October 26, 2012 Virgin Atlantic ponders joining an alliance
Bloomberg is reporting that Sir Richard Branson is in talks to have Virgin Atlantic (VS) join an airline alliance. In order to keep this from being a “who done it” post, right out I’ll tell you that I think it is going to be SkyTeam, though not for the reasons in the Bloomberg article. Virgin Atlantic is owned mostly by the Virgin Group with a 49% stake owned by Singapore Airlines. Operating out of London Heathrow, London Gatwick, and Manchester Virgin is a long haul airline operating flights all over the world. Looking at each alliance, we’ll evaluate why it does and doesn’t work.
Why it works
With the IAG (BA) takeover of bmi, Star Alliance is basically cut of the London market except as an origin and destination option. Bringing Virgin into Star Alliance gives the alliance back the footprint that was lost with bmi’s exit. Also Singapore airlines, one of the original members of Star Alliance, owns 49% of Virgin. This allows Singapore to enhance revenue as well as increase influence over Star Alliance.
Why it doesn’t work.
Adding Virgin into Star Alliance doesn’t really create the opportunities for connections that there would be on paper. Virgin being a long-haul carrier there are no other connections except to other long-haul routes. Frankly the Lufthansa group already has those connections covered through Frankfurt and other European hubs. Also if you look at Virgin’s footprint in the United States, they already fly to all of the markets covered by United, SFO, LAX, IAD, NYC/EWR, and seasonally ORD. This forces Star Alliance to divide the same Trans-Atlantic pie into smaller pieces. I don’t think United is going to go for this. This reason more than anything else keeps them out of Star Alliance.
Why it Works
It creates super hub in LHR that would be near impossible to break. By far OneWorld would have the vast majority of LHR slots. Joining One World also helps fill in the gaps in coverage out of LHR.
Why it doesn’t work
It will be a very cold day before Sir Richard Branson joins anything that has to do with British Airways. He hates British Airways in the way Apple hates Samsung, it’s very personal. Part of Sir Richard Branson’s management style is his personality which complements his business savy. One only has to look at their adverts to see that. http://www.youtube.com/watch?v=Hbib-A6NpW8 There is no way his personality would allow him to join up British Airways. Finally, there is no way this clears British anti-trust.
Why it works
First, SkyTeam gains London access out of a bunch of North American and Caribbean markets that have belonged to Star and OneWorld. Next, SkyTeam gains another airline that the alliance desperately needs. SkyTeam would with the exception of British Airways have a lock down on that corner of Europe, Paris, London, and Amsterdam as all three hubs are within 250 miles of each other. However, unlike if Virgin joins OneWorld, the lockdown is more ethereal and more likely to pass whatever EU anti-trust tests there are.
Why it doesn’t work.
Most if not all of the markets into LHR are covered by Air France/KLM. Adding Heathrow as a hub just means that there are now three SkyTeam hubs within 250 miles of each other. Much like if Virgin joins Star Alliance, these three hubs will split the same pie three ways, instead of two.
Of the three choices, I think SkyTeam is the best fit for Virgin. United will probably flight to keep Virgin out of Star Alliance and Branson will kill to keep Virgin out of OneWorld. Skyteam wins almost by default. The argument against SkyTeam isn’t that strong. What traffic that Virgin has that O/D’s at LHR will not be affected by AF/KLM. Where Virgin and AF/KLM compete in the long-haul connecting market the airlines can decide to offer similar flights at different times in order to present more flight options within SkyTeam.