Bloomberg News

Virgin Atlantic in Advanced Alliance Talks, Branson Say

October 26, 2012

Billionaire Richard Branson

Billionaire Richard Branson said, “It will definitely strengthen Virgin” to reach an agreement. Photographer: Dhiraj Singh/Bloomberg

Virgin Atlantic, the airline controlled by U.K. billionaire Richard Branson, is in “fairly advanced talks” to join an aviation alliance as the carrier seeks to boost its competitive position and restore earnings.

“Virgin Atlantic has always enjoyed its independence, but since pretty well every competitor that we have has an alliance I think we have finally decided that to survive we need to have an alliance,” Branson said in an interview with Bloomberg Television in Mumbai today. He declined to name the group the London-based airline is speaking with.

The carrier is struggling to become profitable amid a management change while confronting shifts in industry tie-ups, rising fuel prices and the global economic slowdown. Deals this month have included Qatar Airways Ltd. joining British Airways’ Oneworld alliance, Qantas Airways Ltd. (QAN) ending a 17-year partnership with British Airways to cooperate with Emirates, and SkyTeam alliance co-leader Air France-KLM Group (AF) forging sales links with Etihad Airways.

“I’d say it would be 60-40 in favor of SkyTeam” as the potential Virgin Atlantic partner, Robin Byde, a London-based analyst at Cantor Fitzgerald International, said in a phone interview. The U.K. carrier’s routes to the Caribbean, U.S. and Asia may “tip them in favor of the SkyTeam alliance more than Star,” the group led by United Airlines (UAL:US) and Deutsche Lufthansa AG (LHA), which already has a route network serving those markets.

Carrier’s Control

Branson has said since early 2011 that Virgin Atlantic is looking at joining a global alliance, though he wouldn’t consider a deal that involved him giving up control of the airline. Singapore Airlines Ltd. (SIA), a Star Alliance member, owns 49 percent of Virgin Atlantic.

The billionaire has lobbied antitrust regulators for more than a decade in an unsuccessful effort to stop British Airways from cooperating more closely with AMR Corp. (AAMRQ:US)’s American Airlines, the U.S. co-leader of Oneworld, on trans-Atlantic routes.

“There’s a degree of bad blood between Virgin and British Airways and that would rule out that alliance,” said Byde of Cantor Fitzgerald.

The agreement reached between Paris-based Air France, Abu Dhabi-based Etihad and Air Berlin Plc (AB1) is only a so-called code- sharing accord allowing joint seat sales on some routes, and doesn’t bring the Persian Gulf or German carriers into SkyTeam. Air Berlin joined Oneworld in March. Etihad declined early this month to comment on its strategy toward SkyTeam.

Order Delay

Virgin Atlantic posted a loss of 80.2 million pounds ($129 million) for the year ended February, and has delayed adding bigger planes. It’s seeking a successor for Chief Executive Officer Steve Ridgway, 61, who retires early next year after 11 years in the post.

The new CEO may be chosen before the Dec. 25 Christmas holiday, Ridgway said in an interview in India, where he and Branson were attending ceremonies today marking the resumption Oct. 28 of Virgin Atlantic’s Mumbai-London route.

The airline, which flies from the British capital’s Heathrow and Gatwick airports as well as from Manchester, England, is considering U.K. routes to other Indian destinations such as Hyderabad, Goa and Bangalore, Branson said at a press conference in Mumbai.

The Virgin Atlantic brand “is massive, but the airline is relatively small,” Douglas McNeill, an analyst at Charles Stanley Securities, said in an interview in London. “There’s a distinct lack of scale.”

Reaching an alliance agreement “will definitely strengthen Virgin,” Branson said. “It will be good for the traveling public and good for Virgin Atlantic’s bottom line.”

To contact the reporters on this story: Kari Lundgren in Mumbai via klundgren2@bloomberg.net; Tom Metcalf in London at tmetcalf7@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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