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Will the British Airways / American Airlines joint venture be broken up if Virgin Atlantic goes bust?

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However good your hearing is, you will have struggled to pick up the sound of British Airways demanding that Virgin Atlantic and Norwegian must not receive Government support and be allowed to fail.

Have you wondered why?

After all, Willie Walsh – CEO of BA’s parent company IAG – couldn’t keep himself out of the newspapers and TV studios earlier this year when Flybe was looking for Government help.   IAG even filed an official complaint with the European Commission. 

And so it came to pass ….. Flybe failed, allowing British Airways to pick up – for free – a package of 12 daily Heathrow Summer slots worth at least £100m.

If Willie was angry about Flybe getting help, despite the fact that the number of routes where it competed with British Airways was minimal, you would expect that he would be apoplectic by now at the idea that Virgin Atlantic may receive support.

And yet, silence.

british airways american airlines joint venture ending?

Here’s an idea …..

Back in 2018, the Competition & Markets Authority launched an investigation into the transatlantic joint venture between BA, American Airlines, Iberia and Finnair.

What you might not know is that, when it comes to flying between Europe and North America, these four airlines are literally the same business.  There is no competition between them.

When you book a flight to New York on British Airways, British Airways does NOT get your money.  It goes into a big pot, together with all the money that American, Iberia and Finnair receive for selling flights between Europe and North America.  This money is then shared out between the airlines using an unknown formula.

This removes most incentives for competition between the airlines.  I imagine the only real competition is working out how to juggle the formula in order to take more than your fair share from the overall pot …. after all, if you agreed to pool your salary with everyone else on your street and split it later, you wouldn’t be queuing up to do any overtime.

The 2018 investigation was not unexpected.  The original 2010 joint venture agreement was due for renewal.  What IS unexpected was that it has not been resolved.  Observers believe that something is ‘up’.

The CMA has been getting more aggressive in recent years.  As you may have seen in the press, it recently tried to stop Amazon investing in Deliveroo.  This is NOT because Amazon has its own food delivery business and so it would reduce competition.  It was blocked because Amazon MIGHT IN THE FUTURE have gone back into UK food delivery but wouldn’t bother if it had a share in Deliveroo.

(This deal was eventually rushed through last week after Deliveroo said that it would go bankrupt without the investment.)

This sort of high-level economic thinking, whilst sensible, is not what you usually expect from competition regulators.

british airways american airlines joint venture ending?

If the CMA was already unhappy about the BA / AA / Iberia / Finnair joint venture …..

Let’s assume that the CMA was unhappy about the BA / AA / Iberia / Finnair joint venture before coronavirus.  This is back in the good old days of 2019 when Virgin Atlantic was still in good shape and Norwegian was alive, if not well.

Now imagine what the CMA will say if Virgin Atlantic and Norwegian disappear from the scene.

London to New York alone generates ticket sales of over $1 billion per year.  British Airways and American Airlines would suddenly have an unsustainable market share of the most valuable airline routes in the world, between London and the United States.

A handful of United Airlines and Delta Air Lines flights per day would not offer much competition, especially given the lack of onward connectivity into Europe.

Here is the bizarre situation where we find ourselves.  The financial hit to British Airways of having to dismantle the transatlantic joint venture and compete with American Airlines may be bigger than the financial hit it currently takes by competing with Virgin Atlantic and Norwegian.

Are we about to see British Airways actively encouraging the UK Government to SAVE Virgin Atlantic?  Given the choice of losing competition from Virgin Atlantic or losing the money from the transatlantic joint venture, I think that British Airways is more scared of the latter.

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Comments (106)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Cheshire Pete says:

    I doubt the CMA will be doing anything to interfere with the desperate state all airlines find themselves in until it returns to 2019 market conditions, probably by 2024. So we can review this in a couple of years times perhaps!

    • ken says:

      there will always be an excuse for cartels & monopolies to continue.

      As the original JV was allowed by the EU that adds a further complication, although the most of the routes affected are London ones.

      Review likely to drag on until the end of this year.

      Commitments to release slots at Heathrow/JFK not much use if nobody to run the service.

      Logical thing would be break up the JV from a date say in 2021

      Has the bonus for the brexit clowns of “taking back control”

  • TimM says:

    Profits go the the wealthy in good times, poor people fund the bail out in worse times. Same old, same old. If the banks won’t lend on commercial terms, neither should the Government. Even the Goliaths must to be allowed to fail. If they don’t then others will be equally unprepared for the unexpected because they know the state will always bail them out. The net effect of bailouts is a transfer of wealth from poor to rich. We have had 12 years of paying for the excess profits and bad management of the banks. No more. Let these airlines go bust.

  • insider says:

    Definitely a stretch, I think WW has seen just how bad this situation is and it’s not good right now to make noises about pushing employees out of work. Also, have you done the analysis on market shares? Bit of a bold claim without looking at the numbers. I think the commission are more interested in the Star++ and remaining Skyteam JV than VS

    Also, BA didn’t ‘pick up for free’ the Flybe slots. BA owned these slots anyway, and anyone can apply to take them on if they want. They definitely are not worth £100m to BA given that they have to give them up at a moment’s notice.

