PRESSURE IS mounting on Richard Branson to accelerate plans for the pounds 1.5bn flotation of his Virgin Atlantic airline before Heathrow airport is opened up to a flood of rival carriers.
A spokesman for Virgin maintained yesterday that there were no plans to float the airline "in the next few months". But Virgin's investment bank adviser, Merrill Lynch, is thought to be pushing for an early flotation, perhaps this autumn.
If Heathrow is opened to more airlines as part of an open skies agreement between the UK and the US, then Virgin Atlantic's profits could be severely squeezed. Plans to float Virgin Atlantic a year ago were put on ice but they were dusted down again earlier this year after talks about selling a 25 per cent stake in the business to Continental Airlines for pounds 400m broke down.
The prospect of open skies has injected fresh urgency into the consideration of a float. British Midland, which is lobbying the Government to be allowed to start transatlantic services, says more competition at Heathrow would cut pounds 1,000 from the price of a business class return fare to New York.
Virgin Atlantic made profits of around pounds 100m last year on turnover of more than pounds 1bn and is heavily dependent on the lucrative transatlantic routes. An Upper Class return from Heathrow to New York costs pounds 3,200 compared with under pounds 1,500 for the same fare from Amsterdam. The airline flies to seven US destinations from Heathrow - New York, Los Angeles, San Francisco, Washington, Boston, Chicago and Miami, and last year carried a total of 3.2 million passengers. It has 43 per cent of the Miami market and 28 per cent of the Los Angeles market.
Open skies talks were due to have resumed this week in Washington but were postponed at short notice at the request of the UK negotiators. The current air services agreement only permits four airlines to fly to the US from Heathrow.
The two incumbent UK airlines, British Airways and Virgin Atlantic, are insisting on concessions from the US before Heathrow is opened up. BA wants anti-trust approval for its American Airlines alliance while Virgin Atlantic says it wants cabotage rights in the US - the ability to fly domestic services.
Although it is unlikely the UK would sign up to an open skies agreement in the face of opposition from both BA and Virgin Atlantic, John Prescott, the Deputy Prime Minister, is under increasing pressure to impose a political settlement after two years of abortive talks.
Mr Prescott and his opposite number in the US, the Transportation Secretary Rodney Slater, have staked their political reputations on achieving an agreement. Observers say, however, that BA's chief executive Bob Ayling and Mr Branson are close to Tony Blair and suggest this may be a factor behind the Prime Minister's recent criticism of Mr Prescott's performance on transport.
Virgin Atlantic is this weekend celebrating the launch of services to Shanghai. It is creating 2,000 jobs this year, repainting its livery to incorporate the Union Flag and putting double beds in Upper Class.Reuse content