Very few people, even some employees realise how difficult life has been for Virgin Atlantic and what a labour of love and pride, extraordinary success and self inflicted failures it has been over the last 15 years.
Commercial Mistakes in Aircraft Choices?
The deeply personal war between whoever runs BA and Richard Branson has led to some ghastly mistakes – the worst of which was almost certainly Little Red. Others include the ridiculous Four For The Long Haul campaign that just made Virgin look silly and shortsighted and the BA/AA No Way campaign that really seemed a bit embarrassing then and certainly when Delta came along.
But huge commercial mistakes were made too. The decision to buy A343’s was always dubious, to compound that with the A346 was even more shortsighted. BA is many things but their choice of 777-200’s was infinitely more sensible. Branson, who seems emotionally attached to the age of the four engined jet was the first person to sign up for the A380 – an aircraft that will never see service with Virgin Atlantic with Delta holding a 49% stake. That is a mistake that the perennially slot challenged Heathrow based airline will come to regret, there is huge customer demand for the A380 and it makes a great deal of sense when capacity cannot be grown simply by adding more flights.
While Virgin Atlantic was leasing in the notoriously expensive to run A340-600 fleet in the mistaken belief that everything needed four engines, Boeing came along with the 787. Virgin curtailed it’s orders for A346 realising the the 787 would be a huge leap forward. Boeing’s massively over optimistic original in-service dates would have seen 787-9’s being delivered in 2010-11 – they only just started being delivered in October 2015.
Who came up with that idea?
The infamous “Four of the long haul campaign” which was a clever if rather lame attempt to make Virgin Atlantic’s exclusively four engined fleet look more capable – even safer, than all these silly airlines running round in new fangled two engined machines, was another facile piece of advertising that looked glib and treated the public like idiots. It was originally started by Airbus but they couldn’t continue with it when ETOPS rules were extended in 2006. I don’t know who they convinced of this argument, maybe a few of the Fear of Flying course passengers.
Realising that further A340-600’s were not the way to go when full prices rocketed in 2008-9, Virgin Atlantic and Airbus agreed a 10 aircraft order for A330-300’s. This would help reduce the fuel bills, maintain service, allow for the discarding of a large number of gas guzzling A340-300’s and early 600’s and put the airline on a better footing. In the meantime the A380 order was continuously pushed further and further back.
Finances were thin and despite that the company went in for a massively expensive re-branding in 2010 which it then couldn’t afford to extend to all of its aircraft. The idea had been that the A330’s would signify a new start, the airlines brand was found wanting – its customers thought it looked outdated while espousing modernity. A330’s were to be delivered in the new “Billboard” livery and in 2010 the 747 fleet started the new livery rolling with G-VROM. Some aircraft were re-branded and refurbished, others had old liveries and refurbished interiors. At one time they had four separate liveries on the go. It looked a mess and even now there are still 2, 3 if you include G-VFAB’s 25th birthday livery. You could even argue we are back to four again with the slightly modified livery for the 787-9′ with the modified “flying lady”. Wisely though, Virgin prioritised the interiors rather than the exteriors and the full fleet refurbishment was completed, to considerable acclaim, especially in Premium Economy and Upper Class. In any event the awful mixed branding and liveries were a constant source of mockery at BA who learnt how quickly a brand can be damaged with sorry saga of the World Tails.
Anyone want half an airline (well almost half)?
Unusually Virgin Atlantic is a privately held company, so it doesn’t have the customary share price concerns and stock market valuations to bother it. If it did it would probably have collapsed or been bought out years ago. There had been a time when it went public but Branson had hated not being in complete control and bought out the shareholders and returned it to private – namely his – hands. To raise capital after the 9/11 disaster and the subsequent economic downturn that hit the airlines especially hard, Branson sold a single minority holding to Singapore Airlines who paid £600 million for a 49% share of the company in 2002 and never saw their money back, selling it to Delta for a third of that in 2012/13.
