American Airlines and US Airways merger talks confirmed, more details revealed

After a fiasco with the purchase of merger-related domain names in late March, American Airlines (AA) and US Airways (US) earned a lot of attention over the week after US managed to sign tentative collective bargaining agreements with AA's three unions: Allied Pilots Association (APA), Association of Professional Flight Attendants (APFA) and Transport Workers Union (TWU). The three unions represent 55,000 AA employes and they account for three of nine members in AA's unsecured creditors committee.

This is an important milestone for US which is now one step closer to long-expected merger with AA. US is confident that its merger proposal will yield better results than AA's plan of remaining a stand-alone airline, while their promise of less job cuts and better wages in case of merger is music to the ears of AA's employees. However, the airline understands that the merger is far from a done deal, with many potential hurdles still waiting to be solved.

The benefits of AA-US merger might be very tempting for all, with a possible exception of AA management and passengers. The merger would create an airline the size of United and Delta in virtually all aspects, while both carriers would likely have something they wanted for long - profitability at AA and size at US. Naturally, the merger also carries a number of burning questions.

First things first; we can start with brand and headquarters. US confirmed that the merged company would retain both AA's brand name and its headquarters in Dallas-Fort Worth. The choice of brand is quite logical since AA has a better brand awareness and is largely considered to offer better service than US. AA's brand image is scheduled for change anyway, but to what extent, if any, this would be influenced by US merger is unknown.

But one of the more controversial question surrounding the potential merger is the question regarding hub divestitures. While US' CEO Doug Parker claims that no divestitures would be required, some analysts, employees and the general public fear the merger could bring just that. Albeit previous mergers in the United States led to some of the hubs being closed or severely down-sized, with the primary reason for this being close proximity and similar market of two hubs, this scenario is truly unlikely in case of AA-US merger.

American Airlines has five hubs: Chicago O'Hare (ORD), Dallas-Fort Worth (DFW), Los Angeles (LAX), Miami (MIA) and New York JFK (JFK). AA is the largest carrier at its headquarters in DFW as well as in MIA. On the other hand, there is still room for improvement in ORD, while the carrier has low market share in LAX and JFK. LAX might actually not be that much of a problem, since none of the top thee carriers in LAX have a large market share - they all account for only around 16% each and AA is the smallest among them. This on itself is really not that bad. In New York, however, the carrier is seriously lagging behind United, Delta and jetBlue.

US would bring three of its hubs to the table; Charlotte (CLT), Philadelphia (PHL) and Phoenix (PHX), all of which see US as the largest carrier. However, the introduction of CLT and PHL also brings overlap with two of AA's hubs, while the future is uncertain for PHX:

• CLT - MIA overlap
  CLT and MIA serve similar purpose for both US and AA respectively as both carriers primarily use the two hubs for their services to South America, the Caribbeans and Europe. However, closing either of them would be unnecessary. Due to its large Origin and Destination (O&D) traffic which brings higher yields than connecting traffic, closing MIA would never make sense. Furthermore, being further south than CLT, MIA would likely take over most of CLT's current routes to South America. On the Caribbean services, however, this would likely occur to a lesser extent, while European services could easily be divided between MIA and CLT, or shifted entirely to either hub. CLT has more potential as a hub for domestic connections and AA-US would likely use it to challenge Delta's hub at Atlanta.
• PHL - JFK overlap
  Similarly to CLT and MIA, PHL and JFK also overlap on international services, while their close proximity is not helping either. However, AA is a distant fourth largest carrier in JFK and due to the unavailability of slots, having a large presence in New York is a distant dream for AA. PHL will be able to cover that market to some extent, while already #1 position of US at the airport is a serious benefit. PHL will likely remain a valuable hub for domestic and international connections, but higher premium, O&D traffic and a number of oneworld alliance partners serving JFK will be a great reason for AA to stay in New York as well.
• PHX question
  The future of PHX is probably the most uncertain of all the hubs of merged AA-US. The hub is loceted between LAX and DFW, and its close distance from LAX might be the best argument for survival of PHX. The airport could be a great way to connect smaller West Coast communities avoiding the congested LAX and, to some cities due to its location, less convenient DFW. It could also serve its purpose by taking over some of the connecting traffic from LAX.

