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
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future