Firstly, SRB does not run VS, indeed he has very little to do with the company on a day to day basis. There actually is room for more than one long haul airline, the UK is one of the biggest travel markets for long haul and VS has done well without killing off BA.
SRB may no longer run the company day-to-day, but he is the still the owner and any major decision (including deals with BA), hence I am suggesting that the way he runs (where relevant) has more to do with passion rather than business sense
Britain's Air Travel Market is more or less the same size as lets say France, Germany (which is the exception to this due to the Cold War), Spain and Italy which only sustain 1 full-serivce carrier and you have to remember that BA (although not IAG) is making some profit in this market and VS is not, VS is also falling behind BA in terms of its route network as well (because it holds far less slots at LHR), while the BA/VS rivalry will not cause one to go bust, it will get increasingly unsustainable in the long run
BMIs demise was a wake up call for the UK, it cannot sustain (most of all full-service) the number of carriers that are based in the UK, with expansion of our airports proving difficult you also have to factor the space our airports to launch new routes (which are needed), rather than launch routes that already are operated with at least 2 airlines
The reason France only has one is more to do with politics than market forces! Virgin ATLANTIC does not go anywhere near the Middle East for most of it's passengers. Indeed the short haul operation is overdue and is needed to shore up the home market
The reason France had one full-service carrier is not just because of politics, remember France used to have 3 (Air France, UTA and Air Inter), but the reason that changed was that the French Government saw that having 3 was not sustainable with the looming liberalisation of Europe's air travel market, so the decision was due to economic and political reasons
There is nothing stopping another full-service airline operating from France, but the trouble is that it is not sustainable (as BA found out), the only other airlines operating in France today are either Regional (some of which are part of Air France), LCC or charter
As for VS buying BA? That's the most interesting comcept one yet. Much of the profitability at BA comes from the ATI agreement with American Airlines. There would be huge competition issues if somehow BA took that agreement into STAR or massive loss of revenue of they had to leave it behind to merge with a much smaller operator like Virgin.
About AA, we know it is in BK and up for sale, US (a current *A member) is the leading contender to buy it, if *A carriers can make sure that AA/US becomes a *A member (in return for financing a deal, which will mean AAs creditors have less of a say in AA/US), if they refuse, *A carriers could then finance UA to have a go at bidding for AA (I feel that UA would be the best merger partner for AA)
So that BA/AA ATI could be folded into the *A ATI if VS buys BA and UA or US buys AA (thus gaining the large revenues from the BA/AA ATI), it will create some competition issues, but you have to remember that the ST (consisting of AF, KL, DL etc) is also a strong player on the TATL market in its own right so there will not be too many competition issues to deal with
On your other idea
Quote:
"This will mean VS will pull out of all routes that BA also serve, while launching new routes to destinations not served by either airline"
This would close VS. Every single route from LHR has a head to head with BA, that's where the money is. To move the entire operation into new routes would be financial suicide not to mention massively ****ing off their loyal and frequent fliers. Neither idea has wings IMHO.
Well the trouble with BA/VS competing on the same routes is that (because there is a lack of capacity in our airports) it leaves little space to launch new routes to the emerging markets (South America is the biggest problem) which could be profitable, remember the transition to new routes could be aided with funds from BA (they would be partners in the case of the first plan)
As for passengers and FFs, you have to member that under my first plan, BA/VS (until SRB retires and BA fully buy VS) would be effectively operating as one airline and this the passenger experience/FF Programmes will gradually be integrated, so the only effect to those people would be that more routes for BA/VS passengers and the gradual disappearance of VS