Steve Ridgway has faithfully ridden shotgun for his flamboyant boss Sir Richard Branson during much of the three decades that Virgin Atlantic has waged war with arch rival British Airways, and shaped Virgin into a formidable long-haul competitor.
But as that battle ratchets up in the wake of BA’s takeover of Virgin’s fellow London Heathrow independent BMI, the airline’s chief executive has called time after 14 years running one of the world’s most iconic airlines.
“That’s a pretty good innings, wouldn’t you agree? We’ve gone from two aircraft when I joined to what we are today with a fleet of 40 widebodies, almost 10,000 employees and a £3 billion [$4.8 million] turnover,” he says.
“It’s been a fantastic experience and I’m very proud of all the things we’ve achieved.” And as the pressure on Virgin intensifies amid the growing strength of BA at Heathrow and the various dynamic changes under way in the global aviation industry, Ridgway is confident that the airline he has shaped with Branson has “the brand and the firepower” to sustain the fight.
“I think we’re pretty good at fighting our corner in a tough market-place. We’ve adapted and changed during the whole 28 years that we’ve been here. You could argue that it was never harder than when we first started, with one or two second-hand aircraft out of Gatwick – which was not the preferred market – still competing with a very dominant BA,” he says.
“Since our move to Heathrow – which was a huge move for us in 1991 – we have pushed really hard, despite all the constraints, to grab as many routes and as many markets as we can. We now pretty much fly to a who’s who of the world’s great cities. And the North Atlantic has been a big success story for us.
“We’ve got a very strong position at Heathrow, considering our size, and it is a matter of us exploiting that as effectively as we can.”
Ridgway is proud that “there’s not really another Virgin Atlantic anywhere in the world” and how it punches considerably above its weight at its home base and across the Atlantic. “We’ve only got 3% of the slots at Heathrow, but we have 10% of the movements and a 23% or 24% market share on the North Atlantic.”
The transatlantic is the airline’s key market, delivering the “biggest chunk” of its passenger flows and while BA is number one with around a 40% market share, Virgin is right behind it and significantly ahead of the US carriers, Ridgway says.
“If you look at the impact we’ve had on BA over the 28 years, they must groan every time we start a new route. We compete head to head on every single route. It’s a classic titanic competition and certainly the UK has benefitted from that.”
That battle came to a head last year when Lufthansa decided to sell its loss-making UK arm BMI and BA saw off a rival bid by Virgin Atlantic to acquire the business. Most observers, including Ridgway himself, saw that outcome as inevitable. But it did not stop Virgin having “a bloody good go” at acquiring the business, and the airline is now focused on lobbying the competition watchdogs to ensure that some competition on Heathrow short-haul routes is maintained.
BMI and Virgin had often flirted with some form of marriage, and Ridgway says it was a great shame that those opportunities were missed. When Lufthansa tossed BMI to the wolves Ridgway was resigned to the fact that his rival “was always going to have more ability and more interest to acquire it. And clearly BMI was very heavily loss-making so we had to be very careful about the scale of that”.
Although Virgin is contesting the process by which the deal was approved, its more immediate concern is ensuring that it can obtain the required slots to restore competition on short-haul routes.
Virgin has applied for the 12 BA slot pairs being released as part of the “remedy outcome” for the BMI acquisition. Ridgway says Virgin needs all the slots so that it can build a strong, integrated marketing and selling proposition on the new routes it aims to launch from Heathrow to Aberdeen, Edinburgh, Manchester, Moscow and Nice.
“The only way you will be able to put a proposition together that can provide real meaningful competition to a dominant BA and to protect consumers is to keep that bundle of slots together,” he says.
An integrated short-haul/long-haul sales proposition is key and played its part in BMI’s failure, in Ridgway’s view: “The network carriers are so powerful because they provide a single selling proposition from, for example, Aberdeen to Shanghai or to Los Angeles. That’s exactly what Virgin Atlantic can do.
“It’s up to us to make sure the outcome [of the competition authorities’ ruling] is effective. And historically they haven’t been...so we know this process is flawed.”
Ridgway says the slot allocation decision will be a “pretty pivotal moment” as if the plan to compete fails “the slots go back to BA and that will be it – there will be no competition in the future”.
Until Virgin hears in December whether its slot application is successful, it sits somewhat isolated at its hub airport as a long-haul-only operator without a short-haul partner or membership of a global alliance. The latter isn’t something the airline has ruled out, and its current independent status is more to do with not yet having found “the right circumstances” to join one, says Ridgway. “But that’s not to say we are completely standalone and independent. We’ve got 110 interline agreements and a growing number of codeshares.
“One of the reasons we were concerned about BMI was that it was feeding us and others and it had been providing competition to BA in the short-haul market in the same way that we have been in the long-haul markets.
