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BRANSON SLAMS US DEPARTMENT OF TRANSPORTATION DECISION ON BA/AA

 

Sir Richard Branson, Chairman of Virgin Atlantic Airways, today slammed the US Department of Transportation’s  (US DOT) decision to give approval for the anti-competitive alliance between British Airways and American Airlines to proceed.

The US DOT’s approval has been given despite criticism of the alliance from a number of significant US government bodies including both the US Department of Justice and the US General Accounting Office.

Sir Richard said:

“The US Department of Justice found that a BA/AA alliance would result in ‘immediate competitive harm’ and ‘a substantial loss of competition and higher prices for a large number of consumers’. The US DOT’s proposed remedy (of the divestiture of 224 slots on seven of the proposed nine routes – of course for US airlines only!) would be both ineffectual and inadequate when compared with the anti-competitive impact of this alliance.

“If the UK Government agrees a new Open Skies deal on this basis it will simply be selling out to the US.  British aviation is bigger than BA and the interests of British consumers are not the same as those of BA’s beleaguered shareholders.

“No one is more committed to genuine Open Skies than Virgin Atlantic but only if that means full liberalisation of all regulations governing air services within and between Europe and the US. Among other benefits to consumers it would give US carriers the right to fly within Europe and British carriers like Virgin the right to fly within the US.

“This is only a prelude to the battle for true “Open Skies” and I’m confident that the Office of Fair Trading and the European Commission’s decisions on this alliance will be more rigorous.  I expect both to agree that this proposal is profoundly anti-competitive and should not be allowed to proceed without more substantial and significant remedies.”

Sir Richard outlined Virgin Atlantic’s main objections:

 - If BA and AA are given anti-trust immunity to operate on some of the busiest sets of routes on the planet they will collude to use their overwhelming dominance to:

- destroy competition

- raise prices, and

- reduce service.

- American and BA will form a dominant force in the trans-Atlantic market, with over 60% of all Heathrow-US services, and over 50% of all passengers travelling between the US and the UK.  In 2000, AA and BA between them carried nearly 9 million passengers between the UK and the United States.  The next largest airline carried less than 3.5 million.

- When coupled with their dominance at their respective hubs, BA/AA will have the effect of eliminating competition. BA/AA have nearly 200,000 slots per year at Heathrow.  Virgin Atlantic has less than 11,000.

- The sheer scale of this merger will mean that its effect will not be felt solely in the trans-Atlantic market, but globally.

- The position of joint dominance that oneworld, the BA and American led alliance, and Star, the alliance involving United and bmi, would enjoy at Heathrow, when coupled with the undeniable fact that Heathrow is full, means that carriers outside of these alliances will not be able to mount an effective competitive challenge unless the regulators require these groupings, and BA in particular, to give up a greater number of slots at Heathrow than required by the US DOT.  Between them oneworld and Star operate 85% of all Heathrow-US services, and control nearly three-quarters of the slots at Heathrow.  Past experience suggests that this will produce a cosy duopoly rather than intense competition.

He also gave the airline’s position on Open Skies and slot reform:

“The key argument in this entire debate is Heathrow access.  Open Skies is being held up as a panacea by American and BA in this respect.  Any form of liberalisation of outdated bilateral agreements should be welcomed, and no-one has lobbied stronger than Virgin Atlantic to replace the current restrictive Bermuda II agreement governing air services between the US and the UK by a truly open competitive regime.  But in respect of Heathrow-US services Open Skies will make no difference at all.  Put simply Heathrow is full and there are no prospects of capacity increases in the foreseeable future. 

“In order for Virgin Atlantic and the US carriers to compete effectively in trans-Atlantic markets more slots are needed at Heathrow, and the associated terminal facilities that go with the slots.  But the slots are simply not there.  Not from the slot pool; not from partner airlines; and not on the open market.  If slots were available, then Virgin would not have had the struggles that it has had to obtain more slots in recent years.

“The only way that the regulators can ensure access to Heathrow is to divest American and BA of significant numbers of slots at the airport.  And not just any old slots.  They must be slots at the optimal times for trans-Atlantic travel – not at the margins of the day.”