Why the UK skies need competition: The case for Virgin Atlantic

Apr 30, 2020

This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.

The global aviation market is changing by the day. Huge fleets of aircraft have been grounded, revenue has taken a devastating hit for airlines across the world and even some of the most profitable are worried about what the coming months and years hold for them.

Focussing in on the United Kingdom, the story is no different. U.K. aviation giant British Airways announced that it will make up to 12,000 of its staff redundant. Virgin Atlantic founder Sir Richard Branson said earlier this month that the airline would collapse without government support. Nobody is safe, and even before the impact of the coronavirus, two U.K. airlines — Thomas Cook and Flybe — both collapsed.

Losing another carrier in the U.K. aviation market would be detrimental for passengers. Competition helps markets thrive, and passengers are typically on the winning end of that when it comes to pricing, route options and loyalty programmes. Simply put, we can’t afford to lose another major U.K. airline.

A look back at the British skies

Before we got to where we are today, with British Airways and Virgin Atlantic coexisting in the U.K., there was a nearly 40-year history of tension and strained relations. As 1984 rang in, British Airways was a behemoth. As a product of the amalgamation of BOAC, BEA, Cambrian Airways and Northeast Airlines a decade before, it was the supersonic-flying giant and ruler of all things British aviation.

Enter into the picture Virgin Atlantic. The Richard Branson-led entity entered the market to shake things up.

On its website, the airline writes of its founding:

“In the UK, boom time had arrived, and a lot of people had more money to spend, with a greater desire to explore the world. The airline world hadn’t changed much at all and there wasn’t much choice, each country only had its state owned legacy airline. Expensive, with little emphasis on the customers’ needs, if you needed to get somewhere, you only had one airline to choose from. And what a dull, grey experience that was.

The time was right for someone to come in and shake things up. And did we ever.”

Virgin Atlantic began operating on 22 June 1984, flying from London Gatwick (LGW) to Newark (EWR) — a route the airline was forced to permanently suspend in March 2020 in light of the coronavirus crisis.

Three years later in 1987, British Airways was privatised as part of a wider programme by Margaret Thatcher’s Conservative government. Later that year, BA merged with (or, more accurately, absorbed) British Caledonian, growing in size and dominance even further.

Virgin Atlantic was right on BA’s heels to offer a differentiated product — and to keep the pressure on the now-giant British Airways.

British entrepreneur Richard Branson inaugurates his new airline Virgin Atlantic Airways, on the steps of the Boeing 747-200 'Maiden Voyager', 22nd June 1984. (Photo by Terry Disney/Express/Getty Images)
British entrepreneur Richard Branson inaugurates his new airline Virgin Atlantic Airways, on the steps of the Boeing 747-200 ‘Maiden Voyager’, 22nd June 1984. (Photo by Terry Disney/Express/Getty Images)

The rivalry between the two was fierce at the time, peaking with the so-called “dirty tricks campaign” conducted by BA. The revelations were shocking. Amongst other things, BA had its airport agents secretly access confidential Virgin data on computer terminals, allowing it to take decisive action to try and crush its competitor. Once BA’s actions were uncovered, in 1993, Branson and Virgin Atlantic won a libel lawsuit, costing British Airways more than £3.6 million in total damages and legal costs.

Without the support of the other companies in the Virgin Group, it’s believed that Virgin Atlantic would not have survived BA’s actions.

Virgin Group staff hijacking the British Airways Concorde model that stands at the entrance to the tunnel and changed the livery to Virgi on the day the first Virgin airways flight arrived at Heathrow, 1st July 1991. (Photo by Victor Crawshaw /Mirrorpix/Getty Images)
Virgin Group staff hijacking the British Airways Concorde model that stands at the entrance to the tunnel and changed the livery to Virgin on the day the first Virgin airways flight arrived at Heathrow, 1st July 1991. (Photo by Victor Crawshaw /Mirrorpix/Getty Images)

Whilst it’s had its good and bad years, Virgin Atlantic has become one of the most recognisable and loved British companies. The brand has punched well above its weight, especially taking into account its comparative size to other businesses — Virgin has just 42 aircraft versus BA’s fleet of nearly 300.

“Virgin has, for more than 25 years now, been the underdog and it’s competed and it’s been innovative and it’s brought value, not just good prices but good product and good service to the travelling public”, said travel industry analyst Henry Harteveldt.

The need for competition

We don’t know what the aviation world will look like when the current situation passes, but one simple fact will remain: Competition is healthy and important.

Free markets will always see the rise and fall of companies, but when the freedom of the market is limited, it preserves and protects a certain level of competition. Competition in any market will generally move prices lower and/or improve the available offering.

In aviation, it’s little secret that low-cost airlines have made legacy airlines rethink pricing structures. That’s especially evident on short-haul routes where you can often find one-way flights for less than £10 around Europe. It’s also clear that competition on longer-haul routes has led to improvements in the products offered by airlines on a global scale.

