1. London Heathrow Departures
2. London Heathrow Slot Allocation Plan
3. London Heathrow Slot Allocation Calculator
4. London Heathrow Slot Allocation Package
5. London Heathrow Slot Allocation Software

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Virgin Atlantic wants to grow at London’s Heathrow airport. A lot. This is no secret, of course. The carrier has strongly endorsed a third runway at Britain’s busiest airport for years, hoping to secure a significant boost to its landing slots portfolio should that finally come to pass. This week the company translated that drive into maps, hoping to generate public support for its plans. There’s just one problem: It is almost certainly impossible for Virgin Atlantic to deliver what it is suggesting.

Virgin Atlantic is promising more than 80 new routes at Heathrow, split roughly 60%/40% between long-haul and European/domestic operations, assuming it is given sufficient slots as the expansion occurs. The 400%+ increase in destinations could be a massive shift in the competitive dynamics at Heathrow, unseating British Airways‘ monopoly position on many routes. But it also depends on many factors outside of Virgin’s control.

Slot Allocation

Key to Virgin’s plans is a change in the way slots are allocated as they become available with the new runway. Influencing that process appears to be the main focus of this week’s flurry of activity. Virgin holds only about 5% of the slots at Heathrow compared to BA’s 45%, but Virgin also wants to be a second “flag carrier” for Britain. To do that would mean serving many, many more destinations and dramatically increasing the slot portfolio.

The current government policy would generally extend the current slot ratios as Heathrow expands; the new runway is expected to add ~350 slot pairs per day and Virgin Atlantic would secure about 10 of those. That’s what Virgin Atlantic wants to see changed.

London Heathrow Departures

Heathrow is essentially full today, with slots occasionally trading on the open market. Because of demand for those slots, however, the price is high. JetBluealso wants to secure Heathrow slots for its new Transatlantic service launching in 2021. The smaller carrier made it clear that it will not buy on the open market given the associated costs. Etihadrecently took over a trio of slots from Jet Airways as the Indian carrier collapsed; the redistribution of those slots remains a work in progress.

One potential option is the so-called “remedy slots” allocated by regulators (and ceded by incumbent airlines) in exchange for joint venture or other merger-related approvals. Virgin has some experience with such slots, having obtained a set when BA absorbed bmi British Midland International in the early part of the decade. Those services did not last long as Virgin could not build the necessary traffic feed for its long-haul operations. But Virgin is also arguably too large at Heathrow today to secure additional remedy slots that might come on the market. Indeed, JetBlue is targeting the “Blue Sky” joint venture between Virgin Atlantic, Delta Air Lines, Air France and KLM as a possible donor of such remedy slots. The US and European regulators ruled that such divestitures will not be necessary but a British ruling remains pending.

Not surprisingly, International Airlines Group (parent of British Airways) suggests that Virgin could just buy slots on the open market rather than appealing to the government for a new allocation scheme. IAG also points out that Virgin leases some of its slot portfolio to other carriers, handicapping itself rather than growing organically. Though it is easy to argue that the carrier does not have enough slots to build a proper hub-and-spoke network today.

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The new route map

CEO Shai Weiss sees potentially doubling the long-haul services with 30 additional slot pairs on that front. To feed that long-haul service Weiss wants another 90ish slots or more running short-haul services, bringing the carrier to a total of roughly 150 slots. That is a reasonable ratio, but still comes up far short from what the carrier teased this week.

Showing a map with 40 new long-haul destinations but talking about only 30 new slot pairs doesn’t really add up. Moreover, the short-haul services will need to operate in banks to feed the long-haul flights. In many cases that will mean multiple daily flights rather than a single feeder, especially from larger European markets where the carrier can also pick up some local traffic. Even if Virgin Atlantic secures the rather unlikely 150 slots it is lobbying for the 80+ new destinations will not all fly.

Bilateral Rights

Also influencing the ability to fly all the routes are the aviation treaties between the UK and other countries. Adding flights to Moscow, for example, would be covered by rules that limit the number of operators from each country. British Airways is one of the two licensed UK operators on that route. WizzAir UK is the second today, though many others have held that role in the past. But even if Virgin Atlantic had the planes and the slots today it would not be permitted to fly the route.

Virgin Atlantic fought hard to gain access to the Tokyo market when the carrier inaugurated its services. Ceding that route a few years ago was a difficult decision. While many of the markets on the map will be relatively easy to open not all will.

It will also be interesting to see how some of these rights are treated as the UK continues on its Brexit path. Major changes should not be expected long-term, but in the near-term there is still work to be done sorting that out.

Aircraft Availability

Of course the carrier does not have sufficient aircraft today for the desired new services. That’s not so much a problem as the fact that quickly growing a fleet to add such services would be an expensive proposition. Who is going to fund a 4x growth in aircraft for the company?

It would also require the manufacturers to have planes available to deliver at the right times and of the right sizes for Virgin Atlantic. That probably can be accomplished but should not be completely dismissed as an impediment.

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Consumer Demand

Even if all the stars align and Virgin secures the slots, acquires the aircraft, hires enough pilots/cabin crew/maintenance technicians and manages to navigate the necessary bilateral treaties, will passengers show up? And will they do so at a price point that supports the proposed services? Predicting demand for 5-10 years out is challenging but the IATA forecasts continue to suggest steady growth for the UK market. How much of that will be absorbed by Heathrow versus shifting to other airports is unclear, but the overall numbers seem probably right. So long as the fares are cheap enough.

So What?

Competition is good for consumers. Increasing only the number of carriers at Heathrow does not deliver the same benefits as enabling some to expand existing positions more significantly than a proportional approach would deliver. But that also doesn’t mean that just giving the slots to Virgin Atlantic is necessarily the best play from any side (except for Virgin’s, of course).

From the airline perspective the goal here is to keep the public talking about the benefits it can bring to the market, but also to lead with a sufficiently aggressive position that even if negotiated down there is potential for a true hub-and-spoke operation to develop. That will still be a boost for the industry, even if it doesn’t cover 80+ new routes.

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