Virgin Atlantic Airways chief executive Steve Ridgway talks to editor Mark Pilling in an exclusive interview for our website on the jewel in the crown of the Virgin airlines group
Steve Ridgway is at pains to stress the importance of Virgin Atlantic Airways in the overall make up of the Virgin airlines group. His plea: “Be careful you don’t get the weighting wrong” as the discussion ranges across the global spread of the Virgin brand into other air travel markets.
He does not downplay the efforts of Virgin Group chairman Sir Richard Branson in his quest to expand his empire to other continents, in which Ridgway himself has a major role. However, for now at least, these efforts are still dwarfed by the original carrier to bear the famous Virgin brand. The global expansion is important to the “long-term strategic development of the business,” he says. “But it doesn’t mean we don’t think that Virgin Atlantic is the jewel in the crown and the powerhouse of the aviation group.”
It is a business that will achieve double-digit growth and reach £2 billion in revenues this year, says Ridgway. The airline employs 8,000 people and flies 32 aircraft: Boeing 747-400s, Airbus A340-300s and -600s. Virgin Atlantic manages to operate these aircraft profitably, but only just. “Our operating profit was very low, which is characteristic of our industry and where aviation is in the cycle,” he says of a company that turned in a pre-tax profit of £68 million ($124 million) for the year to February. This was over three times the previous year’s figure and the highest since 1999. Revenue for the year was up by 28% to £1.63 billion.
This year, despite the surge in the price of oil, Ridgway is confident the carrier will “remain profitable, and we hope our margin will improve. Our target is to grow and make our core margin more stable. We continue to strengthen our cash reserves,” he says. A mixture of new route launches, increased frequencies and aircraft upgauging means Virgin Atlantic can hit 10-12% ASK growth per year quite nicely, he notes.
Of particular comfort to Ridgway is the recovery in the yield-critical premium market, especially on its high-volume transatlantic services. In its last financial year it saw a 26% increase in business-class travellers, with a load factor of 56%, its best result since 2000. As the airline adds extra capacity with its fleet of A340-600s, its much-admired business-class product is helping it to grab even more customers. “We decided, during the depths of late 2001, that we should invest in the product. We believed there would be time when the market would come back and embarked on a £100 million ($175 million) upgrade programme. It was a pretty brave decision back then and has proved the right thing to do. It has shifted market share to us, particularly from the US carriers and we’ve also taken market share from British Airways.”
The demise of Concorde services spurred Virgin Atlantic to try and create a new service edge on the Atlantic, especially on its flagship New York route. “BA had a halo effect from Concorde, but with Concorde gone we’ve got the absolute pre-eminent service on New York,” he claims. This includes its on-board product, and new lounges at New York JFK and London Heathrow airports. The new Heathrow Clubhouse lounge is costing over £10 million alone. “This was all put together during the depth of the cycle.”
Virgin Atlantic has managed to build its huge market penetration at Heathrow despite still having less than 3% of the airport’s slots. “What we’ve done is remarkable. We’ve got a greater market share on the Atlantic than United and American combined. We have huge penetration at Heathrow in the same way as BA does. UK Ltd should be pretty proud of BA and Virgin Atlantic in that key market.” Growth at slot-constrained Heathrow is tough, but not impossible. Virgin Atlantic is in a pretty good position to bid for slots and has bought a few over the years.
The airline’s strong focus on the transatlantic is understandable as it still occupies the lion’s share of its resources. However, the reliance on a market that makes up part of its name is decreasing. “Since 9/11 we have diversified,” says Ridgway. “Our ASKs on the North Atlantic have fallen from 75% to 60% of our total.” It was a move underway prior to the industry crisis of 2001, but speeded up as the transatlantic market struggled. “It made sense commercially and we have pushed harder since 9/11, but it’s also partly been part of going for growth opportunities that we’ve been pushing in other parts of the world.”
That growth has seen new routes start this year to Mumbai, the Bahamas and Cuba. Next year the carrier will serve Dubai and Montego Bay in Jamaica for the first time too. This will push the US market share down even further but it will remain the single largest part of the carrier’s business at about half of its flying.
Will Virgin Atlantic go back to the market?
In 1986, Branson floated 35% of his Virgin Group on the London Stock Exchange, but after the stock market crash the following year bought the company back in a management buyout. This flirtation with the markets was short-lived, but a return is possible. “We were very close to an initial public offering in 1999/2000, but a trade sale of Singapore Airlines was a better option,” says Ridgway.
The Singaporean carrier, which has a 49% stake in Virgin Atlantic, has two representatives on the Virgin board. The two carriers are run very much as separate brands. However, there is increasing co-operation between them where it makes sense, such as in-route development and codeshares. “We also do quite a lot of product development together, work closely on aircraft acquisitions and we have been increasing our partnership with the engineering side of SIA.”
“Richard has always said he has the ambition of floating the company at some point and we have to run the business to be in place for that. Frankly it’s been bloody hard to do that given all the traumas the airline business has been through in the past few years. We want to run the business so it works for the current shareholders and makes profits,” Ridgway says.
“All I know is that it makes sense to drive the business as hard as we can,” he says, putting it in a position for whatever financial move the shareholders want to make. That included taking remedial action quickly after 9/11. “We got our pain out of the way long ago.” From a stripped-back base, Virgin Atlantic is now positioned to accept new aircraft and begin hiring again.
At media briefings a question always asked of Sir Michael Bishop, chairman of UK-based bmi, is whether he plans to get together with Virgin Atlantic some day. Branson has openly expressed his view that there is logic to a deal that would bring the carrier’s closer. Bmi has around 14% of the slots at Heathrow, mostly used for short-haul services around Europe as the carrier is frustrated from launching transatlantic services because of the restrictive UK-US bilateral.
Bishop gets exasperated by the continual questions about a tie-up with Virgin Atlantic. “The two companies would be complementary,” says Ridgway, “but it’s up to the owners isn’t it? It’s up to him and Richard. We would like to have a slot investment for the future and would like to build more feed into some of our services – that would make sense.” For now the owners appear content to continue a relationship that does not involve shares, but does feature extensive codesharing and frequent-flyer programme co-operation.
Preparing for the A380
The carrier anticipates receiving its first A380 in 2008, but the precise schedule has yet to be worked out. “Airbus is dealing with the first few customers at the moment,” Ridgway says. And while Virgin Atlantic has itself slipped its delivery schedule from 2006 to early 2008, delivery delays at the manufacturer mean this could now be late summer 2008. Ridgway does not want to receive them any later. “We are not relaxed about a further slippage,” he says.
In common with all other carriers, Virgin Atlantic is keeping its plans for the A380 interior a closely guarded secret. “All I will say is I bet you’ll find the Virgin Atlantic ones will be some of the nicest and some of the most radical.”
As the carrier prepares for its next growth phase, Ridgway is keen to stress that this large business is still able to retain the loyalty among staff that Branson dreamed of when he formed the airline back in 1984. It has never been a company to take the conventional route. “We look at it as an upside-down pyramid where the staff come first, then customers and shareholders next. Out of that comes a successful business.”
It uses an independent polling firm to ask staff how they feel about their employer. One of the scores it measures is advocacy, broadly explained as how much pride a worker has in their organisation. “Our advocacy rating is the highest they’ve ever polled,” says Ridgway. “That is worth a fortune and you lose it at your peril.”
Read Mark Pilling's interview with Steve Ridgeway from 2001 Click here