Branson Launches Campaign against Proposed BA/Iberia Merger

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The initial rumblings of Virgin Atlantic Airways against the proposed “merger between equals” of British Airways and Iberia Airlines, is growing into a thunderstorm as high profile owner of the airline, Sir Richard Branson, launches a campaign to stop the merger. He has reportedly written to both American presidential candidates, Barack Obama and John McCain to warn them that an affiliation between the two airlines would be anti-competitive.

In addition to appealing directly to the two influential senators, Branson is also reported to be launching an extensive advertising campaign in an effort to halt the deal. One of the contentious issues is the number of landing/take-off slots that the merged company would hold at London’s Heathrow Airport. If the merger goes through, the BA/Iberia alliance and competitor American Airlines would hold nearly fifty percent of the landing/take-off slots at Heathrow. Branson believes the alliance would create a transatlantic network so strong that no other airline or alliance would be able to compete with it, especially when it comes to corporate and business travelers with time constraints. Acknowledging that airlines everywhere are battling to cope with the current oil price, he has expressed concern that this lack of competition would inevitably lead to higher fares, which would boost BA/Iberia income, but be detrimental to consumers.

Virgin Atlantic Airways operates primarily from London Heathrow and London Gatwick, flying long-haul routes between the UK and the US, as well as the Caribbean, Africa, Asia, Australia and the Middle East. This British airline is owned jointly by the Virgin Group (51%) and Singapore airlines (49%) operating on a UK Civil Aviation Authority Type A Operating License, permitting it to carry cargo, mail and passengers on aircraft with twenty seats or more. In 2007 Virgin Atlantic carried approximately 5.1 million passengers, reporting an annual profit of £46.8 million.

When British Airways first proposed an alliance with Spanish flag carrier Iberia in 2002, American regulators wanted BA to give up sixteen pairs of landing/take-off slots at Heathrow, in order to preserve competition. At the time BA apparently consider this to be too high a price and the proposal was withdrawn. However, BA will be meeting with officials from the U.S. Department of Justice this week to discuss the surrender of possibly hundreds of their transatlantic flight slots to gain anti-trust immunity for the merger to go ahead. As the week ahead unfolds, investors will no doubt be very interested in further developments in the Virgin versus BA/Iberia saga.

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