This is one of my more opinionated posts…
In a move that wasn’t too surprising, American, British Airways, and Iberia (along with Finnair and Royal Jordanian) applied for anti-trust immunity. They even set up a website to get support for the move (hat tip to Lucky for the link). Right now I think I like the deal. American and British have always been close and I think cooperating a bit further in terms of operations and other areas (like frequent flier programs) can help them run more efficiently.
Richard Branson, founder of Virgin Atlantic, isn’t too pleased at all. I’m not surprised – Virgin and BA have been bickering since before I was born! Yesterday an article of his appeared in the Wall Street Journal. He claims if the application is approved, it would be bad for air travelers. Mr. Branson definitely does makes some good points in his article, especially when he mentions the lack of open slots at Heathrow. He also criticizes Open Skies a bit, and then notes how much capacity BA/AA would have in certain markets:
- 80% in Boston
- 75% in Miami
- 66% in Chicago
- 63% in New York (JFK)
Guess who a major competitor is in all of those markets? Virgin! The airports he chose are certainly interesting. For example, he didn’t mention Newark (where BA and Virgin compete). Branson probably made that choice because Continental flies the route as well, making JFK a stronger example. Los Angeles is also missing – maybe it is because the Open Skies agreement (which Mr. Branson expresses distaste for in the article), has now allowed Air France to enter the Heathrow market and provide more competition.
I noticed one other thing about the article. Mr. Branson notes that “BA just by itself has more capacity from Heathrow to the U.S. than either Star from Frankfurt or SkyTeam from Paris,” but still talks about market share on some routes, which is a bit odd. In Boston, for example, SkyTeam has 100% of the direct flights to Paris, and Star Alliance has 100% of the direct flights to Frankfurt. SkyTeam also has a majority of the flights to Paris from JFK, just like British Airways and American (oneworld) have the majority of the flights to Heathrow.
It seems to me the Mr. Branson is just concerned about the routes where his airline has a presence. He does note that “no other airline alliance granted antitrust immunity, whether Star at Frankfurt or SkyTeam at Paris, would have such a stranglehold over such an important international airport and such major air routes.” I think I would disagree with him on that as both Lufthansa and Air France have such a large number of long-haul flights from their respective hubs.
A quick disclaimer, by the way. I love the Virgin Atlantic story. Richard Branson and his then-partner Randolph Fields had to cut through a lot of regulatory tape to get the airline started (the Wikipedia article is really good in describing it, I think). I really look up to Richard Brandon and admire his entrepeneural spirit. I just really disagree with him on this one.
Hi Dan,
The key here is that Heathrow is the busiest airport for access to the US. Heathrow is the start point for nearly a quarter of all passengers travelling between Europe and the US. The next largest is Frankfurt with 13%. So, BA would have a dominant market share on the busiest route in the world. The route needs to be competitive so that a lid is kept on prices. If BA and AA effectively merge, then AA will be removed as a competitor and BA/AA’s market share goes up even more on a route where it is very difficult to add new services (as Heathrow Airport has no available slots). This isn’t about BA and Virgin Atlantic’s rivalry, or Virgin Atlantic’s vested interest, but is about consumers needing effective choice. They won’t get it if BA and AA are allowed to form an anti-competitive alliance. By the way, just because Skyteam and Star have 100% of market share between Boston and Paris/Frankfurt, it doesn’t mean that’s good. Consumers are paying massive prices for coach seats on those routes because there is NO competition. Just think what extra competition would do. French and German passengers must be desperately wishing another carrier comes along. That’s the point. Snuff out competition – as BA/AA want to do – and you pay much more and get worse service because there’s no incentive to improve your product if you own the market.
Paul Charles
Director of Communications
Virgin Atlantic
Hi Paul,
Thanks very much for stopping by – it’s always to get a comment from someone at one of the airlines!
Your points about Heathrow are certainly well taken, especially about slots. I’m sure Virgin is well aware of the similar issue of slots at the New York area airports as well.
Also, thanks for your comments about Star and Skyteam. Personally, I feel that if the piece had criticized the anti-trust agreements of those alliances as well it would have been a bit stronger.
Thanks again for your comment!