SFO could be gateway for Virgin Atlantic; It depends on U.S.-Europe open-skies agreement

Bay Area travelers could soon have a rich menu of nonstop flights to European cities not previously served from San Francisco if a pending open-skies agreement between the United States and the European Union works out, the chief executive of iconoclastic Virgin Atlantic Airways said Wednesday.

Steve Ridgway, who runs the London carrier for Virgin Group Chairman Richard Branson, said in an interview that Virgin Atlantic plans to take advantage of more liberal rules that will open up new routes between Europe and the United States -- already the world's most heavily trafficked aviation market. San Francisco International Airport, which Virgin Atlantic has served with a daily flight to London's Heathrow airport since 1993, will definitely be a gateway, he said.

He didn't confirm the destinations, but many airlines have mentioned linking additional U.S. cities with European business capitals such as Berlin, Dusseldorf, Hamburg and Stockholm.

However, the U.S. government must also agree to lift laws restricting foreign ownership and involvement in U.S. air carriers -- phase II of the open-skies agreement -- or the deal could fall apart, Ridgway said during a stopover at SFO.

The first phase is set to go into effect in April, but American authorities have not yet officially agreed to implement a sweeping second phase, on cross-border ownership, which EU officials and European airlines believe is crucial to effectively liberalize commercial aviation.

"It's been a long time coming," Ridgway said of the open-skies pact. "But it's still a halfway deal. If there's no phase II, then the deal is off."

U.S. rules forbidding foreign ownership and operational control of U.S. carriers delayed for five years the operations of Virgin America, a separate Burlingame startup airline that is 25 percent owned by Branson. Virgin America -- which had to convince U.S. regulators that Branson, a British subject, wouldn't control the new airline -- expects to start flying in mid-summer.

Virgin America -- a U.S. company that licenses the Virgin brand -- had to restructure its board, change some financing and agree to sever its ties with Chief Executive Officer Fred Reid, who was hired by Branson, before it won permission to fly.

"It's a strange situation," Ridgway said, adding that national rules protecting domestic airlines don't protect them from the vagaries of the market.

"Have the U.S. airlines done well in the last 20 years, under this protection?" Ridgway asked. Most major U.S. carriers have entered and exited Chapter 11 bankruptcy protection in recent years, and some have failed or been absorbed by stronger carriers.

"If airlines fail, and lose their money, who is harmed by that? Ridgway said. "Just the shareholders and investors."

Not everyone is bullish on open-skies agreements.

Organized labor and its supporters in Congress fear cash-rich foreign airlines could sweep up struggling U.S. carriers and take profits and airline jobs overseas.

"This agreement is not in the best interests of the U.S. aviation workers or our economy," the Transportation Trades Department of the AFL-CIO declared in March when the open-skies deal was announced.

When Virgin America's application to fly was approved by the Transportation Department, the union group objected, arguing that Washington had compromised its determination to keep U.S. airlines out of foreign hands.

Virgin Atlantic will fly the Airbus superjumbo A380 jetliner to San Francisco once it takes possession of the huge new plane, which has been plagued by production delays, in 2013, Ridgway said. Virgin has six firm orders for the A380, which can carry up to 800 passengers, and options to buy four more.

SFO "is a good airport for the plane," Ridgway said.

Some have derided the A380 as a flying barn. But Ridgway said Virgin Atlantic doesn't intend to pack the aircraft and will configure the plane to hold about 530 passengers on long flights.

Virgin Atlantic has also ordered 15 Boeing 787 Dreamliners, is upgrading its facilities at Heathrow and is spending millions of pounds revamping its sleek airport lounges, according to Chris Rossi, the carrier's senior vice president for North America. He characterized Virgin Atlantic's SFO-Heathrow route as a strong performer, saying the flights are typically full and split evenly between leisure travelers and business travelers. Business travelers produce most of the revenue because they tend to pay the highest fares.

Rossi said intense competition for a limited number of landing slots at Heathrow -- the world's busiest airport for international travelers -- has prompted Virgin Atlantic to plan new routes between European cities and prime U.S. destinations such as San Francisco.

For his part, Ridgway blasted rules restricting where airlines can fly and who can invest in them as vestiges of the Cold War, when nations kept their domestic airlines under tight government control for national security reasons.

"Aviation is the last global industry that's not free to operate like a normal business," Ridgway said. "The automotive industry has been freed, steel has been freed. What is special about aviation? We need to get real, don't we?"



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