I believe it is quite clear that merged AA-US would likely retain all of their current hubs, albeit ORD and PHX might have the most uncertain future if some cuts have to be made. But with a fleet of 460 narrowbodies on order at AA, it is highly unlikely that the carrier would seek less hubs unless something like that would be absolutely necessary due to, for instance, bad economical performance of a hub.

Since AA and US are part of different airline alliances, oneworld and Star Alliance respectively, they would have to make a decision on which alliance to join. There has been little doubt that oneworld is the alliance of choice and it is likely that even if the two carriers would want to enter Star Alliance, the move would be blocked by regulatory bodies because of United's membership in Star Alliance. AA is one of the key airlines in oneworld, has exceptional collaboration in place with oneworld partners, especially over the Atlantic, and the carrier's emphasis on South America also fits oneworld strategy perfectly. US, on the other hand, is not nearly as important to Star Alliance thanks to United's membership.

But what might concern the traveling public the most are the fears of possible fare hikes. These fears might unfortunately turn out to be founded. With one major airline airline less in the market, fares could indeed increase on some routes, although the impact is hard to predict. It will benefit the carriers, but certainly not the passengers.

AA presented its latest post-bankruptcy business plan with management still against the merger. Among other things, the plan is for AA to continue relaying on its partners for both international as well as domestic flying. It also emphasizes the need for lower labor costs without which the carrier would have insufficient liquidity and financial stability. A significant capital investment would also be needed to sustain the plan.

Although US managed to persuade AA's unions that merger would benefit them, the unions represent only three of nine members in AA's unsecured creditors committee. The other six members are Wilmington Trust, Bank of New York Mellon Corporation, Pension Benefit Guaranty Corporation, Boeing and Hewlett-Packard and it is questionable if the merger would benefit all of them. But naturally, creditors will vote on what is in their best interest. If what US can offer to reluctant creditors is greater than the benefits of keeping AA as a stand-alone, the creditors will play along.

While US' CEO Doug Parker is now turning to other creditors and analysts and is doing his best in explaining how US' plan for AA is much better than AA's own, AA's management remains reluctant to the merger fearing that their positions are at stake. AA's unions, on the other hand, would love to see their management replaced. It will certainly be interesting to watch how this will play out.

Polish OLT Express plans major domestic and international expansion

If the name "OLT Express" doesn't sound familiar to you, there is nothing to worry about. OLT Express was created as a result of three acquisitions that recently took place in Germany and Poland by a Polish investment company called Amber Gold. Amber Gold has 100% stake in the carrier and divides it in three parts: OLT Express Regional, OLT Express Poland and OLT Express Germany.

OLT Express Regional was previously known as OLT Jetair, which operated domestic and international services out of Poland. In its early days, OLT Jetair operated on behalf of LOT Polish Airlines, while in its first years of operations after being founded in 2001, the carrier operated in business aviation sector. OLT Express Poland was previously known as Yes Airways, which operated charter flights out of Poland. OLT Express Germany includes the company from which today's OLT Express carries its name - OLT - one of the oldest German airlines. In early April this year, OLT Express Germany confirmed it wold take over some aspects of insolvent German regional carrier Cirrus Airlines, which include marketing, sales and maintenance.

What OLT, OLT Jetair and Yes Airways have in common is their parent company - Amber Gold - which took over all three of them and rebranded the airlines to OLT Express. German part of the airline carries "OL" IATA code, while the Polish one carries "O2". Currently, OLT Express Poland (O2) is bringing a revolution to Polish market. The carrier is starting a major expansion which will focus not only around Polish capital Warsaw, but also (and even more so) around regional airports: Gdansk, Rzeszow, Lodz and Bydgoszcz. The carrier plans to develop a strong domestic network and it will base aircraft at all five mentioned airports.

O2 will become LOT's first ever competitor on domestic routes out of the capital. In spite of turning more towards expansion from regional Polish airports, it also plans to develop Warsaw into a quality hub of its own offering good connections. The carrier claims it caters to a different set of passengers than LOT and EuroLOT and seems to market itself as a true LCC which will be used by people that previously could not afford to fly. Sounds familiar, doesn't it?

Major expansion is planned for the end of October this year when all the above mentioned bases will receive services to a dozen of European destinations. The carrier has a small fleet of Airbus A319s and A320s, as well as ATR42s and ATR72s.