When former American Airlines exec Craig Kreeger took over bringing his people with him in late 2012 it was a company in trouble loosing money with little resource to prop it up. Worse still BA had purchased BMI from Lufthansa and swallowed it whole. Virgin inevitably tried to stop it but failed.
This was a horrible blow to Virgin Atlantic who believed that BMI delivered substantial passenger numbers to Virgin’s long haul network over their domestic routes. With BA now in charge of those routes as a virtual monopoly – an actual one into Heathrow, it could prove a disaster for Virgin. The answer, which had the sweet irony of forcing BA to hand over UK domestic slots as part of the BMI deal with the UK regulator, was Little Red.
Little Red Dies at Birth
It all started well to rave reviews, which it still gets. I used it myself and loved it but the publicity around it was crude and did Virgin no favours. Wheeling out the now ageing Branson wearing a kilt and white underpants bearing the title “stiff competition” across his privates was seen as a bit naff if not downright crass, – an ageing rockers genitals aren’t everyone’s idea of PR. It seemed an odd gaff for such a PR savvy airline like Virgin Atlantic and the usually effusive but popular Branson. In many ways it spoke volumes – Virgin had it seems become disconnected with the reality of its situation.
Sir Richard Branson in Edinburgh to launch Virgin Atlantic Little Red, the new UK domestic service from Virgin Atlantic. Sir Richard arrived with a clear message for the competition “Stiff competition”. In the end it was more than a little flacid.
8th April 2013. Pictures: Adam Gerrard
8th April 2013. Pictures: Adam Gerrard
Kreegor with his American Airlines mind-set and his American Airlines marketing people must have been horrified to inherit this obvious mistake, but by the time they took over day to day running in February 2013 there was nothing they could do to stop it. Virgin had been around Europe, seemingly having chosen a Lithuanian company to wet lease the A320’s from, when it was announced that AerLingus would actually provide and operate the service.
Despite the Branson hype and his inherent popularity as being a nice guy in the minds of the British Public, the Little Red launch went almost unnoticed. It seemed to glean more publicity when BA – the arch enemy – poured the inevitable scorn on the whole project with the observation – sadly clear for all to see from day one, that it was doomed. Branson has had a rule he’s stuck with pretty ruthlessly – if it doesn’t work in the first 12 months it isn’t going to work at all. This was a little more complicated, AerLingus had a three year contract to run the service.
Having started in March 2013 to considerable acclaim it has to be said, I flew on it to Edinburgh on a day trip in July on EI-DEO, returning later that day on EI-EZV – both flights were near capacity and the service quality was first class compared to BA (and cheaper by almost 33%).
However average load factors were very poor. There weren’t enough flights due to the low number of slots and Manchester soon lost a slot pair Virgin had borrowed from another airline cutting frequencies to a level that were far from ideal, never mind it’s own competing Virgin Trains high speed service service to London. Essentially it couldn’t compete effectively when it needed to. Load factors of 35% – some flights with just ten passengers were being reported – pointed to a financial disaster in the making.
The highest average loads were a brief stint at 47% but it soon fell back. The long haul passengers also failed to materialise – barely 5-7% as opposed to the 35% of travellers expected. The nightmare of people not flying to Heathrow to connect to Virgin Atlantic long haul just didn’t materialise. Even a move with AerLingus to the New Terminal 2 from the grotty old Terminal 1 (now being demolished), made no difference.
BA were constantly goading over the low numbers as Virgin Atlantic PR people were constantly using phrases such as, “we are confident the airline is in the early stages of its development and factored in low load factors until customer become aware of our offering”. Except they never did. It was never given the advertising or push it really needed. I suspect the new management deliberately throttled it because it was obvious to even a well informed amateur that it just wasn’t going to work. But that never stopped Branson before – if it had there would be no Virgin Atlantic in the first place. They tried, it failed, they’ll move on. The last Manchester flights are the end of March 2015. The rest to EDI and Aberdeen end in September.
