for cover to his Caribbean tax shelter faster than you can say Virgin Cross Country Trains.

British Midland – The Final Solution

It is now clear that Lufthansa has given up with British Midland and wants to find a buyer. It is equally obvious that the airline cannot be sold as a going concern – if the mighty Lufthansa cannot make sense out of a rag-bag of routes from Heathrow than why should anyone else think they can?

The value of British Midland has always been in the slots it holds at Heathrow so, the obvious answer is to dismantle the airline and sell these, individually, to the highest bidders. Unfortunately, that would mean the loss of 3,800 jobs at British Midland (and no doubt many more if sub-contractors are included).

British Midland Regional and BMIBaby can be sold to other airlines but there is only one airline that could buy the Heathrow operation and keep the staff – British Airways.

Actually, even BA probably do not want all the slots that British Midland has , and certainly not all the staff, but they would probably take them at the right price. The big stumbling block has always been the competition authorities. Even with British Midland’s slots, BA would still have a lower percentage of total slots than Lufthansa and Air France at their home airports so, with a bit of effort, that could be cleared.

BA has form in this. They took on British Caledonian and Dan Air for nominal amounts, kept the staff and the bits of the airline they wanted but this is rather different. The other two were bankrupt and bought for a nominal sum whereas Lufthansa is clearly looking at a break-up of the airline to get the most value from selling the slots.

The government might have to do some nifty work if it wants to avoid a lot of suddenly unemployed airline staff. It would need to ensure that any deal was waved through by the competition authorities (maybe giving a few slots to Virgin Atlantic but they struggle to make money on the ones they have anyway) and it would have to find a way to convince Lufthansa to accept a sum that made sense to British Airways – which could be a lot less than the combined value of the slots.

Not easy – but possible.