Not just Mr Nice Guy
Richard Branson's affable, but is he tough enough to take on the BA/AA deal? You'd better believe it, says Ian Griffiths
Sunday 15 September 1996
It is a hallmark of the Branson style. There is a lightness of touch but there is also an unmistakable firmness of the hand. This week's advertisements may mock and they may embarrass, but they also make serious points about the proposed alliance between British Airways and American Airlines which Virgin so vehemently opposes.
Although Branson is armed with plenty of ammunition, he resists the temptation merely to attack that alliance. His real grievance is not with the creation of such a mighty aviation power but with the impediment it represents to genuine air liberalisation. Virgin is an international business and a natural advocate of free trade. It is therefore the linkage between a new US/UK "open skies" agreement and approval of the BA/AA alliance which causes Branson the greatest concern.
"We believe open skies should be just that," Branson says. "Effectively the civil servants should be trying to put themselves out of business. The airline business should be treated no differently from any other industry we are in. I can open a Megastore in Times Square next to Tower Records and they can open up in Piccadilly next to Virgin Records. We should also be able to take Virgin Express to the USA and give SouthWest Airlines a run for their money and they should be able to challenge us in Europe."
Under the current air agreement between Britain and the United States, Virgin is prevented from any access to the American domestic market. Branson believes that such access should be an essential element of any new open skies deal.
The US has made it clear that it will not grant BA and American the anti- trust immunity they want for their alliance without a new air agreement. There is, therefore, great pressure on the British Government to cave in to a US-style open skies deal to push the BA/AA alliance through.
Branson believes, however, that the US open skies philosophy is defective. It is a philosophy which naturally favours US carriers. For, while it secures greater freedom for American airlines to expand in foreign markets, it remains remarkably protectionist about its home market.
Under the US version of open skies, foreign carriers are not allowed to transport passengers travelling between two points within the US. No foreign carrier or individual can own or control a US carrier. No foreign carrier can transport US government employees or carry US mail shipments. Foreign carriers can also be subjected to unilateral revocation of their traffic rights by the US authorities if there are complaints by US carriers about restrictions on their opportunities to do business in that foreign carrier's home country.
Branson argues that a true open skies agreement between the US and Britain is one which breaks down protectionist barriers on both sides of the Atlantic, frees up the markets and provides the benefits which Branson believes the customer deserves.
"No matter what some of our competitors may say, Virgin Atlantic does indeed want a true open skies," Branson says. "The US and UK governments should deliver meaningful deregulation of the combined US/UK aviation market, not just the surrender of some additional economic rights to a few US carriers."
Contrary to some accusations, Virgin is in a position to take advantage of such an agreement. It could launch Virgin Express - its short-haul low-cost European network - in the US early next year if a true open skies deal was negotiated. And it has the funding to do so.
Very quietly Virgin has become an airline of substance. The combined turnover of the Atlantic and Express operations is running at an estimated pounds 1bn a year. Profits are around pounds 90 million a year. It is the world's fourth most efficient carrier (second behind El Al if all-cargo carriers are excluded). In international-scheduled-revenue-passenger-kilometre terms, Virgin is moving rapidly up the league table. It is now 23rd in the world. While BA remains in pole position, Virgin is now at around one sixth the size of the national carrier. BA is Goliath but Virgin's David is getting bigger all the time.
Virgin is a significant carrier and cannot be ignored when the interests of Britain's aviation industry are being represented. It has the financial muscle to expand in the US and, through Virgin Express, has the experience.
"We are already proving some exciting points," Branson says. "We have been able to show the authorities what we are capable of and what is possible. Our fares are between 50 per cent and 75 per cent less than the flag carriers yet it is still a good profitable airline."
Virgin would be a very popular new entrant in the US market. Already a number of US airlines have enquired about using the Virgin name on their domestic services under licence. Branson prefers to go it alone. If only the authorities would let him.
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