Passengers may benefit from cheaper fares on flights from Heathrow after Lufthansa became the airport’s second-largest airline when it took control of bmi yesterday.

The German airline is planning to compete more aggressively with British Airways on European and long-haul routes. It is considering a deal with Virgin Atlantic that would, for the first time, allow British passengers to choose between two Heathrow-based airlines with large international and domestic networks.

Lufthansa is expected to use its financial strength to upgrade bmi’s fleet of 54 aircraft and challenge BA on some of its most lucrative routes. Regional airports such as Leeds Bradford, Durham Tees Valley and Manchester could, however, lose some of their services to Heathrow if Lufthansa decides to use the slots at the world’s most congested airport for more profitable transatlantic flights.

Lufthansa, which already owned 30 per cent of bmi, formerly British Midland, paid £318 million to acquire the 50 per cent stake owned by Sir Michael Bishop, the bmi chairman.

Sir Michael, who began building up British Midland in the 1960s, is by some distance Britain’s longest-serving leader in the aviation industry. He played a key role in the liberalisation of the industry and his decades of lobbying were finally rewarded last year with the removal of rules restricting the number of airlines that can fly between the US and Heathrow.

Willie Walsh, the chief executive of BA, said: “Sir Michael Bishop has done a great job for British aviation and is highly respected for all that he has achieved. We hope that he will continue to play a key role in the industry.”

Douglas McNeill, the aviation analyst at Blue Oar Securities, said: “This announcement creates a stronger rival for BA in its own backyard. In the longer term that is certainly good for passengers because it should create downward pressure on fares. BA will also have to sharpen up its act on the quality of service it offers the passenger.”

Lufthansa said that it hoped the deal with bmi, which includes the carrier’s low-fare operation bmibaby and bmi regional services and which needs regulatory approval, will be concluded by early next year.

The remaining 20 per cent of bmi is owned by the Scandinavian carrier SAS, which may also be bought by Lufthansa if the rapid consolidation of European airlines continues.

Virgin said that the next logical step at Heathrow would be for its long-haul services to be combined with the enlarged Lufthansa. Sir Richard Branson had considered making his own bid for bmi.

Steve Ridgway, chief executive of Virgin Atlantic, said: “Everyone has speculated that it would make sense for Virgin Atlantic and bmi to combine their long-haul and short-haul networks. There is now a major opportunity to do that and create a new and even more effective competitor to BA.

“I am sure that Lufthansa realise the future opportunities and this could be a really good example of the right industry consolidation.”

With bmi, Lufthansa will control about 16 per cent of the take-off slots at Heathrow, still well behind BA, which owns 40 per cent. Last year the airline carried 10.6 million passengers to 51 destinations.

Lufthansa said that there would be no immediate job cuts at British airports but did not rule them out in the longer term. The GMB union was seeking talks with the company.

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