Virgin faces bumpy ride

Branson's airline is threatened by huge alliances, writes Peter Robison

RICHARD BRANSON called it "the merger from hell" - and now it is coming after him. After a two-year fight, European regulators said last month they will approve the planned alliance between British Airways and American Airlines. Peter Mandelson, the new Secretary of State for Trade and Industry, looks set to do the same. The alliance threatens Branson's Virgin Atlantic Airways, the most profitable part of his business empire.

Scheduled to start next summer, the alliance would have 60 per cent of the US-UK air market and a 460-route network that dwarfs Virgin's 15. With it comes another threat - an opening of Heathrow Airport to more US airlines, potentially giving the US travellers, who account for one- third of Virgin's ticket sales, more op-tions. The increased competition will also test whether a carrier like

Virgin, which draws customers with perks like limousine rides and a sense of fun, can compete with powerful partnerships that woo passengers with far-reaching networks and frequent-flier miles.

Virgin has managed well so far without a large network, grabbing an 18 per cent share of the US-UK market to rank number two after BA. It is one of the most profitable airlines in the world, with earnings of $85m (pounds 52m) on sales of $1.3bn in the year ended 30 April 1997, and flies only on highly lucrative routes like London-Los Angeles and London-Hong Kong.

Mr Branson has also avoided the mistake of his predecessor, Sir Freddie Laker, whose low-cost Skytrain went bust once the big carriers lowered their prices. Mr Branson has aimed for businessmen as well as tourists since starting Virgin in 1984 on a route opened by Skytrain's demise.

He charges fares akin to those of rivals, making them less likely to gang up on him, and tries to give customers better value with more flight attendants - double the typical rival's - and video screens in the back of every seat.

Still, analysts say the increasing dominance of large airline groupings like BA-AA and the six-carrier "Star Alliance", led by UAL's United Airlines and Deutsche Lufthansa, threaten Virgin.

The question is how Mr Branson will respond. He is already considering a sale of shares in Virgin Atlantic to raise cash for his records-to-cola empire. But he may not like that option. A ballooning enthusiast whose mother was briefly a flight attendant, Mr Branson views the airline with more passion than any of his other businesses. He might prefer to find a friendly investor.

For Virgin Atlantic, the most obvious partner is Continental Airlines. The number five US airline has had an arrangement with Virgin since February, in which it sells Virgin seats to US passengers.

Virgin might need something more as partnerships like BA-AA intensify. A deeper partnership with Continental is "something we might look at in the future," said a Virgin Atlantic spokesman.

But unlike other carriers, Virgin must tread carefully to avoid losing the lustre of its unique brand. It cannot jeopardise its main strength, loyal passengers. "People like an alternative. As the likes of BA and AA get larger, they become more bland," said Keith McMullan, director Aviation Economics, the London consulting firm . "It's supermarkets as opposed to boutiques."

Mr Branson had better hope Virgin shoppers stay selective.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Arts and Entertainment
a clockwork orange, stanley kubrick
film
Extras
The Tesco Hudl2: An exceptional Android tablet that's powerful, well-built and outstanding value
indybest

Life and Style
food + drinkAuthor DBC Pierre presents his guide to the morning after
News
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drink
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas