Virgin tie-up with Air France-KLM "makes sense", says Branson
Published: 11/04/2013 - Filed under: News »
Speaking at the launch of Virgin Atlantic’s domestic network, Sir Richard Branson said that a possible tie-up with Air France-KLM to boost its services in Europe and the Middle East “makes sense”.
“We’ll see whether something comes from it,” Virgin’s founder and chairman said when asked about the possibility of a tie-up with Air France-KLM. “But the most important thing right now is for us to get the Delta deal through. That’s going through its due process and once that’s happened I wouldn’t be at all surprised if we had some discussions.”
Virgin Atlantic and Delta Air Lines have this week filed an application for antitrust immunity with the US Department of Transportation, ahead of their proposed joint venture on flights between North America and the UK (see online news April 9).
Craig Kreeger, the airline’s new chief executive – who took the helm in February after 27 years at American Airlines – told Business Traveller of the benefits the tie-up would bring.
“From the UK perspective, it offers a whole new set of destinations and frequencies to places we don’t fly to or fly to infrequently, by connecting our network to Delta’s network in the US,” he said.
“Delta is, as of now, the largest airline in the US – in the Americas – and we’re suddenly going to have connections for our customers where they will be able to earn frequent flyer miles in our programme, their corporate relationship with us will apply on to the network that Delta flies, and they’ll have lounge access and enhanced connectivity as we work together with Delta to make that as seamless as possible.
“But equally important for Virgin Atlantic is that from the US perspective we suddenly now have access to Delta’s frequent flyers, Delta’s corporate relationships, Delta’s travel agency relationships, and Delta is really excited about being able to offer our service to their customers, because they think that’s going to take them off other alliances and other airlines and move them on to us and Delta.”
He added: “Delta has been very clear in all of my conversations with them that what they are really excited about is our service to Heathrow, but that it remains Virgin Atlantic service to Heathrow, that it is a product they believe they will be able to sell effectively to their customers. For us, that’s a whole new source of potential customers and will also diversify us away from a large reliance on the British economy, which has not been a great thing to be relying upon in the past couple of years.”
Kreeger confirmed that the airline would consider a further joint venture with Air France-KLM – like Delta, a member of the Skyteam alliance. “What I would say is that our first priority is executing the Delta relationship as excellently [as we can], and at the right time we will evaluate whether Air France-KLM – or, in fact, a broader relationship with Skyteam – makes sense. We haven’t made those decisions yet, nor have we begun the evaluation of them.”
As to whether the Delta tie-up made joining an alliance more likely, he said: “I think it certainly makes other partnerships more likely. I don’t know about the alliance decision itself. Over half of our flights are to or from the US, so a relationship with a US carrier both to offer more destinations and diversify our sales penetration clearly makes sense – it’s a big piece of our network. And I suspect there will be other partners that will be true of as we think about other pieces of our network. What’s unclear yet is whether that would translate to any specific partner or an alliance – we’ll have to wait and evaluate.”
Kreeger and Branson were speaking at this week’s launch of the airline’s new “Little Red” network. As previously reported, Virgin Atlantic has used slots freed up at Heathrow by the purchase of Bmi by British Airways’ parent company, International Airlines Group (IAG), to launch a domestic network. It started a four times-daily Manchester service on March 31, a six times-daily Edinburgh route on April 5 and thrice-daily Aberdeen flights on April 9.
The services are operated using all-economy A320 aircraft wet-leased from Aer Lingus, with Virgin livery. Crew are employed by Aer Lingus but wear Virgin uniforms and have been trained to represent the UK carrier’s brand. (For a review of the new service, see our May issue.)
By launching the network, Virgin is pitting itself against arch rival British Airways, the only carrier to serve the three destinations from Heathrow since the demise of Bmi – on the tarmac at the Edinburgh launch, Branson pulled up the kilt he was wearing to reveal the words “stiff competition” emblazoned on his underwear.
On a more serious note, Branson spoke of his pleasure at being able to get the routes off the ground. “It’s been 30 years since we first tried to get permission to fly on domestic routes, and because Heathrow has been full for even longer than 30 years, we could never get the slots to do it, and the few slots we did get we put on long-haul routes.
“And so it was only really because of British Midland’s demise that a few crumbs came off the table, and we hope to put those crumbs to good use, flying to Edinburgh, Aberdeen and Manchester. In order to compete properly with British Airways we need to be able to feed people into Heathrow on to our 30 long-haul services to the Far East, Australasia, Africa, America and so on. So we’re delighted that we’ve managed to pick up these slots. I think we’ll be able to offer some proper competition to BA.”
