Virgin Atlantic may look to Gulf carriers for alliance - CEO

Abu Dhabi’s Etihad would appear the most likely candidate for Richard Branson’s airline
By Shane McGinley
Thu 12 Sep 2013 10:12 AM

Richard Branson’s Virgin Atlantic is open to the possibility of an east-focused alliance with a major Gulf carrier, similar to its recent partnership with US carrier Delta Air Line, its CEO told Arabian Business.

This summer Delta’s $360m bid to buy Singapore Airlines’ 49 percent stake in Virgin Atlantic was given the stamp of approval by both the US Justice Department and the European Commission and late last month it was reported the agreement is on track to clear its final hurdle and receive immunity from US antitrust laws to operate a planned trans-Atlantic joint venture.

Former American Airlines executive Craig Kreeger, who was appointed CEO of Virgin Atlantic in February and is the first American to hold the post, said he had not ruled out an alliance with a Gulf carrier in order to boost the London-based carrier’s network in the east.

“We have a number of partners around the world. The question as to whether a Middle East carrier would make sense as an alliance partner, or some form of relationship, is one to be determined.”

Kreeger pointed out Virgin Atlantic already has interlining deals – which is a commercial agreement between individual airlines to handle passengers travelling on itineraries that require multiple airlines – with several Middle Eastern carriers, including Oman Air, Gulf Air, Qatar Airways, Emirates and Saudi Arabian Airlines.

“We do have some opportunities today and take advantage of those. Whether we will choose to create an expanded relationship with some others is to be determined.”

If an alliance with a Gulf carrier was to happen, Abu Dhabi’s Etihad Airways would seem the most likely candidate. Virgin Atlantic’s codesharing partners Virgin Australia and India’s Jet Airways are already part owned by Etihad. Singapore Airlines and Air New Zealand also have strong links to both carriers. On paper, Etihad would seem the most likely candidate, but Kreeger declined to speak about any specific possible partnership arrangements.

“I think we are pretty comfortable with the two shareholders that we have, Richard and the Virgin Group owns 51 percent and Delta owns 49. We haven’t contemplated any changes to that... Getting the Delta deal performing well for our customers is job one and the first priority... We will evaluate future alliance partners in other parts of the world, including the Middle East, after we have made some progress there first.”

US carrier Delta was one of the founding carriers behind SkyTeam, the aviation alliance set up in 2000 and which also includes Air France KLM and Korean Air. While this is also the most likely candidate for an aviation alliance, Kreeger again has left the door open.

“I do think an alliance decision is one we will have to make. I am not convinced one way or another yet as we have some powerful bilateral partners in different alliances so we will have to decide is there more value in a SkyTeam alliance, which realistically with our relationship with Delta if we were to choose an alliance Skyteam would be the obvious choice. Is there more value in a SkyTeam alliance rather than a blend of partners or on a bilateral basis? There are pros and cons for both and in due course we will take a close look at which one the answer is.”

This summer, sources told Arabian Business Virgin Atlantic and Delta planned to expand their new partnership to include the Middle East in the near future. However, Saj Ahmad, chief analyst at StrategicAero Research, said the union of the American and British carrier would have little impact on the region.

Article continued on next page...

“Personally I don't see how either carrier will really benefit. Virgin has scant presence in the GCC as it is, and US airlines are too frightened to serve the region directly because they know they simply can't compete with the more efficient runnings of Emirates, Qatar Airways and Etihad,” Ahmad said.

“Perhaps when US airlines like Delta have the bottle to serve the region by direct flights from the USA, I'd give them credence - as it is, this chatter is worthless,” he added. At present, Virgin Atlantic flies Dubai to London and Delta flies to Bahrain and Muscat from Amsterdam.

Any alliance will ultimately come down to the balance sheet of both airlines. Last month, Delta reported a quarterly net income of $685 million, a turnaround from the $168 million loss in the same period a year ago.

At the same time, Virgin Atlantic was having a tougher time over the last year and lower demand for business travel caused by the London Olympics dragged it to a wider annual loss.

In May, it reported a loss of £93 million ($141.6 million) for the year to the end of February, 16 percent worse than the £80 million loss it reported a year earlier. This was despite revenue increasing five percent to £2.87 billion and 5.5 million passengers using the airline in the twelve months, an increase of 188,000 over last year.

"Last year saw a double dip recession, a continued weak macro economy, and an Olympic Games which, although a fantastic event, severely dented demand for business travel," Kreeger said, but is confident the airline will be back in the black by 2015.

“To be clear what we are targeting is profitability in the year ending 2015 so it is even sooner than that. Our fiscal year runs March to February and we are absolutely focused on making that happen.”

"We don't comment on rumours and speculation," a spokesperson from Dubai’s Emirates said. Etihad Airways declined to comment, while a spokesperson from Qatar Airways did not immediately respond when contacted by Arabian Business.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.