I wish I could say that I am optimistic about the venture like with Volotea, but I am not. I have my doubts regarding the carrier's management and their ability to manage a successful airline because the parent company has no experience in running an airline. Their business model seems plausible, although there is this contradiction of being an LCC, potentially even ULCC, but still opening a hub in Warsaw and offering connections. Fares are low, so I hope that they will introduce fees later on, as they seem to have none right now. Without ancillary revenue, I am not sure if they can be profitable. The carrier also seems to be very confident and ambitious regarding demand and I'm afraid they might be disappointed.

O2 will likely bring revolution to Polish market, but it is questionable if it will be able to stay in the market for long. While the idea of connecting smaller Polish cities both internationally and domestically is good and will be a challenge for LOT and EuroLOT, it is also possible that the carrier's management see more demand in the market than there really is.

Lufthansa announces number of cost-cutting measures

Over the week, German flagcarrier Lufthansa (LH) announced a number of moves aimed at improving the profitability of Lufthansa and Lufthansa Group. A series of announcements regarding many aspects of the airline's operation led many to believe that LH might be in trouble. This was also fueled by some statements from the executives, although they did not admit that the situation at the airline or the group is alarming.

After posting a small net loss (€13 million) in 2011, largely attributable to larger-than-expected losses and disposal costs at bmi, LH decided to initiate a three-year cost-reduction program named SCORE across the group. Thanks to SCORE, LH plans to save €1.5 billion, of which €900 million will come from Lufthansa alone.

What raised the dust among industry circles later the previous week was a rumor that LH is considering merging its LCC unit Germanwings (4U) into its own short-haul operations and possibly brand. Although the rumor turned out to be false, LH did admit that it is looking at ways of improving the situation at 4U as part of "Direct4You" project. It is questionable what LH could gain from this merger as the flagcarrier already announced that it will rely more on 4U's nonstop operations from non-hub cities rather than its own services on short-haul. I fail to see how the merger would benefit LH, so I will take this only as a wild rumor for now. A merger between 4U and LH's regional carrier Eurowings is also rumored, but LH denied this as well.

What LH did reveal was a number of changes to its hard on-board product. Apparently, LH will remove First Class from a number of routes. First Class will remain on some selected routes, but only where it makes economical sense for the carrier. On the other hand, LH is considering introducing Economy Plus or Premium Economy Class, which is a popular trend among airlines today.

The carrier also announced it would finally retire all of its aging 737-300 and -500 aircraft by 2016 to reduce fuel expanses, as well as phase out its Bombardier CRJ700 and Q400 70-seaters. LH also claims it will halt fleet expansion by not ordering new aircraft, but took delivery of its first Boeing 747-8I two days ago.

bmi sold to IAG, price reduction expected
LH has also completed the sale of bmi to IAG, but it did not manage to sell bmi Regional and LCC bmibaby, which means that IAG will receive a significant price reduction on already low-priced deal. The original price of £172 million could now be, according to some sources, reduced to as low as £20 million to compensate for receiving the unwanted subsidiaries. If it does not manage to find a buyer for bmi Regional and bmibaby, the two will be closed down, but IAG says that it has one party interested in the former and three in the later. You can read more about the deal here.

Austrian Airlines scraps plans of transferring operations to Tyrolean Airways
Over at Austrian Airlines, which is part of Lufthansa Group, the executives came close to transferring the carrier's operations to its regional subsidiary Tyrolean Airways to achieve lower labor costs, but it now seems that the move will not be carried out as management and unions came to an agreement. Both sides wanted to avoid the transfer as it would likely bring long legal dispute and agreed to suspend automatic wage increases.

UPDATE: Austrian Airlines announced Monday it will go ahead with previously abandoned plans to transfer operations to Tyrolean Airways. According to Air Transport World, the carrier issued a statement saying that the negotiations over the past two weeks "proved impossible to reach agreement over principles" with the company's works council. Austrian Airlines and Tyrolean Airways have formed a team to carry out the integration work by the end of 2012.

News that came from Lufthansa this week were conflicting, unclear and lacked focus, while the rumors seemed to interfere with real news from LH. The carrier also announced labor cuts, but did not provide much details. However, I think this is crucial. Today, the airline is talking about saving on operations, but tomorrow, it will be talking about redundancies and saving on salaries. To me, this whole thing looks like a mixture of typical and expected cost-cutting measures with overblown "concerns" to ensure that the carrier receives concessions from its workers, suppliers, etc. The airline is by no means in trouble - in fact, it is one of the better standing European carriers - and we might have to wait a bit more to see what LH really has on its mind.

Air India to receive $6 billion over eight years for restructuring

It is no secret that Indian flag carrier Air India (AI) is in a notoriously bad financial shape. In fact, it is known as one of the most unprofitable airlines today, having accumulated a Rs. 20,320.86 crore loss over the last four years. Additionally, the carrier currently pays an interest of Rs 2,400 crore a year to banks and has a total debt of Rs. 43,777 crore.

In spite of the huge losses, AI is here to stay as long as the Government of India is willing to support it, while right now, it seems that the government does not plane to close the company any time soon. The government approved a turnaround plan and a financial restructuring plan which involves a Rs. 30,000 crore ($6 billion) equity infusion by the government over the next eight-year period and a debt recast of Rs. 21,200 crore. In addition, the government also approved a proposal to hive off Air India's MRO business and its Engineering Services as two wholly-owned subsidiaries, placing about 19,000 of around 28,000 total employees with them. And in case you thought this would be enough, the airline is also willing to raise $1 billion working capital from overseas markets, as well as complete the number of other moves which should start having positive effects on the carrier's profitability as early as this year.

Just by looking at the sheer size of the funds needed for restructuring, one can quite easily understand that present situation at AI is unsustainable to say the least. Unfortunately, AI is probably the best example of how governments can destroy their flag carriers through corruption and profligancy, all of which are quite noticeable in AI's case.

AI finds itself in a very unfavourable position. The government needs a marionette for its own business, while the carrier's labor does not want to take huge concessions and they are supported by the government to earn votes. Therefore, there is not much that management can do in order to turn things around, especially if that something is not in line with what the government had in mind.

And luckily - they don't need to! Obviously, if the government is willing to spend taxpayer's money on AI, there is little motivation for management and even employees to return the company to profitability. However, it seems that this time the government might be much more involved in the announced restructuring. The government made it clear that they will be closely monitoring performance and pace of the restructuring. But this also raises a set of questions: Is the government willing to act strictly if the restructuring does not go as planned? Is AI's management, which enjoyed status quo for quite some time now, even competent to return AI to profitability? And are AI's employees and unions willing to collaborate?

AI's presence in the market is also hurting other Indian carriers. India is probably the only aviation market in which the issue of having a state-backed carrier competing with private enterprises so clearly stands out. Some analysts will even go as far as blaming AI for a good portion of Kingfisher's issues, although Kingfisher itself is largely and indisputably the one to blame. But with six major airlines operating in India - which is the second most populous nation with a growing middle class and with one of the fastest growing aviation markets - is it not shocking that only one of those six carriers managed to report profits in its financial year 2011? While AI is not the only one to blame, it is a good example of how a state-backed carrier can distort the market.

I sincerely hope that these announcements are the start of a successful restructuring of AI, but having seen what has been done so far, I must say that I have my doubts. If anything, we might soon end up with a clearer picture of where AI is headed when the restructuring, hopefully, starts effecting the carrier's income statement positively. But do note that, so far, the only details that emerged regarding the restructuring were of financial nature. I hope that nobody is forgetting that real work will have to happen on operational side, such as regaining lost market share, as well as improving performance and product.

Brussels Airlines subsidiary Korongo Airlines launches operations in DRC

Every new airline launched today needs to find a way to differentiate itself from other airlines already present in the market. I have witnessed all sorts of strategies applied by new airlines, usually in the form of new and yet unexplored business models or markets, lower prices, heavy emphasis on advertising, or something else. Safety is never on the list of innovations as airlines already do not dare to compromise it. Well, almost never...

In one of the most dangerous aviation markets of the world, that in the Democratic Republic of Congo in Africa, one start-up airline is basing its strategy on just that - being the safest and the most reliable airline in the region. That airline is Brussels Airlines' (SN) brainchild Korongo Airlines (ZC), which was named after the Swahili word for migrating birds. However, it was not an easy task for SN to launch ZC. In fact, SN had aircraft painted in ZC's livery for around a year that, due to the administrative issues causing delays, remained operating SN's services.

