Virgin is not the problem

Richard Branson answers the criticism made here last week that his halo has slipped in his approach to the 'open skies' air talks

he airline market between Britain and the United States is one of the most regulated in the world. Only four airlines are allowed to fly to the US from Heathrow and two of them, BA and American Airlines, control the lion's share of the available airport slots at Heathrow.

In order to deregulate the market there has been talk for many years of "Open Skies" between the two countries. However, open skies mean different things to different people. To me it means free trade without anti-competitive rules and regulations. Most importantly, it means a level playing field between two countries. But negotiators on both sides of the Atlantic have historically entered the negotiations trying to get the best deal for their own side, rather than concentrating on the best deal for the ordinary consumer.

Peter Koenig's analysis last week of negotiations for open skies between the British and American governments criticised both myself and Virgin for "throwing sand into the negotiations". Nothing could be further from the truth. We would welcome genuine open skies and have tried to find constructive ways to move forward ever since the sorry saga of these inter-governmental talks began when the misbegotten BA-AA alliance was announced in 1996.

From that day we have urged successive governments to keep separate the consideration of the monopolistic merger of these two airlines from open skies talks. In the last two weeks not only has British Midland come to agree with this view, but so has the chief US negotiator, David Marchick, who wrote an article in the Financial Times blaming the BA-AA alliance for getting in the way of open skies talks and urging the UK government to de-link the two issues. This approach would be consistent with the fact that every competition authority which has examined the proposed alliance has found it to be anti-competitive.

As Mr Marchick's recent article also made clear, he believes that obtaining approval of the BA-AA alliance is the key negotiating objective for the British government. By contrast he says: "The US government's goal has never been to achieve the AA-BA alliance or any other inter-company relationship. That is for those companies to decide and for competition authorities to review."

On this point we can happily agree. The damaging consequence of allowing BA-AA to drive the bilateral talks was that it allowed the US government to dodge the fundamental issues that stand in the way of genuine open skies - namely the protec-tionist barriers used to give US airlines a competitive edge.

The chief US negotiator also attacked the "Byzantine restrictions" and "archaic and antiquated rules" that restrict air services between the UK and US. We agree with him. But the impression he would like to create is that the UK is hiding behind these restrictions and rules. This is not the case - at least, as far as I am concerned.

Virgin is trying to exercise the rights it has under the existing air services agreement to launch a new service to Chicago. However, it is in danger of being blocked not by the UK government but by the hysterical protests of United Airlines who would face real competition on the route for the first time.

At the governmental level, the reality is that the UK's restrictions are nothing compared with those in the US. US airlines are allowed to carry the passengers and cargo of the UK government and its contractors. UK airlines are not permitted to carry the US equivalents. US interests can own up to 49 per cent of any European airline. UK airlines can't own more than 25 per cent of a US airline. UK restrictions on the air-cargo trade pale when compared with those imposed by the US on British carriers. In a truly competitive world, the barriers which the US supports would not exist - and former state-owned airlines would not be allowed to keep forever the resource of airport slots which governments gifted them.

Sadly, it has become a bit of an "us and them" situation with Virgin and BA, with both sides trying to outdo the other in blame for lack of progress. The best way out of this morass is for both sides to agree a basic free trade deal in aviation between the two countries with complete reciprocity.

If US interests can buy 49 per cent of our airlines, we should be allowed to buy 49 per cent of theirs. If our government officials and contractors are free to choose any airline on the basis of price, so the same should be true of theirs. If their carriers can fly onwards to Europe from the Heathrow gateway so should ours be allowed to fly on to other US domestic destinations. If there wasn't the complication of BA and AA's attempt at a monopoly I think these things could be achieved.

In John Prescott Britain has a formidable negotiator. The UK is the world's strongest aviation nation after the US. It does not have to accept the unfavourable terms which the US has traditionally forced upon other less powerful nations. Given the right negotiating tactics, and the prize of access for US carriers to Heathrow and beyond, and given the removal of the BA-AA millstone, the British govern-ment could make progress with the US on all these issues.

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