Bmi mulls axing business class in search for cost savings

The country's second biggest full-service scheduled airline, bmi, is close to making major changes to its European and domestic services from Heathrow in an effort to cut costs and compete more effectively with no-frills carriers.

The country's second biggest full-service scheduled airline, bmi, is close to making major changes to its European and domestic services from Heathrow in an effort to cut costs and compete more effectively with no-frills carriers.

The changes could involve the scrapping of separate business class compartments on board bmi aircraft although no final decisions have yet been taken.

Reporting financial results that showed a return to profit across the bmi group last year, the chairman, Sir Michael Bishop, said a comprehensive review of the Heathrow mainline operation was nearing completion and its conclusions would be implemented "shortly" with the aim of "significantly improving financial performance". The mainline operation accounts for about half bmi's £830m turnover.

Bmi operated a single-class cabin service until 1994 when it decided to introduce business class seating to compete more effectively with rival Heathrow operators such as British Airways. Since then, the growth of low-cost carriers such as Ryanair have changed the dynamics of European air travel. Although about half the passengers on bmi's Heathrow services travel on business, only a very small proportion fly in business class. Removing the curtain could generate big cost savings.

Nigel Turner, who instigated the review when he took over as bmi's chief executive last October, said moving to single-class cabins was a "possibility".

Bmi reported a pre-tax profit of £2.1m for 2004, a return to the black after two years of losses including a £9.8m deficit in 2003. Group turnover grew in 2004 by 7.5 per cent, while passengers carried were 11 per cent up at 10.5 million.

Turning to the low-cost operation, bmibaby, Sir Michael hit out at his rival Michael O'Leary, the chief executive of Ryanair, who said in autumn last year that the sector faced a "bloodbath".

"When Michael O'Leary was talking about a bloodbath, we knew it did not reflect what was happening in the industry at that time. It was a piece of commercial spin, to intimidate competitors."

Sir Michael would not elaborate on this point, beyond saying the low-cost market had in fact "stabilised". Other industry sources suggested that the Ryanair chief executive was seeking to give the impression, to consumers, that smaller low-cost airlines were in danger of going bust - to put consumers off booking with them. Four of Europe's low-cost carriers went bust last year, out of a total of 62.

In 2004, bmibaby's performance improved considerably. It carried 3.2 million passengers, a 16 per cent increase on 2003. The load factor improved from 71 per cent to 78 per cent, while yield increased by 4.1 per cent - a trend, it said, that had continued into 2005.