“Virgin Atlantic may not be as big as BA but we’re a pretty substantial company now. At Heathrow, while there is a Oneworld group dominated by BA, there are other very big groups: the Star carriers, the SkyTeam carriers, and 140 non-aligned carriers, and we are very attractive to all those. And they all have an interest in competing against the big dominant carrier there.
“We’ve been talking to them all as we could feed our own network and the carriers outside the Oneworld alliance,” says Ridgway.
He says that while Virgin is a long-haul carrier and overwhelmingly point-to-point, 23% of its traffic is connecting. Passengers are transiting from another Virgin flight or from one its partners (which previously included BMI), while “quite a lot of it is off BA who are one of our biggest interline partners”.
He adds that there is an increasing amount of connecting traffic between Virgin flights. For example, the airline’s new Heathrow-Mumbai service has “four-way connects” with flights to New York, Boston, Washington DC and Chicago. There are similar connections for Virgin’s Delhi flights and Ridgway points out that last year Virgin held a 27% market share of the Delhi-New York market.
Should the slots come its way, Virgin will introduce short-haul flights next year with (initially wet-leased) Airbus A320s, but he takes a pragmatic view towards their purpose at a post-BMI Heathrow. “We’re not under any illusions that it’s about making money flying short-haul sectors,” says Ridgway.
The expansion is something that has been “forced” on the airline by the BA/BMI deal, he adds. “This [short-haul plan] is about making sure our network performs as strongly as it can and about servicing our partners, many of whom were previously served by BMI. And we want to make sure we are maximising our marketing proposition, particularly in the corporate world.”
The airline has so far found it can “move faster and more quickly” operating outside the alliances, but has “never said never” to one day joining the ranks. Virgin’s 49% shareholder, Singapore Airlines, is a major player in Star Alliance, for whom BMI had provided a key feeder role at Heathrow and the airline is in exploratory talks with the alliance about filling the void.
“We have a lot of co-operation with Star carriers, and that’s why we think it is important to have one strong carrier operating those ‘remedy routes’ that can provide connectivity to those carriers that used to have it with BMI.”
Ridgway says that “nothing in particular” came out of a 2010 Deutsche Bank study into Virgin’s future: “Part of it was around the fact that SIA has said that its agenda has changed and that if the right options came along then it would sell [its stake]. But equally, they’re not in a panic and remain a very powerful and prestigious shareholder.”
Various potential suitors have been floated for that shareholding, one of which was Etihad Airways. Ridgway says that the Gulf network carriers are “clearly formidable competitors” but he is guarded about any partnership opportunities Etihad or its local rivals could offer for Virgin: “Our networks overlap a bit, particularly to India, so I suspect strategically we probably don’t fit some of their routes. But whether our network makes us attractive or not, I’m not sure,” he says.
Some analysts see a move for Virgin by BA’s parent, International Airlines Group, as inevitable, but Ridgway dismisses such talk. “[IAG] is certainly not knocking on our door.”
The long-haul holiday market is a vital part of Virgin’s business, and it has just invested £50 million refurbishing the 747s it flies on leisure routes.
But Ridgway admits that there are challenges: “We’re re-engineering our leisure business to make sure that we’re still the number one player. The market is strong but it is challenged right now as the economy is struggling and consumers are being cautious, and fuel costs are high.”
Virgin recorded an operating loss of more than £80 million last year but Ridgway is quick to point out that the airline has been profitable for “the vast bulk” of its existence. However, it has struggled to ever deliver a sizeable margin.
“We have lived in a real world where we know that margins are very thin,” he says. “We’ve grown the airline pretty aggressively, which is always a challenge around profitability and we haven’t been immune to the big cyclical moments like the Gulf War or 9/11.”
The airline is refining its product offering – and operating efficiency – through a fleet upgrade which is seeing new Airbus and Boeing twinjets being introduced. “We’re just coming to the end of a very big investment programme over the past two years which includes the 747 cabin retrofits and the relaunch of all our on-board products,” says Ridgway.
Although the Airbus A340 has long been the backbone of its fleet, Virgin is “rapidly moving out of four-engined aircraft” as the new twins come on line, Ridgway notes. A330-300 deliveries began in February 2011 (with six now in service) and the first of 16 787-9s is due to arrive in summer 2014.
“This is a big change – both in the size of the aircraft and their underlying economics – and we’ll see the benefits of that coming through for a long time,” he says.
Next on the agenda, he says, is deciding on a replacement for the 747s and the remaining A340-600s: “We’ve had RFP [request for proposals] out for some time now and are looking at the options.”
Ridgway envisages deliveries in 2015-20, with candidates including the A350 and various Boeing 777 alternatives.
The future of Virgin’s 11-year-old order for six A380s “very much depends on the state of the global economy and the oil price”, says Ridgway, with deliveries slated for 2017. “It’s a lovely, quiet aircraft but it’s very big and you need to operate it on some very big trunks and you need to have a big enough fleet,” he says.
The good news for Ridgway’s successor is that the A380 is a challenge that they will not need to worry about immediately. But there are an awful lot of others that they will.