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Virgin Atlantic confirmed reports on Friday that it hired Deutsche Bank
to conduct a strategic review of its business. Sources told BTN that they were not surprised Virgin
founder Sir Richard Branson is considering the airline's future after losing a
15-year battle to prevent a joint venture between transatlantic rivals British Airways and American Airlines. Branson in May disclosed during
Virgin's inaugural flight to Accra that consolidation of the airline industry
could render his airline's independence unsustainable.
"We have seen from various comments over the last few months that
Virgin is considering its options," said one aviation analyst who requested
anonymity. "The nature of the market has changed because of the AA/BA
Partnership Travel Consulting CEO Andy Menkes concurred. "No matter
how good a brand you have, from a strategic purchaser's viewpoint you are
looking not only at the service over the Atlantic but the network that joins up
with it," said Menkes, who served as a sales executive at Eos Airlines, which
briefly competed in the transatlantic market against Virgin and its rivals. "Virgin
has the lead in product, service and offering, but when buyers sit down with
them, the ability of Virgin to fill in spaces in the client's network is limited.
It would be right for Virgin to align with one of the alliances."
Assuming the choices exclude the Oneworld alliance led by AA and BA, several
factors point in favor of Star Alliance over SkyTeam. Star Alliance member Singapore
Airlines has a 49 percent stake in Virgin, although it has been looking to sell
for some time. Furthermore, Lufthansa, a founding Star member and the
alliance's European anchor, is one of the few airlines—along with those in the
Middle East—with the cash reserves to take the equity in Virgin that would
likely form part of any deal. Lufthansa also owns British Midland, which is
struggling to turn around but could provide an effective feeder network at London
Menkes also noted Lufthansa's minority ownership in JetBlue Airways,
which has a similar corporate culture to Virgin's and a domestic network in the
United States emanating from the New York JFK gateway. "There is no
overlap between Lufthansa and Virgin on any nonstop citypairs," Menkes
said. "With JetBlue as well, it could be a winning combination."
The main problem Menkes sees in any Virgin tie-up with the Star Alliance
is potential conflict with Continental Airlines, which recently upped its Newark-Heathrow frequency to five daily. Virgin flies twice daily to Newark
and three times a day to New York JFK. Continental has a long-standing "hard
block" arrangement on Virgin's three JFK departures and one of the Newark
flights, whereby it owns the inventory for a set number of seats.
Newspaper reports on Friday suggested the strategic review would lead to
Branson selling some or all of his 51 percent stake in the Virgin Atlantic
business. In a written comment, Cass Business School professor Joe Lampel
noted: "His reported exploration of selling his controlling interest in
Virgin Atlantic suggests that he has accepted the inevitable: The airline does
not have the resources to compete effectively against BA without becoming part
of a larger entity. Given his business style, and his deep identification with
Virgin Atlantic, he is clearly unwilling to maintain involvement in the
management of Virgin Atlantic once its independence is lost."
An official statement from Virgin on the review said: "Deutsche
Bank is working with Virgin on an assessment of the aviation marketplace and to
seek growth opportunities for the airline. The study is at a very early stage,
so there is no further comment to make."