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Virgin Atlantic Tells EC To Reject 'Virtual Merger' Between BA, American

Calls Joined Airline A "Monster Monopoly"

Virgin Atlantic Airways urged the European Commission this week to reject the planned alliance between two of the world's largest airlines, British Airways and American Airlines.

As ANN reported, the EC is examining a transatlantic alliance which would allow American Airlines, British Airways and Spain's Iberia SA to coordinate their loyalty programs, schedules and fares on flights between North America and Europe. In addition to avoiding all the usual hassles of a formal merger, the deal would also give American Airlines increased access to profitable European routes... without technically violating US laws prohibiting foreign ownership of a US carrier.

It's that last part that is of greatest concern to carriers like Virgin Atlantic -- which, while smaller than British Airways and other trans-Atlantic rivals, still has managed to achieve some parity in competing with larger airlines through London's Heathrow Airport.

In an extensive document submitted Tuesday to European competition authorities, Virgin Atlantic said that BA and American Airlines -- if allowed to combine -- would use their market power to raise fares, adjust schedules to keep out competitors and cut off connecting feeder traffic to other carriers (namely, them -- Ed.) at Heathrow. In addition, they would reinforce their market power through a combined Frequent Flyer Program, which no competitor at Heathrow could replicate.

"We urge the European Commission to reject outright this third attempt by BA and AA to stifle competition between Heathrow and the US," said Steve Ridgway, Chief Executive of Virgin Atlantic. "Their virtual merger would lock-up one of the world's busiest air corridors against new and existing competition, increase BA's grip on the most constrained international airport in the world, and cause grave harm to consumers with higher prices."

Virgin maintains six routes between Heathrow and the US currently benefit from BA and AA operating independently, competing fiercely for corporate customers, independent travelers and connecting passengers. Five of these six routes, including LHR-JFK; LHR-ORD; LHR-BOS; LHR-MIA and LHR-LAX are in the top seven for Heathrow-US passenger numbers, with Heathrow being by far the busiest and most important European gateway for traffic to and from the US.

By combining these routes, Virgin maintains, BA and AA would form a virtual merger which would dominate all six of the overlap routes in capacity, traffic and schedules, and would dominate traffic between Heathrow and the US... particularly for time-sensitive travelers and corporate customers.

The airlines says BA/AA would have a monopoly or be dominant on some of the busiest and most profitable routes between the US and Heathrow. BA/AA would control 64% of the capacity between JFK-New York and Heathrow; 64% between Chicago and Heathrow; 80% between Boston and Heathrow; 73% between Miami and Heathrow; and 100% between Dallas-Fort Worth and Heathrow and Seattle and Heathrow.

"Even if BA and AA were forced to give up slots at Heathrow, these so-called slot remedies on their own would not be suitable as they would be insufficient to reinstate any effective level of competition," Ridgeway added. "They would not cancel out anticompetitive effects arising out of the increased network reach planned by BA and AA."



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