For more TPG news delivered each morning to your inbox, sign up for our daily newsletter.

With no competition, would Qatar have revolutionised business class with its Qsuite product, or Ryanair offered flights for 99p? Absolutely not. There would be no reason for airlines to be kept on their toes to provide the very best products, networks or prices.

Indeed, in the U.K., sibling rivalry came to the forefront of the aviation world in summer 2019, as Virgin Atlantic and British Airways almost simultaneously developed and revealed their brand new business-class seats, the Upper Class Suite and Club Suite, respectively.

Looking at how the rest of the world’s airlines like Qatar and Delta had advanced their business-class offerings, BA and Virgin were lagging behind — especially on the popular transatlantic routes. Passengers complained that BA business-class seats didn’t have direct aisle access, and Virgin seats couldn’t easily be converted between seat and bed mode. Both lacked privacy. There’s no doubt that an element of competition led the two airlines to push themselves to offer something special when they refreshed their business-class seats — or, rather, suites.

Generally, thanks to competition in the skies, a business-class product isn’t considered to be top of the line nowadays unless it’s in the form of a suite.

Photos by Nicky Kelvin / The Points Guy
(Photos by Nicky Kelvin/The Points Guy)

Without a sense of competition, passengers would be able to expect higher airfare, as well as less urgency to offer a competitive product.

And in the past, Virgin Atlantic has attempted to grow that competition to include the regional level. Through its venture into domestic routes with Virgin’s Little Red — albeit unsuccessful — and near-acquisition of Flybe, Virgin has attempted to create strong regional competition, too. Though more recently its venture with Flybe to establish Virgin Connect failed due to Flybe’s premature collapse, Virgin has strengthened its U.K. and European connectivity through its joint venture with Air France-KLM, which was finalised earlier this year.

Prior to the coronavirus, the airline unveiled huge plans for up to 84 new long-haul, European and domestic routes if the government were to change the way that slots were allocated at an expanded London Heathrow Airport. You can bet that given the chance, Virgin Atlantic will continue to push these sorts of boundaries, which, ultimately, means better choice for the consumer.

“Prices will be higher, product quality may not be as good or as consistent, and in fact the market may be smaller than it otherwise could be”, Harteveldt said.

There’s no doubt that as a consumer, you’re better off when there’s a competitor around.

A future without Virgin Atlantic

Not only would the demise of Virgin Atlantic lead to devastating job losses and the loss of a brand that many hold dear, but the hit to prices, product and frequent flyer programmes would be significant.

There are, of course, many other competitors outside of BA for Virgin. On the big-money transatlantic routes, Virgin and BA both compete with the likes of Norwegian, Delta, United and American, and on routes to the rest of the world, they compete with the Middle Eastern airlines. But the loss of Virgin Atlantic would lead to one fewer thing for the remainder to worry about, to the detriment of passengers.

“Without Virgin, British Airways wouldn’t be as good as it is, and without British Airways, Virgin wouldn’t be as good as it is”, Harteveldt said. “So competition is critical to the UK having the choice of better prices and better value”.

For points and miles enthusiasts in U.K., the Virgin Atlantic Flying Club is a big deal. The points are as easy to earn as Avios with a dedicated shopping portal, a route to earn Flying Club miles via Tesco Clubcard, they’re an Amex transfer partner and there are great Virgin Reward credit card products available alongside the classic route of earning via flying with Virgin and its partners.

The potential loss of all of this would mean a decimation of the ways Brits are able to earn and burn miles. You could lose your existing stash of hard-earned Flying Club miles and say goodbye to a swathe of partner-redemption options.

The biggest problem would be that it only leaves Avios as a viable mileage currency to easily earn in the U.K. That sort of monopoly for a frequent flyer programme would be dangerous. We’ve seen many frequent flyer programmes make cuts to their offering, for example, by devaluing their award charts. Most recently, United Airlines shifted from a great value fixed-price award chart to dynamic pricing, following the likes of Delta’s SkyMiles’ programme.

There would be little reason for the Executive Club and Avios to remain truly competitive with such a captive audience. Whereas on a global scale, there are plenty of other airline options, there really isn’t another decent frequent flyer programme to get involved with in the U.K., and we could expect to see the benefits offered and the range and value of redemptions available to suffer.

Overall, everybody loses out. And for that reason, we hope to see Virgin Atlantic — and all other airlines and travel companies — make it through these troubled times. While the Virgin Group owns 51% of the airline, Delta Air Lines owned the other 49%, though the U.S. carrier said it’s not going to intervene to help Virgin. The U.K. government has also said that it’s not going to help rescue Virgin until it’s exhausted all other options, stepping in only as a “last resort”.

Ultimately, we hope to be still flying on Virgin Atlantic aircraft in five year’s time — and beyond. Competition offers a bounty of benefits for passengers — namely for airlines to keep pushing each other to be the absolute best they can be, in order to win our business.

Featured photo by Express/Getty Images

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.