There ‘s always been a lot of confusion about the exceptionally valuable Heathrow slots – a short haul slot pair is worth around £25 million. Why did Virgin Atlantic give up the chance to own them at three years under the grandfather rights rule? The answer is simply they are only for domestic services, they can’t be used for mid or long haul routes. The slot pairs will go back to BA who also probably won’t use them and are obliged to give them to any airline that will operate a domestic UK service from Heathrow.
Good bye Singapore, hello Mr Anderson…
Singapore Airlines had been looking for some way to dispose of their shareholding in Virgin Atlantic. It had not been truly profitable in this century and they wanted out. It just didn’t gel well with their way of doing things and they could see no future in their equity stake. Delta Airlines offered around £250 million and Singapore ran out of the door with the cheque. The 2012 buyout was only officially approved in late 2013 – the very type of protected joint venture and the immunity afforded American Airlines and BA a few short years prior, were now to dominate their once vocal opponent Virgin Atlantic now coupled with their ‘minority’ but wealthy owner Delta Airlines and the hard nosed Richard Anderson who runs it.
Delta’s impact was vigorous. Not unlike Etihad’s stakes in various airlines, it transformed Virgin’s behaviour and forced a major rethink about where – and why – it flew where it did. Anderson made it clear from day one that they wanted profits, there would be no A380 (his opposition to it is almost pathological) and things would have to change. And change they did. Kreegor initiated a massive review of routes and profits – I’ve heard nothing was sacrosanct – and it ended up with some hard to swallow decisions for an airline that hits well above its weight for image and perception. The Sydney route was axed. It took years to obtain it and for a while it was actually one of the most profitable, even when the industry had mostly collapsed in 2009-10, Sydney did well. However fuel costs spiralled and the change in currency valuations turned it into a loss maker. Of the European majors only BA now flies direct with little competition from Heathrow.
Return of the profit
Virgin Atlantic has turned the corner. Harsh decisions on routes – the ending of Cape Town, Tokyo, Sydney, Vancouver and Mumbai were bitter pills. Abidjan was cancelled when it got to the point that fuel was being shipped out from the UK by sea for the return flights. One has to ask how that was ever allowed to happen in the first place.
The refocus on the US is not without its issues. The airline has become terribly dependent on the market (just as BA has) being buoyant and their being no disaster that will topple the US aviation industry again as 9/11 did, then the 2008 financial crash. Permanent double-daily flights to San Francisco with a 787-9 on the route, double Atlanta, more Florida and Las Vegas, Los Angeles, Chicago, New York and Detroit flights plus holiday flights from Manchester, Glasgow and Belfast as well as the ongoing routes from Gatwick will all help, but it’s a lot of eggs in one basket.
The removal of the A343 fleet completely by the end of March 2015, the end of Little Red by September, the phased withdrawal of all 5 744’s from Heathrow by June 2016 ( 7 of the 787-9’s are due this year), phase out by lease end of the A340-600’s (all gone by 2018-19) but with a refurbishment for the longer serving ones leaves only one big issue. What about the 744 fleet at Gatwick? Airbus technically still have orders for 6 A380’s on the books for Virgin Atlantic. What if that were to become 10 A350-1000’s?
Profits have come back – small ones. Largely through real savings, accounting and culling aircraft earlier than planned to provide the required publicity the company had met its goals I suspect – big companies can do that easily. 787-9’s are coming on stream and new routes and frequencies to the U.S. are giving Virgin Atlantic a chance to shine again.
Delta has provided a stabilising influence though a tough one and I sincerely hope it doesn’t take away that last vestige of character that makes Virgin Atlantic that tiny bit different to the others. Having flown and experienced it first hand from the Chauffeur service to the Clubhouse to the relatively modern 744’s G-VBIG and G-VROC, it’s a lot nicer place to be then the snooty and perennially conflicted BA with their shabby 744’s and non-existent customer service. Right now I’d pick Virgin Atlantic for a trip to the US over any other airline. But not in economy.