Summary
Virgin has fallen by the wayside in terms of appeal for airline alliances. Rather than join in, it is attempting to slow others down while failing to see that the industry is home to "survival of the fittest".
Analysis
US regulators will have little choice but to approve the impending oneworld alliance partnership between British Airways (BA) and American Airlines (AA).
The reality is that a swathe of anti-trust immunity was granted for airlines deals on both sides of the Atlantic for the Star and Skyteam Alliances when the EU-US Open Skies agreement didn’t exist. Open Skies is here and regulators would have to bring some compelling evidence to stifle this deal between BA and AA.
That London Heathrow has finite slots is of no concern to BA or AA – rather, that falls on the heads of BAA, its parent Ferrovial and the thirty years of political gaffes that have prohibited the airport from expanding like its European rivals in Paris Charles De Gaulle or Frankfurt airports. Open Skies gives access to everyone.
Virgin will survive – it has the Temasek Holdings pumping in funds via the 49% stake held with Singapore Airlines. BA however, faces a huge pension void while AA staff are faced with a jobs cull as it too battles labour issues and a pension black-hole.
Neither BA nor AA has de-facto access to Government funds like Virgin has.
Singapore Airlines may still be trying to sell off that stake, but it won’t let Virgin fail because of the money they have tied up in it.
Branson may have marketed his brand to good effect, but his failure to modernise his airline from the relic we see today underscores just why the airline has never been invited to join any major alliance. It offers nothing for the three major alliances that they don’t already have.
For BA and AA, they’d finally get to compete on a better playing field with the likes of Air France-KLM and a host of other US carriers like Delta and Continental Airlines. Furthermore, they will be able to provide unmatched lower fares through increased economies of scale as a virtual combined entity and maximise the resources available to them at both Dallas Fort-Worth and Heathrow airports.
With passenger traffic shifting from premium (First/Biz) down to economy and economy-plus, these lower fares in fact act as a stimulus to the public to continue flying. Of course, credit is tight, but the prospect of BA/AA combining to lower fares for customers is no bad thing.
This is the key facet that Virgin fails to acknowledge and also is unable to compete on because it’s too busy to reform itself while it continues its lip-service the flying public in reality don’t care about.
What the public wants is fair value for flights, service and above all, what their hard earned money has to pay to get all that. If bringing BA/AA together delivers, which ultimately it will due to their cost base convergence, then Virgin has no one but itself to blame as passengers fly with the oneworld alliance partners.
