UAE airlines must get more involved

The tectonic plates of the global airline industry are shifting, and the UAE should not be left behind in the structural transformation that is already taking place in aviation. In fact, it finds itself uniquely placed to mould the future shape of the industry to its own advantage.

The message coming from the United States is clear: in an era of rising oil prices, and financial and uncertainty, the age of the medium-sized airline is over. The merger between Delta and North West is a starter's pistol for a new round of consolidation that will see perhaps three, maybe even two airlines dominating the US. There will still be a role for some niche carriers – flying shorter routes or to remoter destinations, or to service specialist customers like business customers – but the trend will be for bigger airlines based around even bigger airport hubs.

What the US does first, the rest of the world soon copies or follows, and I expect the same process to become more apparent in Europe and the rest of the world as the decade proceeds. The link-up between Air France and KLM has already reaped benefits for both carriers, but the real battle in Europe is between British Airways and Lufthansa, and it is being fought out in a series of skirmishes on the continent and across international routes.

The latest little confrontation is between BA and Lufthansa over the future of bmi, the medium-sized British carrier founded and (still just about) owned by the redoubtable Sir Michael Bishop. Lufthansa has an option to buy Bishop's controlling stake in bmi, and the latest indication is that it wants to do just that. But Bishop himself still has a say over where ownership of his "baby" will end up.

Other potential interested parties are BA itself, and Virgin Atlantic, perhaps in partnership with another airline. There are regulatory concerns from the British authorities over a BA/bmi merger, but at the same time the prospect of selling a British airline to the biggest foreign competitor may make even the authorities think again. There would be a big lobby against Lufthansa in Britain.

So the opportunity exists for a third party to get involved in the bmi sale. Virgin is the obvious contender. A purchase by Virgin would strengthen the hand of Sir Richard Branson's airline in the crucial transatlantic business by giving access to bmi's take-off and landing slots to North America, as well as acting as a feeder to Virgin's London hub from bmi's regional network in the UK.

The difficulty is that Branson rarely wants to own anything outright. His whole business strategy has been based on attracting equity partners to his businesses and then running them under the Virgin brand. You would not think it from the marketing, but

Virgin itself is 49 per cent owned by Singapore Airlines. So he is likely to want a partner in any deal he is considering over bmi.

Singapore might be the obvious one, of course, but this is where the UAE comes in. Either Emirates or Etihad should welcome the opportunity to get involved in the takeover of bmi, and it is believed both have had at least initial talks with Branson over long-term strategy. The widely reported connections between Virgin and Dubai International Capital could also be a preliminary to some kind of deal over bmi, though I doubt very much that it would be more than a finance deal.

That Emirates sees the opportunity in North America is apparent. The airline already flies to New York and Houston, and begins services to Los Angeles and San Francisco later this year. If it added a European stop-over to these routes, taking advantage of bmi's hub in the UK, it could give itself critical mass on the transatlantic trade.

The same attractions are obvious to virtually every airline in the world. Singapore, for example, would welcome the opportunity to expand in North America. A three-way deal involving bmi, Virgin and Singapore looks a neat fit too.

Perhaps Emirates and Etihad should co-operate this one. A deal involving both the UAE carriers in a Virgin-bmi link-up would be a new factor in the negotiations going on over bmi's future, and certainly make it more attractive to Sir Michael Bishop, who, like any founder, wants to sell his "baby" at the highest possible price.

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