Bmi boss warns airlines 'fragile'

BMI boss Sir Michael Bishop today warned that trading conditions and confidence in the airline industry remain fragile and volatile.

The chairman and founder of the carrier formerly known as British Midland also rejected suggestions of an imminent merger with Virgin Atlantic but indicated that his low-cost launch bmibaby will be spun out as an independent company in the long term.

Bishop unveiled bmi's third consecutive year in the red, reporting a £9.8m pre-tax deficit for 2003 against £19.8m the previous year.

Despite a strong first quarter of 2004 with traffic up 15% year-on-year putting the group on target for 'break-even or better' this year, he expressed serious doubts about recent hopes for a fast recovery from recession.

'A lot of people are trying to talk the industry up but I believe that recovery remains in a fragile state,' he said. 'The industry remains open to tremendous volatility.'

Bishop refused to comment on speculation that his predominantly UK and European operations would make for a good fit in a merger with international carrier Virgin. The companies met last year but industry insiders believe agitation for talks to be reopened is coming exclusively from the Virgin camp.

He praised the performance of bmibaby, which had nearly three million passengers in 2003 and is expected to carry up to four million this year. While ruling out a flotation in the near term, he said: 'We see it at some time becoming a more separate, more independent company.'

He added: 'Last year was another very tough year for many in the aviation sector with the double impact of Sars and the conflict in Iraq hitting bmi in the first part of the year.'

'The loss of transfer traffic at Heathrow to our network from the services of our international partners in the Star Alliance cost out our business £17m in lost revenues, and was the principal factor in delaying our return to profitability.'

SIR Richard Branson's European no-frills airline Virgin Express plunged to a e14.8m (£9.9m) loss last year in the face of a fierce price war with Irish budget airline Ryanair.

The Brussels-based carrier blamed the deficit on 'heavy ticket discounting' by its rivals. It also accused Ryanair of taking advantage of the illegal subsidies it has enjoyed at Brussels Charleroi airport while Virgin Express is having to pay the high charges at Brussels' main airport Zaventem.

Virgin Express said revenues in 2003 were down 9% at

e207m. The losses came after a small profit last year.