Virgin Atlantic will appeal BA bmi merger

Richard Branson

In all of our years of business, one of the key things that we have taken away is that corporate rivalry or competitiveness can be a catalyst for huge industry change, driving innovation and extending consumer choice. A dynamic new entrant to a marketplace can challenge thinking, force competitors to innovate and generally raise the bar for the product or experience in that market. Ultimately this leads to pioneering product development, sharper service and ultimately much better value for consumers.

This theory is not new nor is it exclusive to us. In fact the idea of competitiveness driving forward industry has long been recognised by Governments and business groups and is the reason why competition law was created. One of the key aims of competition regulation is to protect the consumer from monopoly situations where companies can set whatever prices they like and stop investing in their product. In this situation, the public suffers, the industry suffers and the country suffers.


That is why Virgin Atlantic will certainly appeal the decision by the European Commission to wave through BAs merging with bmi in just 35 working days. I truly cannot believe this directive and we will challenge every aspect of this process that if allowed to stand, will undoubtedly damage the British airline industry for years to come.


However you look at the likely outcome of the BA purchase of bmi, you cannot find anything other than a serious erosion of competition at London Heathrow, leading to the consumer paying dearly. It is ironic that whilst the British Government has taken years to even consider a review of aviation policy, its competition watchdog, the Office of Fair Trading (OFT) stands by whilst its European counterparts sign off this crippling deal in a month.


Flying for 1.6million business people and families from the north of England and Scotland to Heathrow will now be dominated if not monopolised by British Airways. When BA dominated UK routes in the past air fares were hiked. This is the last big exchange of UK flying slots, leaving BA with 54% of all take-off and landing rights at the worlds busiest airport whilst leaving its nearest British rival, Virgin Atlantic, with only 3%? The competition authorities have seemingly ignored all of the strong cases made by politicians, business groups and airlines, to make one big company even more bloated.


Some will argue that Virgin Atlantic is making this case for its own good. Of course Virgin Atlantic wants to compete with BA and wants to strengthen its challenge of BAs domination of the British market. We like to think that where we have been allowed to compete, our challenge has kept the cost of British flying low, has led to better product innovation and ensured that consumers have always had a choice.


However what we cannot do is continue to repel BAs dominance if the authorities keep handing them the advantage. BA as a former nationalised airline was gifted around 40% of the best slots at Heathrow whilst Virgin Atlantic as private business has fought 20 years for just 3%. Is it really in the best interests of the consumer, to let BA have 7% more? The remedies offered by BA are a mere 12 slots less than a quarter of bmis former network. The remedies should be there to replicate the competition that bmi represented.


If we were talking supermarkets today, do you really think the authorities would allow such an uneven playing field? Do you think that a Tesco deal to buy Sainsburys would be waved through in 35 working days? Or if so, do you think it would only demand that Tesco gives up 200 of Sainsburys 900 stores? It may be a broader example but the principle is exactly the same.


When it is published, we will scrutinise every line of the Commissions decision and we will also be fighting to operate 12 slots that BA has been forced to give up. For years we have wanted to take on BA on its short haul network to ensure that UK passengers get a good deal when connecting through London. In America and Australia where we didnt have slot issues Virgin built up formidable short haul networks that have won plaudits in both countries.


One of the key points we will be making to the authorities is that the slots cannot be broken up among numerous airlines that would merely be another gift to BA - and that they must be passed on as a block. You cannot provide serious competition in a piecemeal way and whilst we think the number of slots offered is derisory, we believe it is crucial to use all of them together to create some sort of critical mass with a strong message to the consumer. We also hope that a successful appeal will release the rest of the slots, giving BA a run for its money on all of bmis existing network.


So the next few weeks will be very revealing and I hope that we learn much more about how the Commission actually ran the clearance process. It is important that the industry knows why this deal was agreed in lightning speed and that customers, particularly from the north of England and Scotland, get to understand how their future flying may be affected.


BAs Willie Walsh summed up nicely the victory that his airline had over the competition authorities by saying: It must be galling for Virgin Atlantic to have to use its competitor to feed its passengers. He is right. It is. The regulators shouldnt have allowed this. We hope to overturn this decision on appeal and keep on taking the fight to BA so that the consumer ultimately wins.

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