Virgin and British Midland

In recent years, Virgin Atlantic has done very little to increase its business but has spent an inordinate amount of effort in attacking British Airways for its attempts to grow. The latest effort to try to block their takeover of British Midland is no different.

Over the years, Virgin have had ample opportunities to buy or merge with British Midland but have – probably very wisely – not gone ahead. Now they are upset about BA getting British Midland. They don’t really want it themselves but don’t want BA to have it.

The argument they are using to block the deal on competition grounds does seem to have some superficial logic. They say that concentrating domestic routes on BA will lead to reduced choice and higher fares.

Unfortunately, this is a complete misunderstanding of the situation.

British Midland thrived as a shorthaul competitor to BA – in much the same way as Virgin did quite well as their longhaul competitor – but the airline business has changed. British Midland lost their position to easyJet who now provide much more effective competition to BA on shorthaul than British Midland ever did. That is why British Midland is in such a financial mess.

EasyJet currently operate 13 flights a day between London and Glasgow. That is more than enough competition for BA. The only other thing that can destroy these domestic routes is the government’s determination to tax domestic air travel out of existence. If BA take British Midland, Virgin will lose the opportunity to sell domestic add-ons to their longhaul flights but that is their problem. It really is not an issue for the competition authorities.

However, I have a solution which, if Virgin are serious, should keep everyone happy.

British Airways should be allowed to take British Midland but give up enough slots at Heathrow to allow Virgin to operate four return flights each day between Heathrow and Glasgow and Edinburgh. In return, Virgin should sign an agreement that they will operate these flights for at least five years.

That would have Richard Branson running for cover to his Caribbean tax shelter faster than you can say Virgin Cross Country Trains.

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