    • Rob says:

      Have you looked at the original European Commission ruling on the BMI slots? I have. Whilst it isn’t clear, because no-one expected the slots to be returned, you can read it to assume it has now timed out. The Winter slots, in any event, DID vest with Flybe – so who is going to bother asking for slots to run Summer-only services from Heathrow to Aberdeen and Edinburgh?

  • mr_jetlag says:

    It’s definitely one reason to stay quiet. Not sure why some ppl think the cartel has had any benefit to flyers. Most of the improvements have been because of competition from Norwegian. If any airline was worth saving, that one is – unfortunately the SWF doesn’t seem interested.

  • Doug M says:

    I think he’s keeping quiet because that’s the smart move, throwing his weight against VS offers nothing positive in terms of PR, and he may well need good PR going forwards. United and Delta are both part of alliances that offer onward connections from the German and French hubs. I don’t see the JV as a problem, flights to NYC are relatively cheap, and the increased benefits of AA at the other end and Finn at the European end is good as I see it. I’m not sure Virgin offered enough to be a big factor in that pricing. Time will reveal all.

    • BlueThroughCrimp says:

      Yeah, agree. Better to keep your powder dry until you need it.

      I said the other day in the Virgin bailout story that JVs were more uncompetitive.

  • Novice says:

    These sorts of JVs should be against law in the first place. Goes against the fundamentals of good Economics. Cartels should not be allowed to form. And big companies shouldn’t be allowed to gobble up smaller companies. Eg. Coca-cola, PepsiCo, Nestle, Unilever, Amazon, Facebook, Oil cartels. Apparently now I find out there’s airlines cartel too. I could name so many. No wonder we have a world where some companies own a lot of the world’s consumption.

    If this is what humanity has become, I’m not sure we deserve to survive.

    • Novice says:

      I will never forget my granny asking me how did Zuckerberg get so rich if Facebook is free to join. After that I have always become extra vigilant in keeping my information as secure as possible.

      I don’t use social networks as I don’t need to. The ppl I want to interact with know my email and phone I don’t see why I should post anything to the world 🌎

      • Mikeact says:

        ‘ I don’t see why I should post anything to the world 🌎’

        Apart from on here !

        • Novice says:

          Here I’m sort of still anonymous 😂 I meant the selfie lovers and social media is different… you’re posting for likes … my generation live for it… thankfully I don’t… I think anyone here would have understood my point no offence to you

      • Lady London says:

        Did you ever hear the expression
        “If a website is free to use then you’re the product”

    • Craig W says:

      Novice – i do enjoy your posts.

      You make me nod along half the time and the other half of the time my eyes roll so hard my head nearly falls off. I have never known anyone that did pulled that off quite as well as you do

    • ChrisC says:

      When ailines submit their applications to (especially) the US Government for example they aren’t asking for the JV to be approved per se but are seeking immunity from prosecution from the US Anti-Trust legislation.

  • ChrisBCN says:

    I don’t agree with the thrust of the article, what am I missing?

    In the scenario of no Virgin Atlantic or Norwegian, only two of the JV fly London to North America (AA/BA) vs two not in the JV (UA/DL). I agree there is little competition for UK connections, but that is the case now and isn’t really reduced by taking Virgin/Norwegian out.

    If your argument is about ‘the lack of onward connectivity into Europe’ then why haven’t you considered Air France/KLM, Lufthansa etc etc into the mix? A non UK bound traveler has multiple airlines to choose from, should they wish to connect.

    I don’t disagree that the JV should be looked at though.

    • Novice says:

      True. Because I don’t think Virgin were ever big enough to be classed as serious competition. This is the world now, smaller companies can’t survive. It’s sad that but it’s how ppl have allowed the world to become. And it’s been like this since before I was born and by studying Economics and Business got put off the business world 🌍

      • Rob says:

        Put simply …. BA has two options:

        a) Virgin goes bust and BA is forced to break up its joint venture with AA
        b) Virgin remains solvent (and a Delta partner) and BA is allowed to continue its joint venture with AA

        b) is SUBSTANTIALLY more attractive for BA, in my view, and so BA will do what it can to keep Virgin out of bankruptcy.

        • ken says:

          The best scenario from a competition point of view, certainly on business travel to New York would be to;

          c) Stop the joint venture & have virgin survive.

          Norwegian wasn’t even a player when the first decision was issued. Arguably in time its easy to see a Norwegian phoenix that will partly address the non premium market.

        • Novice says:

          Well why don’t they hand out some money to Virgin 😂 show some true competitive spirit (I know they can’t)

          But I maintain JVs of these sorts shouldn’t be allowed. There is a difference between partnerships than this idea of everyone adding to a pot that gets divided. That’s anti- competition.

