Branson rages as airlines plot new alliance
SIR Richard Branson is on his soap box again. Fresh from battling the likes
of BSkyB over ITV and the government over the sale of Northern Rock, the businessman
has turned his fire on plans of British Airways and American Airlines to collaborate
more closely on lucrative transatlantic routes.
He believes an alliance of the two giant airlines, plus BA merger partner
Iberia, would allow them to dictate the market, charging higher prices between
Europe and America.
If it goes ahead, Virgin Atlantic would find the competition on these key
routes even tougher.
It is the third time that BA and AA have tried to form such an union, after
trying and failing in 1997 and 2001.
Last week they applied for 'antitrust immunity' (ATI), which would give them
an exemption from US competition laws and allow them to share revenues and
costs on flights across the pond.
Fearing a potential loss of business, Branson is angry that the pair are again
trying to rekindle their relationship.
In his first interview on the subject, the Virgin Atlantic owner tells the
Daily Mail why he believes the 'monster monopoly' will be bad for passengers,
bad for competition, and will result in higher ticket prices.
'It patently does not make sense,' he fumes. 'Monopolies are good for companies,
but they are never good for the consumer.'
He adds: 'BA has improved as an airline as a result of Virgin Atlantic keeping
them honest.'
It is a remarkable phrase to describe the often bitter relationship between
Virgin and BA, particularly given the rivals' recent history.
And all the talk about what is good for the consumer appears at odds with
Virgin's role in a fuel surcharge price-fixing scandal that hit the headlines
two years ago.
Virgin blew the whistle on BA in the affair, meaning that as a result of the
Office of Fair Trading's 'snitches charter' it escaped any form of censure
- even though it was just as guilty of ramping customer charges as BA.
On the other hand, BA has so far been hit with £340m of regulatory fines
and class action settlements, and was forced to axe former commercial director
Martin George and communications director Iain Burns for their role.
When it comes to the proposed BA/AA/Iberia collaboration, Branson's concerns
appear to have some basis.
Figures show BA/AA would have 63pc of the capacity between Heathrow and New
York JFK, 79pc to Boston, and l00pc to Dallas Fort Worth.
If they are granted ATI by regulators in Washington and Brussels, it would
allow the three to operate as a cartel on routes between Europe and America
by sharing costs and revenues, and setting schedules.
Branson believes the partners are trying to use the economic slowdown and
high oil price to pressurise the authorities into waving the deal through.
HE says: 'I think they are using the current climate to do something, but
the competition authorities have to make their decision based on the long
term.
'You don't change the competition landscape in order to protect the two biggest
guys on the block. In fact, it should be the other way round.'
Anyone who thought Branson would take this issue lying down clearly doesn't
know the guy. The businessman is a past master at twisting arms to get his
way.
And not just with his airline. Pay-TV group BSkyB found this out when it scuppered
Branson's plans to buy ITV by snapping up 17.9pc of the commercial broadcaster
in 2006.
Branson's cable TV firm NTL, now Virgin Media, may have lost out on ITV, but
he made sure his protest was heard by the OFT, which promptly ordered an investigation.
He was less successful in his high-profile bid for Northern Rock. This was
ultimately spurned by the Treasury, which decided nationalisation was more
palatable than handing Virgin one of Britain's biggest mortgage lenders.
Now Branson is planning to 'get the paint pots out again' to daub his 38-strong
fleet with the 'No Way BA/AA' slogan for a third time.
BA chief Willie Walsh has accused Branson of sounding like a 'broken record'
on the subject - a barb that clearly rankles with the 58 year old billionaire.
He is notorious for being a 'big picture' sort of leader, preferring to leave
the details for his trusted lieutenants to sort out.
He demonstrates this when, for a moment, he forgets the name of the BA boss,
before laughing out loud at his characteristic slip.
'He, what's his name... Willie Walsh. He said that I sound like a broken record.
Well I'm proud to sound like a broken record and if he continues to form anti-competitive
alliances we will continue to protest about it.'
The issues are indeed similar, even though the people on the other side are
different - Bob Ayling in 1997, Rod Eddington in 2001, and now 'wotsisname'
Walsh in 2008.
The Virgin boss dismisses Walsh's claims that plenty has changed since 2001,
mainly this year's Open Skies treaty that allows greater freedom for airlines
to set up at any European hub, including Heathrow.
BA claims this has opened up its main operational base to competition. Previously
only four airlines -BA, Virgin, United and AA - were allowed to fly transatlantic
from Heathrow.
Branson says: 'Open Skies has been a complete red herring. One or two carriers
have bought one or two (landing) slots at Heathrow. There has been no new
competition at Heathrow.'
Branson claims the chances of the partners being granted ATI are 'extremely
slim'. He says: 'They have applied twice before and the conditions haven't
changed. Since the Department of Transport and the European Commission are
pro-competition I don't see that they will allow two of the world's biggest
airlines to effectively merge.'
Aviation analysts believe ATI is just the next step towards a full-blown combination
between the carriers.
BA and Iberia are already pursuing a tie-up that could form the world's third-biggest
airline. Adding AA to that would make it the biggest by some margin.
Branson agrees, saying: 'ATI is the same as a merger, except you keep the
two sets of shareholders apart.
'They will still have carte blanche to operate as they want. They will be
able to stitch up the market together.'
Asked why ATI approval will be so significant, Branson claims the three will
be able to dictate terms to travel agents and high-spending corporate customers.
He believes such power will allow the partners to threaten to withdraw attractive
rates unless clients hand over more of their custom. 'Their power to twist
arms will be enormous,' he says.
NEVER one to miss a headline-grabbing opportunity, Branson recently sent letters
to both US presidential candidates, John McCain and Barack Obama, urging them
to block the deal.
So, does he expect to get an answer? 'I would expect to get a response. They
should be concerned,' he says, adding: 'I think there will be many jobs lost
in the UK and US, which won't be in the interests of those that work there.
'And if you go back to the days of state run (monopoly) airlines, it was never
good for the consumer.'
Branson insists that even if the BA/AA proposal is approved, Virgin will continue
to be a strong competitor out of Heathrow.
The carrier is expected to buck the effects of the credit crunch when it reports
annual results tomorrow, with profits up over 20pc to more than £55m.
But it is not without its problems. It is currently in talks to sell off its
stake in the lossmaking Virgin Nigeria venture.
Branson says: 'We are 25 years in and we have survived a lot, whether it be
9/11 or soaring fuel prices, and if we fail in our campaign (to block the
deal) we will manage.'
But with an even more dominant player tightening its grip on some of the most
lucrative air routes in the world, it is likely to become even more difficult
for smaller rivals like Virgin to keep up.
Culled from Daily Mail
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