City & Business: Halo slips from Richard Branson

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The Independent Online
Is Richard Branson a man of the people? A true friend to the consumer? That, over a long and successful career, is how he has positioned himself. Reading the news last week about his latest victory over British Airways, that was clearly the story line the media was running with.

"BA Fined pounds 4m For `Dirty Tricks' Payouts" splashed the Evening Standard. "EU penalty is culmination of battle with Virgin," said The Guardian.

The details go like this: until January, BA paid travel agents "fidelity rebates" for steering customers to buy tickets for its flights. Two years ago, Branson complained about this practice to Brussels. On Tuesday, the European Commission ruled that BA's fidelity rebates violated EU competition law, because they helped BA bolster its already dominant position in the market.

A cursory reading of this story would seem to make it open and shut. Virgin wears a white hat, BA a black. The news was great publicity for Virgin. It reminded readers of how BA stole customers from Virgin in the 1980s; how BA drove Freddie Laker out of business in the 1970s.

It polished Branson's image as a counter-culture icon - Virgin's as the airline of choice for right-on travellers. It reaffirmed Virgin's take on BA as a stodgy national carrier run by uptight stiffs in lingering thrall to batty Maggie Thatcher.

As we all know, however, you can't believe everything you read in the papers. The complexity of modern life is outstripping the resources of news organisations to get to grips with this complexity. Spin swamps not only the truth, but often even the pursuit of truth.

Branson is a case in point. The image is outdated. A closer approximation to the truth is that he started out as the genuine article - a 1960s counter- culture entrepreneur. Over the years, however, he has become a stylised version of his former self - a zillionaire businessman with lingering counter-culture values and tastes pressed by his ambitions to put his stale media profile into the service of hyping his ventures.

Forget David and Goliath. The real story about Virgin and BA is the story of two members of a dysfunctional family who continue to slag each other off in the misbegotten belief that the rest of us are still interested.

Evidence that Branson's posture and image in the world lags reality comes from the negotiations between London and Washington to update the Bermuda II treaty setting the framework for UK-US transatlantic air travel.

In recent years, Washington has prodded governments around the world to enter into "Open Skies" agreements in the name of free trade - which also just happen to serve the interests of US air carriers.

Some months back, the European Union's Transport Commissioner, Neil Kinnock, pushed for the EU to negotiate with Washington en bloc to maximise European leverage in the battle to reallocate routes and airport landing slots on either side of the Atlantic. Germany and several other continental European nations said no to Kinnock. They chose to enter into bilateral talks with Washington. A number of European airlines also thought bilateral negotiations were the best route.

So the US concluded an Open Skies agreement with Bonn. It is now in a protracted game of bluff, feint, thrust and parry with London. Deputy Prime Minister John Prescott and Tony Baker, the senior civil servant at the Department of Transport, Environment and the Regions leading the UK delegation, have held on-again/off-again talks with their counterparts in Washington.

The Government's objectives are complex and partially contradictory. It wants to advance the interests of air travellers, push the commercial interests of UK airlines, and protect Heathrow's position as a key global aviation hub.

This boils down to raising the number of UK and US airlines with reciprocal rights to fly between the UK and US from two to three each. The sticking point has been the finite number of landing slots at Heathrow - and BA's reluctance to give up the large number of Heathrow slots it holds.

Linked to this issue is the issue of BA's strategic partnership with American Airlines - important if BA is to remain in the premier league of a consolidating global airlines industry. Washington is blocking a BA/AA alliance until it gets an Open Skies agreement with London that it likes.

As these complex negotiations have stuttered forward, Branson has used them to market Virgin. He has publicly called for an Open Skies treaty in the name of consumers. But he has also thrown sand in the talks by pressing for the right of Virgin planes to fly domestically in the US. He knows Washington will not accept this.

This is not just my opinion. One US negotiator told me there is no way Branson has the resources to compete in the domestic US market. "Virgin is the biggest opponent of Open Skies," the negotiator said. "It has nothing to gain - just more competition. BA is not a big fan of Open Skies, either. But at least they get the alliance with AA out of a deal."

Prescott and BA chief executive Robert Ayling have held talks about how many Heathrow slots BA must give up in order for London to conclude Open Skies talks. But now, to complicate matters further, the Office of Fair Trading has weighed in. The quasi-independent OFT apparently has its own views on the competitive ramifications of an Open Skies agreement and a BA/AA strategic alliance.

So where's the truth, as opposed to the spin, in all of this? If BA wants to score against Branson, it can call his bluff. It could make the necessary concessions to the OFT, Prescott, and Washington to make an Open Skies deal happen before the US presidential election cranks up and the window of opportunity closes.

BA might even form an alliance with the real hero in this sorry saga - British Midland chairman Sir Michael Bishop. Ten days ago, Bishop blew a gasket. Frustrated by the shenanigans of Virgin and BA, he declared a pox on both their houses. He announced he was launching a media campaign to let the public know what was going on.

In full-page newspaper ads it will buy in the run-up to party conferences in September, BM plans to tell consumers that the price of a business- class return from Heath-row to New York could be cut by up to pounds 1,000 if an Open Skies agreement is concluded.

Will BA do it - call Branson's bluff? Sadly, members of dysfunctional families often choose the false safety of remaining in screwed up relationships to the risks of breaking free and starting over.

And Branson? There's trouble ahead. Tom Bower, the journalist who took on Maxwell and Fayed, is now taking on the Virgin chief. Last year, the Economist published a telling investigation into his brand-linked empire questioning its cash flow. Maybe it's time for Branson to extricate himself from the dysfunctionality of his war with BA, and move on, too.

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