Virgin Atlantic on brink of alliance, says Branson

Virgin Atlantic is set to agree an alliance within the next few months, Sir Richard Branson, the airline's owner, confirmed yesterday.

"We've said we would like to bring in an alliance partner to combat the fact that British Airways is tied up with American Airlines," Sir Richard said. "Those discussions are going on and I think we will be able to announce within a few months an alliance partner."

Sir Richard, who owns 51 per cent of Virgin Atlantic, appointed Deutsche Bank to review the airline's strategic opportunities in November last year, with the joint task of responding to rival BA's consolidation plans, and maximising value for Sir Richard.

The launch of the review raised questions about the possibility of the billionaire entrepreneur selling down his stake in the group, which is also part-owned by Singapore Airlines.

But Sir Richard said yesterday that he will continue as a major shareholder of the airline. "It makes sense for Virgin Atlantic to have a partner as well," he said. "I will certainly still be extremely involved in the airline, whatever we decide to do, and I will still be a major shareholder. We are in discussions with various people and will see what comes out of it."

The British airline's future plans have been under the spotlight since regulators waved through the "anti-trust immunity" allowing joint working on transatlantic routes between rival BA and American Airlines (AA) last July.

Sir Richard vociferously opposed the tie-up, claiming the move would create a "monster monopoly" that would be "disastrous" for passengers, because of the combined group's stranglehold on sought-after take-off slots at Heathrow.

But BA agreed to give up some slots to pacify watchdog concerns. And with the deal done, Virgin Atlantic has little option but to look for alliances of its own in the rapidly consolidating long-haul airline market.

By December, the company was already hinting at "a number of lines of enquiry" from potential partners, reportedly covering everything from minor marketing deals to major alliances. It has had little choice but to pursue a partnership, or face an increasingly difficult market on its core transatlantic routes in competition with the vast "virtual" companies created by the three major groupings: BA's OneWorld; the Star Alliance, which includes Lufthansa and United Airlines; and Air France, KLM and Delta's SkyTeam.

"Regulators have decided consolidation will be allowed because it will increase the availability of routes and fares will come down – but that also means more traffic and higher yielding traffic to the big alliances," James Halstead, an independent aviation analyst, said.

"So if Virgin Atlantic remains independent it will be more and more squeezed, particularly on the Atlantic routes, because the three major airlines with joint ventures are already taking up around 75 per cent of the capacity," he said.

The big question is whether Virgin Atlantic would favour links the Star Alliance or SkyTeam. Both groupings would see a major boost from the addition. And while Virgin Atlantic-owner Singapore Airlines belongs to Star Alliance, SkyTeam may push harder for a deal given that the grouping has only Delta on the transatlantic routes, Mr Halstead said.