He added: “We would love to be flying to Glasgow as well. For some bizarre reason the competition authorities that bequeathed us these slots didn’t allow us to have the slots to compete with British Airways out of Glasgow, so they have the monopoly on that route.”
Virgin Atlantic will not be serving the routes as frequently as BA, and passengers connecting to its international network at Heathrow – which Kreeger called the “primary value” of the domestic services – will have to transfer from Terminal 1 to Terminal 3. But he said: “While we have half as many [flights], we think we cover the day very well, and in particular connect to all of our key international destinations.
“We will certainly be talking to Heathrow airport about a long-term plan to co-locate Little Red, though that is obviously to be determined. We have already instituted a seamless connection between T1 and T3 [a transfer bus takes passengers from their arrival gate at T1 to airside at T3]. I made that connection myself, walking and bussing it, in less than 20 minutes so we’re very confident that we have a great competitive product to offer.”
Unsurprisingly, given the short distance from London, the airline sees the Manchester route primarily as a vehicle for transfer traffic and does not expect to be wooing many rail passengers. Kreeger told Business Traveller: “We think of connecting new and existing customers to the longer-haul services as the primary raison d’etre for this service. Trains are not a competitor for that, and in the case of Manchester, where trains are very viable in the city-centre to city-centre market, we’re thinking we’re not going to carry much of that traffic.”
Branson said he didn’t think the new routes would affect any future bids to run the East Coast rail line. “These flights are primarily Heathrow based and the two areas are different markets,” he said. “We would like to bid for the East Coast – we’ve bid twice before and came runner up, and the people who were chosen both went bankrupt. We think we have a plan for the East Coast that will benefit the travelling public, but we’ll see what happens.”
Kreeger didn’t seem worried that Virgin would struggle domestically as Bmi did. “We’re confident that with the long-haul service we have to connect this to that we are the right airline to be adding this relatively small short-haul network to that mix,” he said. “While the short-haul markets were challenging by themselves for someone like Bmi, connecting Scotland and Manchester to a network that is as strong in Heathrow as our long-haul network is a completely different proposition.”
He also didn’t feel that not offering business class would put off premium passengers. “While it is certainly a one-class product, I think – having flown a lot of different classes of service over different lengths – the pitch is reasonable and the onboard service for this length of haul is appropriate and not low-end in any way. It will have typical Virgin touches, flair and feel. It isn’t a business class seat, so I guess there are some customers who may prefer that, but I think it will be a viable business offering.”
Kreeger spoke of his frustration both with the current limits on the UK’s aviation infrastructure and the government’s policy on air passenger duty (APD), which rose again last week. “The infrastructure issue is the long-term issue that prevents aviation from adding to this economy as it could,” he said. “But in the short term the taxation environment contributes in many ways the same kind of impact, which is that it prevents the economy from benefiting from increased connectivity to the rest of the world.”
He told Business Traveller that he had asked the government to rethink its APD policy. “I have certainly communicated that to the government and they listened eagerly but in the end we were unsuccessful in convincing them otherwise. But I think other countries with similar economic challenges to the UK have looked at the same problem – like Amsterdam, which eliminated its APD, or Germany, which froze it. Both are examples of countries that face economic issues as part of Europe that are challenging to them, that drew a different conclusion and I think a wiser one.”
As for a solution to London’s capacity problem, he said: “I think the short-term need is additional capacity at Heathrow. This is a strategic question – effectively what it means is the airport that most people want to go in and out of here in this country is severely under-served. Amsterdam is a great example – there are 26 UK destinations served out of Amsterdam. There are six UK destinations served out of Heathrow*. That pretty much tells you exactly what the problem is. Carrying customers from the UK to the rest of KLM’s network is a gigantic part of its strategy because Schiphol has the infrastructure to do it.
“Long term, I’m more open and will be very interested in hearing what the Davies commission has to say. We will certainly participate in discussions with them, but I’m hoping that an independent review can break the log jam and create some courage.”
Visit virgin-atlantic.com for more information.
Report by Michelle Mannion
* Editor's note: There are in fact seven UK destinations currently served from Heathrow: Aberdeen, Belfast, Edinburgh, Glasgow, Leeds Bradford, Manchester and Newcastle.
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