BA route plan with American Airlines is toxic

It is very clear to me that regulators should be stopping BA-AA in its tracks, says Richard Branson.
BA route plan with American Airlines is toxic
By Richard Branson
Sat 17 Apr 2010 04:00 AM

Years ago when I set up virgin Atlantic Airways, my friend Freddie Laker gave me some advice, which I have never forgotten. He said, "If you want to become a millionaire, first become a billionaire and then buy an airline."

This remains as true today as it was then. The airline industry can be a difficult one to navigate through, thanks to a combination of archaic rules, which remain in place decades after they were conceived along with a history of state-owned carriers that operate in a very different way to more modern, independent airlines.

That toxic cocktail of regulation and state intervention leaves our industry continually weighed down by obstacles to becoming truly commercial. For example, many state-owned carriers, such as Japan Airlines Corp, are facing the new reality but still receive massive government support, thereby tilting the playing field against commercially run airlines. American carriers benefited from US Chapter 11 bankruptcy protection.

The airline industry must be free to operate like other normal businesses, so governments have to stop giving bailouts and subsidies. Carriers such as Japan Airlines aren't moving far enough or fast enough in cutting loss-making international routes, yet they will still receive massive government support. That is unhealthy for Japan and unhealthy for our industry.

Turning closer to home, the way the regulators deal with issues over the Atlantic - the busiest air corridor in the world - is the major focus of my attention. British Airways Plc and American Airlines' proposed joint venture - effectively a merger of their businesses on the world's busiest long-haul routes - is currently under evaluation by the authorities on both sides of the Atlantic. They have a duty to ensure consumers aren't harmed by big businesses getting together to stitch up markets. It is very clear to me that regulators should be stopping BA-AA in its tracks.

The facts of the case speak for themselves; BA will have huge dominance on key UK-US routes, market shares ranging from 100 percent on Heathrow-Dallas, 80 percent on Heathrow-Boston, 70 percent on Heathrow-Miami and 62 percent on Heathrow-New York JFK. At no point has BA, AA, the US Department of Transportation or the European Commission been able to identify any concrete consumer benefits that could justify approval for the deal - a prerequisite of the approval process you would think.

I have no doubt whatsoever that BA will use its exemption from competition laws and its overwhelming dominance to destroy competition, reduce choice and raise fares - after all when has a monopoly ever led to lower prices? I don't necessarily blame BA and AA as it is the job of their management to work in the interests of shareholders, not consumers.

So this means the onus is very much on the regulators to protect the interests of consumers. Those consumers don't just include holidaymakers, but also travel agents and corporate customers who will see BA and AA use their stranglehold on the key US routes to the detriment of corporate Britain.

One of the primary justifications for these proposals receiving the go-ahead seems to be to preserve parity among the large global alliances. This isn't a reason for approval. The competition authorities have a mandate to preserve competition and only approve deals that can provide tangible benefits and demonstrate that these outweigh the risks to competition.

The fact is that approval of this deal would distort competition further, not restore it. If the regulators take this decision on the false assumption that a three-alliance vision can meet all needs, they will be making a big mistake and doing a disservice to consumers.

On a number of the key UK-US routes, Virgin Atlantic offers the only competition to BA and AA, and the other two alliances are nowhere to be seen. And on many of the routes that the other two alliances do serve, BA and AA aren't present and won't be adding any more services in future because their main European hub, Heathrow Airport, can't take more flights. For as long as Heathrow remains the most constrained major airport in Europe, it is hard to see how a BA-AA alliance can be permitted, because the fundamental requirement of regulators is to see free entry to the market - and at Heathrow there simply isn't that freedom to get in and compete.

Contrary to popular belief, Virgin Atlantic isn't against consolidation and we aren't against alliances - we merely oppose bad alliances that will serve only to undermine competition. On the scale of bad alliances, British Airways and American Airlines is the worst to date and should be rejected because of the enormous damage it would cause consumers.

I continue to hope that the European Commission will side with the US Department of Justice in ruling this anti-competitive and be braver than the US Department of Transportation when it considers its decision on BA/AA. Consumers on both sides of the Atlantic are relying on it.

Meanwhile, Virgin Atlantic will seriously continue to compete vigorously as it always has and I continue to look forward to a future when the old archaic rules are removed and airlines can operate all around the world like any other business.

Richard Branson is chairman of Virgin Group, the parent company of Virgin Atlantic Airways. The opinions expressed are his own.

For all the latest transport news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

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.