Leading an airline spin-off to resurgent new heights

Two years ago, Cathal O'Connell was facing a task that many were bluntly telling him was impossible. He and a small team in East Midlands Airport in Britain were attempting to set up an entire IT system and infrastructure for a new airline in just 12 weeks.

He had just taken over as chief commercial officer of BMI Regional, which had been spun out of the old BMI following its purchase by International Airlines Group (IAG).

BMI Regional had been bought by brothers Peter and Stephen Bond – former owners of Bond Helicopters – for £8 million. The transaction had gone through in June 2012 and IAG was committed to providing IT back-up until October, but after that, the new airline was on its own.

Failure to get its own systems up and running by the end of that month would have grounded the independent carrier.

“Had we not achieved that deadline the airline would have ceased to operate,” O’Connell recalls.

“The overall infrastructure was designed to support the BMI Group and it was being shut down at the end of October and IAG, obviously, wouldn’t continue to operate it just for us.

“We were told at the time that it was impossible to do, we had to create a complete new IT infrastructure, new reservation systems and finance systems.

“In the UK it takes about six weeks to get a business bank account, we were trying to get a business up and running and transitioned over within 12 weeks.”

The task, he says, was akin to doing an “engine change in flight”. On the one hand, they were running the business, on the other, they were creating the new infrastructure on to which it had to be switched, without any disruption.

The trick lay in simplifying everything. The detailed design of the old BMI systems took up three full A3 pages (slightly larger than a single page of this newspaper). He and his colleagues boiled that down into one A4 page.

“The company was using systems and processes that were designed for a much bigger airline, because it was a subsidiary of that bigger airline,” he explains. “So we couldn’t just copy everything that they did, we had to right-size for our business, and make sure that everything was fit for our purpose. We’re an operator of 18 aircraft, we needed to make sure that the technology that we applied, the administration we put in place, were all suitable for what was basically a new start-up.”

After an intense few weeks the new system met its end-of-October deadline and BMI Regional stayed in the air. O’Connell became chief executive on November 1st. By then the company was dealing with another challenge: its brand.

Its complicated recent history had muddied the waters for many customers. BMI was British Midland International, which had been around for decades. In 1996, it bought Aberdeen-based Business Air and rebranded it as BMI Regional.

Lufthansa bought the entire group in 2008 but sold it to IAG, owner of its rival British Airways, in 2012 for £175 million and spun BMI Regional off to the Bonds. British Airways absorbed the rest of the group, consigning its BMI Mainline and its low-cost BMI Baby brands to the dustbin.

This left the regional division's new owners with a problem: customers and the media assumed that the brand was no more, so it had to remind them that it still existed, particularly as it was continuing to operate services and had an operations base at Aberdeen.

So, why not rebrand? “Well,” O’Connell says, “the BMI brand has huge heritage, over 70 years of heritage. People have heard of it, people know it, even though we had to tell people we still exist, they understood that there was a whole history to BMI. We have ownership of the brand itself and it has, if not global recognition, European recognition.

‘Streamlined for business’

“We engaged M&C Saatchi to run a campaign for us, so we ran a fairly intensive marketing campaign during the autumn-winter of 2012 to tell people we still existed. We used the ‘streamlined for business’ tag which Saatchi’s developed for us and that basically gave us increased awareness. But that in itself isn’t enough, the products that you are selling have to be what the market needs.”

At that point, BMI Regional also had to assess whether it was selling something that the market wanted. On parts of its network, it was acting as a feeder, for both its parent and members of a broader alliance of which its group was a member, but parts of it also worked on their own. Added to that, seven craft which it had leased out were returned and had to be put to work in some way.

“So we began to develop new routes out of Bristol and out of Manchester in the winter of 2012, but we also invested very heavily in what we call the non-scheduled market,” he says. “Because we fly 49-seat jets [Embraer] they are very popular in the contract-charter market. So we began a fairly significant investment in the marketplace, putting our aircraft out there for corporate clients, for sports teams, pop tours and that’s been a part of the business which has grown hugely over the last 18 months.

“In 2013 we embarked on a number of new strategic directions. We set up a significant development in Bristol, we fly from there to Frankfurt, Munich, Aberdeen and Milan, and that was all new for us. We set up new routes out of Birmingham and concentrated as well on developing the residual parts of the network that we had inherited.”

