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.

News
The Banksy image in Folkestone before it was vandalised
people
Life and Style
tech

Sales of the tablet are set to fall again, say analysts

Sport
football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
PROMOTED VIDEO
News
i100
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
News
Brian Harvey turned up at Downing Street today demanding to speak to the Prime Minister
news

Met Police confirm there was a 'minor disturbance' and that no-one was arrested

Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010
films

George Lucas criticises the major Hollywood film studios

Voices
Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'
voices

Does Chris Grayling realise what a vague concept he is dealing with?

Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
The charity Sands reports that 11 babies are stillborn everyday in the UK
lifeEleven babies are stillborn every day in the UK, yet no one speaks about this silent tragedy
News
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)
news

Parties threaten resort's image as a family destination

Life and Style
Northern soul mecca the Wigan Casino
fashionGone are the punks, casuals, new romantics, ravers, skaters, crusties. Now all kids look the same
Life and Style
gaming

I Am Bread could actually be a challenging and nuanced title

News
Nigel Farage has backed DJ Mike Read's new Ukip song
i100
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

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

Day In a Page

Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

How We Met: Hugh Bonneville & Peter James

'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

Bill Granger's heavenly crab recipes

Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
Radamel Falcao: How faith and love drive the Colombian to glory

Radamel Falcao: How faith and love drive the Colombian to glory

After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

Terry Venables column

Premier League managers must not be allowed to dictate who plays and who does not play for England
The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

Michael Calvin's Inside Word

Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past