ZC is now finally up and running after launching its first route on 16 April from its base at Lubumbashi to DR Congo's capital Kinshasa, followed by the carrier's first international route to Johannesburg three days later. ZC plans to expand further with services to Bukavu, Kisangani, Kolwezi and Mbuji Maji domestically, as well as Luanda, Kigali and Bujumbura internationally.

SN provided ZC with a fleet of two aircraft, one 126-seat Boeing 737-300 and one 84-seat British Aerospace BAe 146-200, while another BAe is on the way for domestic ops.

Ownership structure is a bit complicated. ZC is 70% owned by Airbel, in which SN holds a 51% stake, while George Forrest International holds the other 49%. The other 30% of ZC is held by various Congolese investors.

As part of the effort to be recognized as a safe airline, ZC will keep its aircraft under Belgian registry and will operate them under an ACMI wet-lease contract with SN. That way, the airline's fleet will not be subject to the EU's Blacklist.

Demand for a safe and reliable airline in the mining region, as well as feed to and from SN's European network, are the key elements of the airline's strategy. Hopefully, the airline can become successful and bring the much needed safety to Congolese sky.

Finnair eyes 1H 2013 launch for its short-haul joint venture

After announcing that it would seek partnership with another airline via joint venture, Finnish flagcarrier Finnair (AY) now hopes to launch the new carrier in the first half of 2013. AY is speaking with a number of interested parties, "more than a few, but less than ten" according to the carrier's CEO who declined to specify which airlines were interested in launching the new carrier, but it is speculated that Air Berlin is among them as the most favored.

The aim of the proposed short-haul joint venture would be to significantly decrease costs and to return that part of AY's network to profitability. Unprofitable short-haul is common among European legacies, many of which are now examining the ways of restructuring in order to overcome losses or improve profits. AY is especially keen on doing so since the carrier has a relatively well developed (and profitable) long-haul network. The carrier is basically making use of a favorable geographical position of its hub in Helsinki and connects Europe, North America and Asia.

It is because of this well developed full-service long-haul network that hybrid model is considered by industry analysts as the best choice for AY. But the carrier's CEO has said that, in order to make it work, the new airline would need to implement an "absolute low-cost" business model as a starting point. Since AY is an FSC, some parts of FSC model related to premium passengers, such as complimentary meals, drinks and blocking the middle seat would also have to be added to the equation to ensure that higher-paying passengers experience high level of service on short-haul as well as long-haul. The proposed carrier would also operate point-to-point services.

AY currently plans to secure a "letter of intent or something along those lines" by summer. Fine details about the new carrier are being discussed with each interested party and are not available to the general public. After joining the same alliance (oneworld) as AY in March, Air Berlin is rumored to be the most probable partner for the joint venture, but Etihad's stake in the carrier, as well as its restructuring and bad financial shape, could prevent AY and Air Berlin from launching the new carrier together.

Philippine Airlines and Airphil Express to refleet and expand following San Miguel investment

The oldest Asian commercial airline and Filipino flagcarrier, Philippine Airlines (PR), as well as its LCC subsidiary, Airphil Express (2P), reached an agreement with Filipino conglomerate San Miguel which will receive between 40% and 49% stake in both carriers. Thanks to the sale, PR intends to modernize its fleet which could cost up to $1 billion.

San Miguel will receive management control of PR and 2P, so changes in strategy should not be ruled out. The current focus of PR is on both domestic and international operations, but with strong presence of LCCs on the domestic side of the market, PR is forced to focus around international operations more than it does now. Because of this, it is likely that the refleeting program will mostly consist of widebody aircraft orders.

PR plans to launch more flights to North America, the most profitable part of its operations, but FAA Category 2 restrictions currently in place prevent the carrier from adding more flights to the United States. The government is working hard to return the country to Category 1 rating, but there are no guarantees that it will eventually manage to do so. It is questionable how PR will utilize four Boeing 777-300ERs it has on order if the Philippines do not improve to Category 1. Aside from the US, PR is aiming at relaunching long-haul flights to Europe as well.

