Following the news last week that Virgin Atlantic was in discussions with Flybe over a takeover bid, IAG – the owner of British Airways – is also now believed to have opened talks.
This is an interesting one. Much of Flybe is what was previously known as BA Connect, the ex-British Airways regional network. British Airways always struggled to make this work and was happy to sell it to Flybe in 2007.
Why would BA buy it back?
it probably isn’t because of the Heathrow slots operated by Flybe, because these were taken away from British Airways when it bought BMI British Midland and BA cannot keep them (IIRC) if other airlines want them to operate specific domestic services
it is unlikely to be because of Flybe’s very modest Gatwick presence
as British Airways has no long haul departures from the regions – unlike Virgin Atlantic – it isn’t about ‘feed’
it isn’t because it would be a material aquisition – Flybe is tiny in IAG terms
it isn’t about rolling out the LEVEL short-haul brand because Flybe operates a different sort of business model to a different sort of customer base
it COULD be a way of beefing up the BA CityFlyer operation which runs the Embraer 190 fleet from London City Airport, although Flybe’s fleet is 75% Bombardier Dash 8 Q400
it COULD be a way of stopping Virgin Atlantic gaining additional UK market share, even if it means doing a deal IAG doesn’t want to do
it COULD be a cheap way of ensuring that Flybe remains within Avios, which would certainly end if Virgin Atlantic acquired the airline
Of course, many of the arguments above also apply to Virgin Atlantic. Its Little Red operation showed that it didn’t know how to make money on UK domestic flights, and that the Virgin brand itself was simply not enough. Flybe cannot provide it with much ‘feed’ outside Manchester, and Virgin Atlantic already codeshares on those routes anyway – but perhaps Virgin has a lot to lose if those codeshares go?
Virgin, unlike BA, has no day-to-day experience operating smaller jets. The Heathrow services cannot move to join Virgin in T3 because the terminal is not designed to segregate arriving domestic passengers.
There is a small bit of upside from stopping payments to Avios Group and using Virgin Flying Club as the loyalty currency, but this may be offset by some customers moving back to BA at London City. Is there value in protecting ‘feed’ to Virgin’s new shareholder Air France KLM?
Perhaps Stobart Group will win the day after all?