From The Times
May 25, 2010
Merging Virgin ‘may be only way to survive’
Sir Richard Branson has spoken of merging Virgin Atlantic with another airline to keep it big enough to compete with rival carriers.
As Virgin launched a new route into Ghana, Sir Richard said that the airline might not be able to remain independent as the pace of consolidation in the industry picks up.
A number of airlines are in merger talks. British Airways is merging with Iberia, the Spanish flag carrier, and is also close to agreeing an alliance with American Airlines.
Continental and United, the American carriers, are negotiating a merger that will create the world’s largest airline, while Lufthansa has taken control of bmi.
Sir Richard said: “If it becomes impossible for us to remain an independent airline and survive, we may come to a situation where we have to consolidate.”
Virgin Atlantic is 49 per cent-owned by Singapore Airlines, which is understood to want to sell its stake, raising the possibility of a deal with another carrier in the future. Sir Richard’s preference would be a deal with bmi but this appears to be off the agenda while Lufthansa restructures the British carrier.
In the meantime, Sir Richard plans to continue his opposition to the BA and American Airlines alliance and has threatened legal action if regulators in Europe and the United States give it the go ahead, as they have indicated they will. “We may have to resort to the courts to overturn the regulatory approval for this alliance,” he said. In the short term, however, Virgin is benefiting from difficulties at BA, which suffered the first of 15 days of industrial action yesterday. Virgin’s passenger numbers in business class are up 10 per cent since BA cabin crew voted for industrial action in March and it has experienced a similar boost in economy class.
Load factors, a measure of how full each aircraft flies, are expected to be nearly 90 per cent in economy during May and June as passengers seek to avoid the risk that their BA flight might be grounded.
Sir Richard said: “They are shooting themselves in the foot. A lot of BA travellers who have never travelled with us are trying Virgin Atlantic. I think they have done long-term damage to their business, as well as short-term harm from the cost of the strikes.”
Sir Richard also said that Virgin Atlantic would increasingly concentrate on expanding leisure flights. About 30 per cent of its business is leisure from airports such as Gatwick, Manchester and Glasgow to Orlando or the Caribbean but this is expected to grow to near-parity.
This is due to a shortage of landing slots at Heathrow — a situation that is unlikely to change after the coalition Government ruled out a third runway for the airport.
The Virgin founder also criticised a proposal to change air passenger duty from a per person calculation to per plane. He said this would push transfer passengers to other European airports, making it harder for British airlines to operate long-haul services.