On the domestic side of the market, PR plans to utilize 2P which, as an LCC, has much better chances of being successful. In fact, it is not PR, but 2P which will see most of the growth in the foreseeable future. 2P is set to expand not only domestically, but also in regional international markets. Its operations will not grow from the capital Manila, but rather from secondary cities - not only because Manila faces capacity constraints, but also to ensure that the carrier does not overlap with existing PR services.

Being an FSC, PR is able to differentiate itself from the LCC competition in the island state. However, LCCs have eaten away PR's market share on domestic services, meaning that 2P is the only way to grow domestically. PR's domestic operations are already centered around its hub and connecting traffic, while 2P focuses on secondary cities and point-to-point route structure. On the international side, Rival Cebu Pacific plans to launch long-haul low-cost operations mid-2013 utilizing Airbus A330-300 aircraft with around 400 seats, but whether the airline will be able to develop a successful operation remains to be seen. Until then, PR will compete only with foreign airlines and strive to expand its presence in North America.

Joining an alliance is another item on PR's wishlist, but that is not likely to happen soon. Right now, PR will have to focus on refleeting, growing its long-haul operations along with 2P on short- and medium-haul and returning to profitability.

Virgin Australia to invest in Skywest; aims at Australia's lucrative FIFO and regional markets

In an effort to further capitalise on Australian resources and regional markets, Virgin Australia (DJ) announced plans to invest $8 million in Perth-based Skywest (XR), which translates to 10% stake. This does not come as much of a surprise, since the two airlines have already had good relations between each other. Only a few weeks ago, ACCC (Australian Competition and Consumer Commission) approved an alliance between the two carriers, aim of which is to enable DJ to offer an integrated package to corporate clients, such as mining companies with large fly-in-fly-out workforces.

DJ is not the only Australian airline to pursuit growth on this side of the market - Australia's flagcarrier Qantas took over FIFO operator Network Aviation in December 2011, but also operates regional services across the country under QantasLink brand.

Qantas and DJ see great value in FIFO (fly-in-fly-out) operators as they already have contracts with mining companies in place. These operators are usually light on capital having cheaper or leased fleets, which means that they are quite attractive for larger Australian carriers which were not involved in FIFO operations before.

DJ is not only looking for expanding its presence in FIFO market, but also on the regional side. After observing its existing regional services (which were launched with XR in October 2011), the airline claims that yields from regional flying are among the strongest from any of its operations. The carrier has four ATR72s for regional services, but the number is set to increase to 12 by the end of the 2013 financial year.

The deal ensures that the two carriers continue to cooperate, while this cooperation already resulted in great benefits for DJ which, thanks to its partnership with XR, was able to successfully launch its regional network and increase profitability. DJ, although smaller than its main competitor, Qantas, is famous for creating partnerships with other airlines, which in turn resulted in the carrier having a sizable virtual network.

European Commission approves IAG acquisition of bmi

After a few months of uncertainty and vocal opposition by rival Virgin Atlantic, International Airlines Group (IAG) received an approval from the European Commission to acquire ailing UK carrier bmi from German Lufthansa. The deal will allow IAG's British Airways (BA) to expand at its London Heathrow hub, the busiest European airport, but also highly congested with extremely expensive slots and almost no more room for growth.

BA will gain a lot from the acquisition, mostly in terms of slots which will enable the carrier to expand faster, cheaper and more easily than without the acquisition. To be specific, bmi will bring 56 daily slot pairs to IAG, 14 of which were offered to other airlines via this scheme:

• 7 daily slot pairs are offered for services to Edinburgh and/or Aberdeen.
• 5 daily slot pairs are offered for those same service, or for services to Nice, Cairo, Moscow or Riyadh.
• 2 slot pairs will be leased to Russian Transaero for flights to Moscow.

Slots intended for routes to Edinburgh and Aberdeen are particularly interesting as they are primarily the result of Virgin Atlantic's strong opposition to the deal, claiming that it would result in BA's monopoly in the UK domestic market. It is widely accepted that even Virgin Atlantic understands that such claims are incorrect and are mostly just a way for Virgin Atlantic to portray an image of them being an ethical airline surrounded by others with only monopoly in mind; the airline's "No way BA/AA" campaign, aimed at blocking BA's and American Airlines' transatlantic joint venture, is still fresh in the minds of analysts. Virgin Atlantic now stated that IAG's acquisition of bmi would result in BA's monopoly on some key domestic routes such as those to Edinburgh and Aberdeen. Obviously, by offering slots for those services, BA clearly denies being a monopolistic company.

