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Virgin Atlantic CEO Richard Branson

Virgin’s Richard Branson Predicts the End of Longtime Rival British Airways

June 23, 2009 11:00 AM
by Liz Colville
Richard Branson, the CEO of Virgin, has suggested that British Airways, the U.K.’s former flag carrier, may be doomed.

British Airways “May Not Revive,” Says Branson

Richard Branson, the billionaire founder of Virgin Atlantic Airways, Ltd., told Bloomberg News in a television interview that he’s “not sure British Airways Plc will survive the recession and that the U.K. government should resist a bailout should the carrier collapse,” Bloomberg reported.

Branson, ever comfortable in the spotlight, was questioned over whether he might consider purchasing British Airways, which is the U.K.’s flag carrier but has been privately owned since 1987. The two airlines are rivals on long-haul trips from the U.K., according to Bloomberg. Branson said he “has no plans to make a bid” for BA and added, “If they do go bust the government should let them go bust.”

Howard Wheeldon, a senior strategist at London’s BGC Partners Lp, told Bloomberg that Branson was likely trying to worry BA investors. Wheeldon says Virgin is having the same financial troubles as BA.

Meanwhile, analyst Douglas McNeill is still recommending the BA stock to his customers. “Business travel will come back and British Airways will cope courtesy of the cash reserves it has built up when times were good,” he told Bloomberg.

Background: In Europe, flag carriers merge to save; British Airways could do the same

Forbes noted in Jan. 2009 that airlines saw a short “boost” after the late-2008 drop in oil prices, but it “proved short lived as it quickly became apparent that demand was suffering, in both premier and economy sectors of the business.”

British Airways said at the start of 2009 that it expected to post a nearly $70 million loss for the fourth quarter of 2008. Similarly, Air France-KLM, a merged airline between France’s flag carrier Air France and the Netherlands’ KLM, also predicted an operating loss for that quarter.

Air France-KLM also has a stake in Italy’s Alitalia, Forbes wrote, adding that, “Only budget airlines, operating more short-haul routes, such as EasyJet seem to be holding up slightly better.”

Even before the recession, British Airways suffered setbacks. In early 2007, a strike by cabin-crew workers led the airline to cancel some 1,300 flights from London, The New York Times reported. BA workers were “protesting against a heavily monitored absence policy that has cut sick days in half to 12 a year, a two-tier pay rate, as well as the reduction in cabin crews on some flights.”

In May 2009, BA announced its biggest losses ever: £401 million ($657 million) in 2008, according to the BBC. In June, it asked its 30,000 employees to consider working for free for up to a month to help the company offset costs.

Historical Context: History of British Airways

British Airways Plc was formed in 1974 from British Overseas Airways Corporation (BOAC) and British European Airways (BEA). It began as a state-owned company under the Labour Party, but was privatized in 1987 under Conservative Prime Minister Margaret Thatcher.

In 1976, BA launched “the world’s first supersonic passenger service” with the Concorde, writes the Encyclopedia Britannica. Financial troubles ended the Concorde’s run in 2003, a few months after Air France ended its Concorde service.

BA suffered losses following the post-9/11 airline industry crisis, but the Guardian pointed out that the airline had already been having a bad decade prior to 9/11. Competing with the newer Virgin Atlantic, BA was accused of “dirty tricks” in an open letter from Richard Branson.

Branson “accumulated evidence of BA employees poaching Virgin customers and tampering with confidential company files,” the BBC reported. In 1993, BA lost the case, paying damages to Branson and the airline amounting to £610,000 (approximately $854,000) and incurring legal costs of £3 million (roughly $4.2 million).

The Guardian critiques BA’s management and PR tactics, marketing efforts, and extravagant spending in the lead-up to 9/11. For example, former CEO Robert Ayling’s “legacy” to the company includes the decision to base it at a “huge £200m Waterside head office near Heathrow, which boasts a street made of cobbles from Portuguese limestone, 1,000 desktop computers, 184 meeting rooms, 240 acres of parkland and a lake.”

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