LONDON (Bloomberg) — US carriers should lose access to London's Heathrow airport and the right to fly between European cities unless their home market is opened to competition, Virgin Atlantic Airways Ltd. chief executive officer Steve Ridgway said.

Restrictions on foreign investment in American carriers need to be removed when talks on a second "Open Skies" treaty with the European Union begin this month, Ridgway said in an interview at Virgin's headquarters in Crawley, south of London.

"Signals need to be sent that if there isn't effective liberalisation then some of the gains they got in phase one will be withdrawn," he said. "The first deal was only done on the basis that we would move to a proper open aviation area and we would sweep away archaic rules that have done nobody any good."

Virgin gained little from the first Open Skies accord, which granted US carriers unlimited access to all EU airports, including Heathrow, the UK carrier's main base, together with so-called fifth-freedom operations between European states. EU airlines won the right to establish US routes from any of the bloc's member countries, instead of just their home nations.

"Regulation is bad when it doesn't suit you," said Nick Cunningham, an airline analyst at Evolution Securities. "The fact that the UK had restrictions was good for Virgin, but in the market as it stands now they won't do nearly so well."

With American carriers gaining most from the treaty, implemented in 2008, the EU has retained a right of "automatic termination" in the event of the US failing to open up its domestic market by the end of 2010.

That could limit access at Heathrow, Europe's busiest airport, to previous incumbents American Airlines and United Airlines and exclude Continental Airlines, Delta Air Lines, Northwest Airlines and US Airways.

"The claw-back provisions made it very clear that if these things were not corrected, the rights that US carriers got to operate in the UK would be withdrawn," Ridgway said. "We still believe in that very strongly."

Under Open Skies, Virgin, owned by UK billionaire Richard Branson, has faced increased competition at Heathrow while being frustrated in plans for US expansion by federal laws that prohibit foreign citizens from controlling airlines or owning more than 25 percent of voting stock.

Virgin America Inc., a US domestic carrier partly owned by Branson, faced scrutiny following claims by Alaska Air Group Inc. that it violated the ownership rule. The US Department of Transportation said last month that the airline "remains under the actual control of US citizens" and can keep flying.

"We've long had ambitions to own businesses and operate airlines in North America and it's been a very difficult process," Ridgway said.

Increased competition is vital if the airline industry is to return to profit following the recession, he said. Global losses will amount to $5.6 billion this year following a deficit of about $11 billion in 2009, the International Air Transport Association forecasts.

"You've got an industry that's under huge pressure and part of that is because of the distortions in the market," the chief executive said.

Virgin Atlantic, which is 49 percent owned by Singapore Airlines Ltd., will log a loss in the fiscal year through the end of this month even after cutting 1,500 posts, Ridgway said.

Yields, a measure of average ticket prices, are improving after the airline cut capacity by reducing frequencies and scrapping some routes entirely, he said.