As part of the agreement with the EC, aside from the above mentioned 14 offered slots, IAG will also have to enter into agreements with competing long-haul carriers from London Heathrow to provide them with connecting passengers from IAG's domestic UK and European services.

IAG's original price offered to Lufthansa for bmi remains unchanged at £172.5m in cash, on a debt-free, cash-free basis. The price is subject to reduction if Lufthansa does not manage to sell bmi's LCC unit bmibaby, but this is now unlikely as Lufthansa reportedly has two companies bidding for the carrier. It was also recently reported that Lufthansa is having trouble finding buyers for bmi Regional, but this does not influence the price.

IAG said that the deal is likely to be completed around 20 April, with bmi’s operations and flight equipment starting to be integrated into BA's. The group will have to do a good job of dismantling bmi's original network, otherwise it might inherit bmi's losses as part of the acquisition, while bmi claims it will operate its summer schedule. Since IAG will use most of the slots to expand its most profitable part of operations - long-haul - it is likely that a good portion of bmi's short-haul fleet might end-up at London Gatwick where it would strengthen the airport's position as BA's gateway for leisure-oriented routes.

Unfortunately, IAG does not hide that there will be job cuts on bmi's side throughout the process of integration. But since Lufthansa announced it would have to simply close bmi if the EC did not approve the deal, it seems that the acquisition by IAG is the best possible outcome - Lufthansa sees it as a financial relief for its group (although only long-term, short-term it will lose on the deal), while BA receives much needed slots at its congested hub.

EVA Air signs for Star Alliance, considers converting UNI Air to LCC

Taiwan's second largest carrier, EVA Air (BR), signed to join Star Alliance and is expected to become a full member in early 2013 after the alliance's Chief Executive Board unanimously accepted the membership application. This was a long-awaited occasion for BR, but is also very welcomed by Star Alliance which is working on growing its presence in Greater China Region. Air China, which joined Star Alliance in 2007, will assist in the integration process as the mentor airline.

With China becoming one of the world's largest and fastest growing aviation markets, airline alliances are focusing on the region and looking for new members. SkyTeam alliance is currently leading in both Taiwan (with China Airlines) and China (with China Eastern and China Southern), while Chinese Xiamen Airlines is also in the process of joining the alliance. Star Alliance only has Air China as a member in the region, while EVA Air and Chinese carrier Shenzhen Airlines are scheduled to join soon. Even after the addition of BR and Shenzhen Airlines, Star Alliance will not be the largest in Greater China - the title will stay in the hands of SkyTeam.

BR sees expanding its long-haul network and strengthening its hub at Taipei Taoyuan as the main benefits of membership. Therefore, its recent announcement of talks with Boeing regarding an order for seven Boeing 777-300ERs is not surprising at all. However, this is not the end of fleet changes for BR, as the airline also plans to add six more Airbus A321s after already ordering 12 of the type, all of which will be leased. The Airbuses will be used to replace the carrier's and its subsidiary's fleet of MD-90s. BR also plans to find a replacement for its fleet of four Boeing 747-400 Combi aircraft.

We are going to acquire another seven 777-300ERs. The reason is simple, we're going to have a visa waiver from the USA that will help us. Also, if we can have mainland China passport holders transit in Taipei, that is going to be a huge traffic growth too.

BR's wholly owned regional subsidiary UNI Air will not join Star Alliance, while BR is examining the possibility of converting the carrier to an LCC. The carrier's management also notes that this is just one of the possibilities being examined. UNI Air operates a small fleet of MD-90s, as well as Bombardier Dash8 Q300 turboprops which will be replaced by ATR72-600s.

With plans to grow its fleet to 100 aircraft by 2014 from the current figure of 59, BR will be partly relying on the benefits of Star Alliance membership to reduce the risks associated with expansion. However, last year the carrier recorded huge decreases in both operating and net profits (96.5% and 98.3% respectively) year-over-year, so its expansion plans might be on fragile grounds.