08 December 2008

Monster monopolies donÃ¢â¬â¢t benefit anyone

TravelMole Guest Comment by Virgin Atlantic chief executive Steve Ridgway

ItÃ¢â¬â¢s difficult to deny that our biggest competitor, British Airways, wants to get even bigger.

The drawing board is getting pretty full at BA headquarters, with plans to merge with Iberia, Qantas and American Airlines. As BA gets bigger, its dominance increases on some of the busiest routes in the world.

Iberia and Qantas would certainly enable BA to grow stronger, but itÃ¢â¬â¢s the planned alliance with American Airlines that would create a monster monopoly detrimental to the very concept of competition.

Virgin Atlantic is against BA/AA because if the application goes ahead, the new entity would have a stranglehold and insurmountable monopoly on the busiest routes between Europe and the US.

The two airlines, effectively working as one, would operate 80% of all capacity between Heathrow and Boston and 64% between Heathrow and JFK. Not to mention the 100% pure monopoly between Heathrow and Dallas. They would also be highly dominant on several other Heathrow to the US routes.

We all know what monopolies do, as the case of airport owner BAA has shown clearly. Monopolies gouge consumers, who don't get any value, and hike fares due to their dominance in a market. Competitors donÃ¢â¬â¢t get a look-in because they simply do not have the firepower to compete with a player that has such substantial sway in the market.

BA and AA would have us believe that EU/US 'Open Skies' has brought a raft of new competition between Heathrow and the US.

The numbers show that is not the case. Air France and Delta Northwest have, within months of starting, pulled off serving LA and Seattle from Heathrow.

No-one has free and unfettered access to Heathrow. The rare slot that does emerge does not enable carriers to compete on transatlantic routes.

BA argues that it needs to link up with American because SkyTeam and Star are dominant at their hubs. But the fact is that BA on its own is already bigger between Heathrow and the US, the thickest airway out of Europe, than Star is from Frankfurt or SkyTeamis from Paris - and thatÃ¢â¬â¢s before it gets together with American Airlines.

Heathrow accounts for nearly a quarter of all passengers travelling between Europe and the US, and in stark contrast to other European hubs where competitive entry is possible, it is effectively full.

This makes it physically and financially impossible for any carrier to offer any meaningful level of new competitive service at Heathrow, let alone attempt to replicate the network that BA/AA would have.

If BA/AA were to receive clearance, the travel trade and large corporate accounts would suffer. A bigger airline, with less competition, would force up prices because it wouldnÃ¢â¬â¢t face as much pricing pressure.

Travellers would pay higher fares in return for less choice. Remember what BA was like when there was no choice across the Atlantic?

The current economic malaise is no justification for regulators to let the application for anti-trust immunity go through. There is no reason to allow special protection from the immediate challenges of the economic cycle.

Anti-trust laws should not be ignored during an economic downturn for good reason because when the economy recovers, competition and consumers would be faced with a giant carrier which had permanently changed the market for the worse.

ItÃ¢â¬â¢s why regulators should be saying no way to BA/AA as well. If BA gets to play monopoly with American Airlines, then we'll all be losers.

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Your Comments (2)

Top 10 Reasons the BA/AA Alliance Should Not Go Forward

10. BA already has a monopoly of routes both sides of "the pond". They should leave well enough alone. 9. Less is not more. Less choices of where we fly, who we fly with, and what it will cost to get us there will impact all of us at some point, whether we travel for leisure or for business. 8. The last time BA planned a big expansion we got Terminal 5, which to this day is not fully operational. 7. If the BA/AA alliance is approved the "open skies" will become the "empty skies" because the pricing structure will cause us to rethink our travels plans. 6. No airline should be the sole carrier into a major city in the US. Period. 5. The present economic downturn continues to spread across all industries. All of us are affected. If the BA/AA application to the EU passes, they may end up pricing themselves out of the market and out of business. 4. Terminal 5 - worth a second mention, an achievement that BA can claim all on its own. 3. Bigger is not better, certainly not in commercial aviation. When did that ever prove to be true? From the Roman Empire to AIG, not much has changed. 2. Should any airline serving any major city and in particular London Heathrow, be entitled to fly enough passengers to warrant 96 self-serve kiosks? That is daunting, if not a bit anti-social... 1. The number one reason for myself when taking a position on the BA/AA alliance is simple. Service is everything. Travel as a whole has become an arduous experience on many levels, and the way airlines communicate with and treat their passengers is rarely forgotten. Virgin Atlantic lives and breathes service and it is no accident that they recently won several top awards from The British Travel Awards. Monopolies may increase sales for a period, but they will never be a long term guarantee of customer loyalty.

By Analee Cole, Tuesday, December 9, 2008
Big guys offer routes

Competition is a great thing. But what is also great is having service! It's fine for some to complain about the dominance of one or two carriers on certain routes, but a lot of us live outside the NYC-London catchment area. I don't care whether a merger means ticket prices go up $50 or $100. I just want to be able to actually fly somewhere without having to add a day and a bunch of stops to my routing. I would have more sympathy for the smaller guys if they didn't just cherry pick the four or five popular routes. The big guys are at least operating a fuller route system. I live four time zones from London. My cousins live nine time zones away. They can get a direct flight and pay 30-40% less than I do. Often, when I go to London, which is east of me, I have to fly one time zone west, wait for hours in an airport in Montreal or Toronto, then fly two hours to fly past where I started from. So instead of a 5 hour, 45-minute flight I spend 14 to 16 hours getting there. Don't talk to me about cost, talk to me about time and convenience.

By Allan Lynch, Monday, December 8, 2008