"No Way BA-AA"

For years, Sir Richard Branson had the slogan above painted on the B747's of Virgin Atlantic Airlines. Virgin Atlantic opposed the tie up of American Airlines and British Airways because Virgin believes that such a union would dominate the US-UK passenger market.

Now that the Open Skies agreement is in place between the EU and United States, such a tie up is now even more possible than ever.   Fuel costs and a weak dollar make a joint venture very interesting.   

American is the USA's largest air carrier. BA is the largest in Europe. A JV between them would create a very powerful alliance in the trans Atlantic market. Virgin rightly believes that such a tie up could damage them competitively.

Given the competitive threat, Sir Richard has written to US Presidential candidates, Senators Barrack Obama and John McCain, looking for relief.  In my opinion, neither candidate either understands the issue nor will be able to do much about it in reality. Obama in particular has shown little in terms of international market understanding or concern.

Sir Richards argument is that the Open Skies agreement hasn't created much in the way of increased competition nor lower prices.  My thought is that's not so much the fault of the Open Skies agreement as it is a factor based on fuel costs and weak dollar.

British Airways and American have almost half of all takeoff and landing slots at London's Heathrow airport. BA/AA will likely file an application this week for permission to coordinate rates and schedules and share revenues and frequent flyer details, on their networks. That's a pretty specific threat to competition.  British Airways is prepared to sacrifice US routes to make this deal happen.

Doubtless Virgin's westbound flights are full and money is being made, but on the eastbound flights from the USA, where tourists are not going to Europe in great numbers, competitive factors are being felt.  Virgin Atlantic is right to fear a BA/AA tie up, but as long as Virgin Atlantic continues to offer great service at a fair price with 25 year old blond welsh flight attendants, I think Sir Richard should focus on his brand value at the same time he fights a legal battle.   

This battle will be won with the passengers, not with the politicians.  My personal opinion is that both these Presidential candidates are weak.  I think Sir Richard better be placing covering bets in other places to make his point.  Competitive quality of service and value for ticket prices will win the day.   

clipped from news.bbc.co.uk

Virgin challenges BA's US tie-up Sir Richard Branson has written to both US presidential hopefuls, warning against allowing a merger between British Airways and American Airlines. Such a deal would damage transatlantic competition and mean customers lost out, the Virgin Atlantic boss claimed.BA declined to comment, but told the BBC that it would make an announcement on the tie-up within the next few days. Reports say BA would be prepared to sacrifice "hundreds" of transatlantic flights to allow the deal to go ahead.The carrier has tried to secure a pact with its US rival twice before but has so far refused to meet US authority demands that it gives up a chunk of flight slots. However The Mail on Sunday says that BA now sees this as a price worth paying, and reports that the airline will make the offer to US Department of Justice officials this week. BA also believes that relaxations in regulations under the Open Skies agreement may make this more likely. 'Red herring' With aviation fuel prices at record levels and spending on air travel slowing, airlines are looking for ways to cut costs. But in his letter to Senators Barrack Obama and John McCain, Sir Richard said that the solution to the problems of airlines "should not lie in an anti-competitive agreement which will inevitably lead to less competition and higher fares". Six routes from London Heathrow - including New York JFK, Chicago and Los Angeles - would be dominated by a BA/American Airlines merger, Sir Richard said. The argument that the competitive environment had changed with the Open Skies accord was "a complete red herring" he added, saying there had been no significant increase in competition and that ticket prices had not fallen.

Add Freightdawg.com to your social bookmarks!

Comments

[David Schneider]

Eric,

Right on the money with your advise to Sir Richard and the way to compete with a BA-AA tie up is to provide a better value proposition. That is always the way to compete and make a profit.

The idea of getting politicians and government to make market conditions "more fair" always trips up on the law of unintended consequences. Anytime government attempts to fix something, they break two other things.

DKS