          I don’t know how it’s allowed to happen. It’s essentially making it a unofficial group that can bully others.

          In this case, it would be better if Virgin pack it in and this JV is broken.

          Personally, I wouldn’t mind Emirates taking over Virgin. They are a good airline. (Although I don’t agree with ME3 countries’ human rights)

        • Kruggs says:

          Haha I like how you present these two options as fact. How do you know the CMA will force the break up? I’m pretty sure the JB started BEFORE Norwegian even flew longhaul and Delta had invested in Virgin. So what am I missing?

          Seriously Rob, a little less Daily Mail please and a little more REAL analysis. Let’s see the market shares before and after. This is pure speculation at the moment but you are presenting it as fact.

          • Rob says:

            Eh? It is totally clear it is speculation. What is NOT speculation is that the CMA had a good reason for not knocking this review on the head after 3 months.

          • Michael says:

            Exactly! Rob and ‘Novice’. Over analysis and under analysis.

          • Novice says:

            I never said I passed my degree with distinction 😂 So if my Economics is rusty, blame the fact that I ended up not liking the business world so I ended up with 2.1. Bank of Dad and Mum wasn’t happy when I said I have decided to pursue writing but wtd. So I have forgotten most Economics that I studied 😂 Now I use common sense mostly.

        • Spaghetti Town says:

          Have Aer Lingus been admitted to the JV yet? I know it was planned?

          VS going under could no doubt impact that.

        • Chrisasaurus says:

          Well theres also the option C you allude to in the article – that the CMA are already considering breaking up the JV net of VS issues, so they could see VS survive and lose the JV anyway…

        • Mikeact says:

          The US love jv’s …. they will certainly kick up a fuss with any changes or meddling. Likewise, American will be really upset.
          I don’t see the breakup as a foregone (speculation) conclusion at all.
          And even if Virgin survive , for how long and in what sort of shape for long term survival, based on the current management team.

          • Rhys says:

            I’m not sure the CMA cares about whether American will be really upset or not…

        • ChrisBCN says:

          Rob, you are assuming that if Virgin goes bust, the JV is more likely to go. I can’t see any evidence that this would be the case, as per my original comment. What is there that makes you think this is the case?

          • Rob says:

            Isn’t it logical that if the CMA was unhappy with the current JV even with Virgin / Delta providing good competititon, and Norwegian keeping prices down, that they are going to look even more carefully if Virgin and Norwegian fail? Seems blatantly obvious.

          • ChrisBCN says:

            No Rob, it isn’t. London to North America you have Delta and United Vs AA/BA. Three separate parties. Delta and United are strong enough to effectively compete. Also don’t forget that JetBlue have slots and plans to compete too, albeit that might be delayed now.

          • Rob says:

            Feel free to email the CMA if you feel strongly about this. I believe there was a period where submissions were allowed.

          • ChrisBCN says:

            I’m just questioning your assumption that the JV is more at risk with Virgin gone than Virgin alive, I don’t believe it is, the logic is thin. Sorry!

          • ChrisBCN says:

            And I’m slightly perplexed that you direct me to the CMA for questioning what was the main thrust behind your story! 🙂

          • Murdoch says:

            Don’t worry Chris, it’s the standard arrogant Rob reply of not accepting his view is wrong or questionable, followed by indirect assumption that you’re stupid, followed by silence. 😂

            One of his comments in this thread is “put simply, BA has 2 simple options: a) or b)” and when questioned on the options, states they are clearly just speculation. Unfortunately this style of writing reminds me very much of people I deal with in the City. State your opinion as fact, and defend it to your death, even if you’re not really convinced by it yourself

          • Mikeact says:

            I thought that there were other carriers as well, stopping off at London before going on Westwards. And anyway, how many carriers do we want across the pond from the UK, 3,4,5, more ? It seems to me that every airport in the land has a US option, holiday charters as well. And how many flights from Europe are there…talk about spoilt for choice. I really don’t see the problem.

      • Lady London says:

        I am inspired though by Bill and Melinda Gates. I believe they’re genuinely using wealth to do good in ways their resources and input are needed to actually change (rather than feed) issues they decide to focus on.

        So business is feeding into good there IMV.

    • ken says:

      The routes the Commission looked at were London to North America (5 routes) and Madrid to Miami.

  • jimA says:

    or BA is just keeping quiet in case it needs a bailout if lockdown lasts a long time ?

    • Rob says:

      Because BA has traded debt, it automatically qualifies for money from the same pot that easyJet, IHG and Wizz Air have used. It doesn’t even need a special bailout. I’m not sure why it isn’t taking this money now.

      • Kruggs says:

        Probably because they’re still negotiating on the amount. I’m sure they’ll take it soon

      • Spaghetti Town says:

        Because this is a good excuse to get rid of legacy staff.

        They may still take the loan in the coming weeks, but it just seems a little bit fishy to me.

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