Taylor on Travel

First, the regulatory position - flights between Heathrow and the US were tightly restricted for decades up to the end of March. Where previously only four carriers could cross the Atlantic to and from Heathrow, now any US or European airline can do so - at least in theory. Four US airlines have begun services into Heathrow since March, along with Air France-KLM.

Second, regulators have granted anti-trust immunity to rival alliances. Air France-KLM and Delta Air Lines have had it since 2002. Lufthansa and United Airlines have enjoyed it even longer, although with some restrictions. Northwest Airlines was brought into the Air France-KLM partnership with regulatory approval earlier this year.

Approval has typically followed "open-skies" deals to de-regulate services between the US and individual European governments. The US and the Netherlands concluded such a deal in 1993, the US and Germany in 1996 and the US and France in 2002. Europe's open-skies deal with the US last year cleared the way for BA and American to try again.

Third, the need for consolidation has become urgent owing to the price of oil and the developing recession on both sides of the Atlantic. Airlines need to cut back an anti-trust immunity allows consolidation in an industry in which formal mergers or takeovers are frequently prohibited.

Immunity would allow BA, American and Iberia to coordinate fares and schedules and share revenues on fights between Europe, the US and Mexico. Obviously, the trio would rationalise services and an increased share of the market would give them greater control of fares.

Walsh insists there is no reason for fares to rise because of the tie up and claims consumers would benefit from better connections and access to a larger network - allowing them to pick and mix the cheapest fares.

However, the sole aim of BA and its partners will be to protect their own revenue and profits at the expense of rivals. So Branson has a strong case in some respects.

Virgin points out BA has 42% of the take-off and landing slots at Heathrow, and with American and Iberia will have almost 47%. It suggests BA and American will account for 63% of seats between Heathrow and New York JFK, 66% between Heathrow and Chicago, 72% between Heathrow and Miami, 82% on Heathrow-Boston routes and so on.

Walsh responds that Heathrow is now open to other carriers so there is nothing to step the launch of rival services. "Anybody can come in and compete," he says. Helpfully, the carrier and its partners have set up a website with the title Moretravelchoices to ensure we get the message.

Virgin suggests this freedom is largely theoretical since Heathrow is full. Slots come up seldom and at huge cost, although there is scope for trading as the launch of services by Air France and others this year demonstrates.

BA can point out rivals Air France-KLM and Lufthansa have anti-trust immunity for their alliances, and that each is more dominant at its own hub than BA is at Heathrow.

Yes, says Virgin, but Paris Charles de Gaulle, Amsterdam Schiphol and Frankfurt airports have capacity to spare, allowing rival airlines to add services if they wish. Heathrow does not - so there is no scope to compete.

Expect this to be fought out fiercely, with Virgin seeking to enlist public support.

What will the regulators make of the arguments?

Clearance from Brussels appears a formality. The outcome in the US is more difficult to call.

The reaction of rival US airlines has been muted - presumably because they already have immunity or seek it. That does not mean opinion in the US will be wholly favourable.

Virgin can present a good case - but while its concerns may interest US regulators, its interests will not. The regulators' view of the outcome for US carriers and consumers, and how it will play to the public, will be key. And though the arguments will be couched in terms of competitive markets, there will be a political dimension to the decision.

US political opposition continues to thwart European hopes of a relaxation of American airline-ownership rules, overrules attempts by foreign investors to buy into other sectors of US industry and supports subsidies for agriculture and industries that draw condemnation from Washington when they occur elsewhere.

Left to the mercies of the market, in a recession of uncertain depth and with credit hard to come by, some US airlines probably will not survive the current crisis. Therefore, a crucial question could be the attitude of US authorities to a proposal that may contibute to pushing a rival US airline under.

The present US administration opted for protecting services in the last airline crisis triggered by September 11 and made cash available to shore up the industry.

An incoming administration may act differently, but any decision may depend on a host of competing political factors at the time it is made.

Of course the US Department of Transportation could demand concessions from BA at Heathrow. At least one UK newspaper has reported BA is willing to give up a substantial number of slots at the airport. Why would it do that? A small trade off may be possible, but Heathrow is the jewel in BA's crown.

So the outcome in the US is tough to call.

I share the view of one senior industry figure on this side of the Atlantic who observes: "It would take a very smart young lawyer to stop this.