bmibaby md dismisses analyst’s criticisms

bmibaby md Tony Davis (left) has dismissed claims made by an industry analyst that the low cost carrier has entered the market too late and its operating costs are too high.

It follows comments made to TravelMole by Mark Riseley, travel industry analyst at GartnerG2. Mr Riseley told TravelMole that the decision by bmi to set up a low cost carrier had been a “knee jerk reaction” following Go’s decision to establish a base at East Midlands Airport.

Mr Riseley claimed that not only was bmibaby late entering the no-frills market, but that bmi was also making a mistake by not operating it as a completely separate company. He said: “bmibaby is not going to be able to match Go on cost – British Midland’s operating costs are twice as high. Because it is a private company it is difficult to tell exactly what they are doing but they certainly have not indicated that it is a separate operating unit.”

But Mr Davis told TravelMole: “We have sold nearly a quarter of a million tickets in our first two months of operation. Every expectation is that we will be extremely successful.”

Commenting on the fact that bmibaby was not operating independently from its parent airline bmi, Mr Davis said: “We are a separate financial unit within the group. It means we can benefit from volume discounts but can do things differently when we want to. It gives us the best of both worlds.”

And Mr Davis also dismissed the accusation that bmibaby had been set up due to the arrival of Go at East Midlands Airport: “We are operating eight routes, nine routes starting from May. Go heard what we were planning and thought they would scare us off, but infact it’s had the reverse effect and has encouraged us to enter the market more strongly.”

Mr Davis pointed out that bmibaby had recently announced that it is to open a second UK base – although he refused to comment on mounting speculaton that this will be located in Manchester.

In contrast to his comments about bmibaby, Mr Riseley said that British Airways had done all the right things in the way it had set up Go – with its only real mistake being the decision to sell it for £100million last year. “When they sold Go they said there were no examples of a successful major carrier who has run a low cost airline. But that does not mean they were not onto a good thing. Go launched in the right way – they kept it at arms length, set it up from scratch and it has proved itself.”

According to the recent GartnerG2 report ‘Four Choices for Airlines Under Threat from Low Cost Carriers’, endangered carriers have four options available to them when faced with low cost competition. They can either quit routes and scale down; strengthen service differentiation; cut costs or mimic their competitors by starting up their own low cost subsidiary.

Mr Riseley explained: “The classical tactical response to a new entrant is to slap on extra planes and cut fares which is hard to prove because of the complexity of airline networks, but when you have got enormous mountains of debt is also difficult. It can work, but the problem is that low cost airlines such as easyJet and Ryanair now have critical mass. They have strong cash balances and can run a price war if they have to.”

GartnerG2 is a research and advisory service from analyst house Gartner. For more details see www.GartnerG2.com

See our previous stories:

25 Apr 2002: Go’s chief exec named ‘Businesswoman of the Year’
17 Apr 2002: bmibaby to have second UK base
9-Apr-2002 EasyJet and Go demand photo ID for domestic flights
08-Apr-2002: No-frills airlines continue to impress
14-Mar-2002: bmibaby to launch Ibiza service from East Midlands
14-Mar-2002 Go plans to have at least 80 aircraft by 2008
19-Feb-2002 Report says BA was wrong to sell Go
23-Jan-2002 Go announces six destinations from East Midlands
18-Jan-2002: bmi unveils name of no-frills subsidiary
13-Dec-2001 Go sets up base in East Midlands in UK expansion