Air Transport World

'We're an airline worth flying': bmi is betting on a segmentation strategy, including the launch of its in-house LLC "baby," to return to profitability.(Profile)(British Midland)(low-cost carriers)(Company Profile)

Never say never. That's a lesson Austin Reid certainly has learned.

Three years ago, the CEO of bmi (formerly British Midland) firmly dismissed the notion that the carrier might follow in the footsteps of British Airways and launch its own version of Ryanair or easyJet. "Going from a full service to a budget airline is almost impossible," he declared (ATW, 5/01, p. 32).

But when Go landed in bmi's backyard at recently renamed Nottingham East Midlands Airport in 2002, Reid had a foxhole conversion and decided that impossible or not, it was something that had to be tried. The result was bmibaby, born on a shoestring with a fleet of three 737s and crew seconded from the mainline.

"We [realized] that there were clearly different segments emerging in the business," the 53-year-old Reid explains in hindsight. "And that led us to evolving toward a by-now clearly defined segmentation strategy. Instead of having what was one business at one time, we now think of four very clear segments or businesses: Mainline, Regional, transatlantic and low-cost, no-frills."

He also emphasizes that these are distinct, standalone operations with their own management and in most cases their own AOCs, including bmibaby, since March 15. Although they draw on a central pool of overhead, "We do benchmark the costs of services in the outside market and ensure that the divisions are receiving a competitive price." He concedes that there are tensions in this relationship. "They stab each other and I get to be the judge and referee," he laughs. Occasionally one is allowed to buy services from a third party. For example, bmi's mainline reservations center tendered for the bmibaby business but the contract was awarded outside the company. …

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