Struggling routes

By summer 2013, BMI Regional had 22 routes, but by the second half of that year, it became clear that a number of them, including some services it had inherited, were struggling.

“We had increased competition on a number of them, others really depended on the connecting traffic that we had,” he explains. “They were routes from Edinburgh and Manchester to Copenhagen and Brussels, Edinburgh to Zurich, Glasgow to Copenhagen, a number operated from Birmingham, some of them were new routes that hadn’t worked for us.

“We made a decision around October 2013 to refocus the network a bit more and we closed a number of routes and bases. So we pulled out of Edinburgh, we pulled out of Glasgow and we reduced our presence in Manchester. So that was a reshaping of the business.”

Along with this, the airline continued to exploit new opportunities, on both British and continental routes. For example, following the closure of a local regional carrier in January 2013, a route between Bremen in Germany and Toulouse in France became available – this was particularly significant as aircraft manufacturer Airbus has bases in both cities and staff fly regularly between them.

“Within five weeks we had launched that new service and we were operating that new route, which showed how quick and flexible we could be as an independent carrier,” he says.

"For us that was a big step because that was the first route that did not touch the UK, so we had begun to develop into European markets. We extended that in January of this year when we began operating domestic services within Norway, and also flying from Norway into Sweden. So for example we fly from Stavanger into Gothenburg, and we fly from Stavanger to domestic destinations in northwest Norway. So it's about looking at the opportunities available and how do we tap into those opportunities."

O'Connell explains that a lot of those opportunities come from tapping into the transport needs of other industries. Its routes in Scandinavia and from Aberdeen are driven by the oil and gas business. Much of what it does in Bristol is driven by the aerospace sector, Airbus and Westland helicopters have operations in southwest England. That region also has strong links with the automotive industry, and as a result, BMI Regional flies to Munich.

The airline talks to these organisations when it is considering a route launch. “For example,” he points out, “we currently fly from Bristol to Hamburg. Before we launched that route we had discussions with a number of major businesses in that region about their travel needs between Bristol and Hamburg.

“One of those companies was actually chartering an executive jet every week because access was so poor. So we had other companies that were sending people down the M4 to Heathrow and lots of people were connecting over to Paris to connect on to Hamburg.

“So when we look at a market, we try to assess what are the core drivers of that market? Who are the key companies? Who are the key businesses?”

At this stage, BMI Regional operates more than 300 regional flights a week across 20 destinations and eight different European countries. The handful of people in East Midlands and Aberdeen two years ago has grown to more than 400.

This month, it announced plans to extend its Aberdeen-Bristol service and shortly before that signalled its intentions to boost that IT system to ensure that it can cope with the airline’s growth.

This year it signed codeshare deals with its old parent, Lufthansa, and Brussels Airlines. They cover routes from Frankfurt and Munich to Bristol and from Brussels to Newcastle and East Midlands. So, are they stepping back towards what the airline did before becoming independent?

"Our strategy in 2013 had been to connect regional UK hubs with major hubs in Europe, " he says. "A logical progression from that was that we develop relationships with the major airlines at those hub airports, and because we flew into Frankfurt, Munich and Brussels, Lufthansa and Brussels Airlines were the obvious choice of partners for us."

However, he counsels that it should not be seen as an indication that the airline is looking at a merger, or any other change to its independent status, for the moment at least.

"Our focus right now is moving out of transition stage into a more developmental stage, and issues about the longer-term future will be addressed when we have achieved our development goals. For the moment our focus is on ensuring that we can build BMI regional into a strong successful regional airline." CV: Cathal O'Connell Name: Cathal O'Connell

Job: Chief executive, BMI Regional

Why is he in the news? The independent airline has announced a series of new routes, code shares and other initiatives this year, 24 months after being spun off from the original BMI group, which Lufthansa sold to IAG subsidiary, British Airways.

Background: He began his career with Aer Lingus in 1980, working in a number of strategy and IT roles and helped the airline to apply for membership of the Oneworld Alliance. In 2002, he moved to Aer Arann and the following year went to Eastern Airlines, where he became head of strategy. He rejoined Aer Arann in 2006 where he began restructuring its network, and more recently implemented the programme to transfer the carrier to the Aer Lingus regional franchise, before joining his current employer in mid-2012.

Something you would expect: He holds an MBA in strategic change and business transformation from Henley Management College in the UK.

Something that might surprise: He is a keen private pilot and used to be a flying instructor. A number of his former pupils are now working for airlines around the world.