BRANSON SLAMS BA/AA ALLIANCE

Sir Richard Branson, Chairman of Virgin Atlantic Airways, today slammed the proposed alliance between British Airways and American Airlines in evidence given to a US Congressional hearing.

Speaking to an influential group of US Senators Branson said:

“What is before the regulators today is the future of a competitive international aviation industry. I firmly believe that allowing American and BA to proceed with their plans will irrevocably damage an industry that is already on its knees.

“This alliance will mean less, not more competition. It will mean increased domination by BA and its oneworld alliance partners at Heathrow. An BA/AA alliance would be blatantly anti-consumer and anti-competitive. This will be doubly true when taken with the proposed Star Alliance immunity application for UK-US services.”

The proposed alliance is being reviewed by the US Department of Transportation, the UK’s Office of Fair Trading and the European Commission’s competition directorate. Richard questioned how the alliance can be considered in the current circumstances and forecast the bankruptcy of a number of airlines:

“It is beyond me how any competition authority can conduct a relevant, robust and meaningful competition analysis of American’s and BA’s plans given the state of turmoil and constant change that the airline industry finds itself in following the tragic events of 11 September. Airlines are cutting schedules, grounding aircraft and making people redundant. Some carriers are very close indeed to bankruptcy, both in Europe and in the United States.

“It is impossible, therefore, to predict with any degree of certainty what the future competitive landscape will look like. I think the one certainty that we can rely on is that if BA/AA is allowed to proceed unfettered, it can only hasten the demise of certain carriers.

“At a time when we may be witnessing a forced reduction in competition among airlines it is madness to actually encourage even less competition by allowing dominant carriers to collude in setting prices, agreeing schedules etc.”

Richard also welcomes the statements made by a number of American airlines:

“I particularly welcome the fact that so many US airlines, including Continental, Delta and Northwest, are totally opposed to the BA/AA alliance. This is despite the fact that they are currently prevented from serving Heathrow. They recognise that theoretical access to Heathrow would make no sense if BA/AA were allowed to establish a totally dominant position.”

Richard outlined Virgin Atlantic’s main objections:

- American and BA will form a dominant force in the trans-Atlantic market, with over 60% of all Heathrow-US services, and over 50% of all passengers travelling between the US and the UK. In 2000, AA and BA between them carried nearly 9 million passengers between the UK and the United States. The next largest airline carried less than 3.5 million.

- When coupled with their dominance at their respective hubs, BA/AA will have the effect of eliminating competition. BA/AA have nearly 200,000 slots per year at Heathrow. Virgin Atlantic has less than 11,000.

- The sheer scale of this merger will mean that its effect will not be felt solely in the trans-Atlantic market, but globally.

- The establishment of an BA/AA alliance, and possibly a United/bmi british midland alliance, will actually reduce competition across the Atlantic. American and BA will act as one rather than competing against each other as they currently do, and bmi will not compete against United – something which they have admitted in their own joint filing to the Department of Transportation.

- The position of joint dominance that oneworld, the BA and American led alliance, and Star, the alliance involving United and bmi, enjoy at Heathrow, when coupled with the undeniable fact that Heathrow is full, means that carriers outside of these alliances will not be able to mount an effective competitive challenge unless the regulators require these groupings, and BA in particular, to give up significant numbers of slots at Heathrow. Between them oneworld and Star operate 85% of all Heathrow-US services, and control nearly three-quarters of the slots at Heathrow. Past experience suggests that this will produce a cosy duopoly rather than intense competition.

He also gave the airline’s position on Open Skies and slot reform:

“The key argument in this entire debate is Heathrow access. Open Skies is being held up as a panacea by American and BA in this respect. Any form of liberalisation of outdated bilateral agreements should be welcomed, and no-one has lobbied stronger than Virgin Atlantic to replace the current restrictive Bermuda II agreement governing air services between the US and the UK by a truly open competitive regime. But in respect of Heathrow-US services Open Skies will make no difference at all. Put simply Heathrow is full and there are no prospects of capacity increases in the foreseeable future.

“In order for Virgin Atlantic and the US carriers to compete effectively in trans-Atlantic markets more slots are needed at Heathrow, and the associated terminal facilities that go with the slots. But the slots are simply not there. Not from the slot pool; not from partner airlines; and not on the open market. If slots were available, then Virgin would not have had the struggles that it has had to obtain more slots in recent years.

“The only way that the regulators can ensure access to Heathrow is to divest American and BA of slots at the airport. And not just any old slots. They must be slots at the optimal times for trans-Atlantic travel – not at the margins of the day.”