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
Arts and Entertainment
tvThe C-Word, TV review
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Life and Style
The original ZX Spectrum was simple to plug into your TV and get playing on
techThirty years on, the ZX Spectrum is back, after a fashion
Sport
football
ebooks
ebooksA celebration of British elections
  • Get to the point
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

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk