Power broker

Strengthened by its partnership with Singapore Airlines, Virgin Atlantic under Steve Ridgway, remains every bit the independent player, determined to innovate wherever it can

It was on the high seas, rather than in the air, that Steve Ridgway first got to know Sir Richard Branson. He did not know it then, but as co-pilots on two remarkable powerboat crossings of the Atlantic, Ridgway so impressed the Virgin boss that he soon had him on the team. This now marks Ridgway's third year at the helm of Virgin Atlantic Airways, and he appears as comfortable in control of an airline with annual revenues of $1.6 billion as he was with a powerboat.

Back in 1985, Ridgway was running the Toleman speedboat company. He reminisces: "We had a very unusual powerboat design and wanted to promote it to the military market. We thought what better way to achieve that than by breaking the famous old Blue Riband transatlantic crossing record which had lain dormant for 40 years?" Branson, never one to pass up a dangerous and exciting challenge, found the opportunity irresistible. Equally, it presented a fantastic publicity opportunity for Virgin, which was just launching its fledgling transatlantic services but had little money to advertise them.

"I did both trips with Richard," explains Ridgway. "We sank on the first one and made it on the second. We were horribly seasick all the way across the Atlantic, but we survived and I think that's where we bonded. Our efforts got huge publicity for Richard, particularly in the second year when we went back as this bunch of crazy Englishmen who'd sunk the previous year. It was manna from heaven really."

The Blue Riband attempts were splashed across newspapers on both sides of the Atlantic. "The net cost of those two projects was less than £200,000, and we got around £10 million worth of publicity, which was huge numbers in those days," says Ridgway.

The powerboat man kept in touch with Branson over the years, even doing a couple of projects with him. Then, in 1990, Ridgway came into the company as a consultant to set up the airline's "Freeway" frequent flyer programme, the UK's first. He went on to become managing director of Virgin Freeway and gradually got "sucked" into the airline, becoming marketing director in 1991, and moving on to the main board as customer service director, prior to being appointed Virgin Atlantic's managing director in 1998.

Although hardly now the exuberant new entrant, Virgin still manages to sustain its offbeat image and reputation as a trend-setter in customer service. It achieves this because it remains loyal to the philosophy Branson set out for the carrier when it was formed in 1984: to run a business that is "really focused on the customer and what the marketing proposition is," explains Ridgway. "The marketing and customer service people have always been pre-eminent at Virgin, and are to this day. This doesn't sound a big deal now, but if you think back to 1984 when flag carriers didn't really care too much about passengers, to suddenly have an airline that was truly customer focused was quite revolutionary."

Marketing advantage

As Branson's Virgin empire has grown, he has left the day-to-day running of the airline to Ridgway and his fellow directors. But he is by no means a hands-off chairman. "He remains incredibly involved, the airline is still his big motivator, and it is his biggest success story," says Ridgway. "Richard is very focused on the things that matter and where he creates an edge, like the geopolitical stuff that goes on around airlines. He is fantastic in that and brilliant as a front man and ultimate marketeer for the airline. We have a voice which is out of all proportion to our size, really."

However, with a fleet of 17 Boeing 747s and 10 Airbus A340-300s, as well as eight A340-600s and six A380s on order, Virgin can hardly be described as small fry. Its latest annual figures show revenue for the year to April 2000 rising 12% to $1.6 billion, although the net result stayed only just above breakeven (see table page 98). The profit slide did not come as too much of a surprise to Ridgway. "If you take out the fuel effect, which we've all had to suffer, the actual operating profit numbers were very good. The fact is we remained profitable in a year where others plunged into pretty big losses." Despite concerns about the US slowdown, and continuing high fuel costs, Virgin's profits for this year are expected to recover.

It is the strong Virgin brand that helps it ride out slowdowns, believes Ridgway. "What we try and do is make sure that we command a bigger chunk of what's there. We work harder for it, but if we look at our history we dip less in the downs than many of our rivals, and on the upside we tend to overshoot."

Virgin's sales team is challenged with making sure this continues, and to sustain its policy of running with high load factors. "We are confident we will keep the taps running, we've just got to work hard to maintain the yields. We generally have never had a problem filling the planes, it's just making sure we don't dilute the yield too much. We have a good formula - we are absolutely on the top of everyone's shopping list. People will always look at us because we are competitive on price, and if you add to that our reputation for quality and service it makes a good mix."

So far, Ridgway has not seen much evidence of the price wars that have marked previous years, especially on the transatlantic market. "The carriers are all behaving much more responsibly. You haven't seen the really crazy price-cutting and offerings [of the past] because capacity has been coming out of the market. So that's quite encouraging."

However, a gloomier economic climate might slow Virgin's growth, which has averaged 15-25% per annum for the past five years, but adjustments in capacity, either up or down, are fairly easy for a long-haul carrier operating large aircraft. The latest new service in prospect is between London and Toronto launching in June. With this route Virgin will have achieved its goal of operating to every one of the top 10 long-haul destinations served from London Heathrow.

New destinations

The latest market Virgin has managed to prise open is between Heathrow and the Nigerian capital Lagos, currently only offered by British Airways. That is scheduled to launch later this summer. The airline benefited from the decision in April by the UK and Nigeria to let two airlines from each country serve the route.

Other targets are Dubai, Singapore, Australia, Osaka, and further expansion in India, as well as to build frequencies on existing routes, says Ridgway. Virgin's efforts to further expand into Asia - it already serves Hong Kong, Shanghai, Tokyo and Delhi - are not being made in co-operation with shareholder Singapore Airlines (SIA), but its influence is helpful. "It probably makes access to those markets easier, and has made them happen earlier than Virgin would have done on its own. SIA has a good presence in those markets and will support us. For example I expect somewhere like Bangkok would come on the agenda earlier than it would have done previously."

Ridgway believes that the airline's aircraft mix offers it good flexibility as it embarks on the next stage of its route development. "We have our 747-400s, the major workhorses for the big markets, and a small remaining fleet of refurbished ex-Air New Zealand 747-200s,"he says. The new Airbus A340-600s, the first of which is being delivered in mid-2002, will pick up the growth needed on routes like Tokyo and Hong Kong, releasing smaller A340-300s, which will make good development aircraft for thinner routes or second services. However, some -300s will be sold as the -600s arrive.

With Virgin confirming its order for the A380, the airline now has its fleet plans arranged right up to 2009, which is further out than it has ever had them before. "This is a bit of a revolution for a company like us because we've always been small and fast on our feet," he notes. Virgin is part of the core design team for the A380, both on the ground and in the air. Not only is it working with Airbus on the aircraft, it has been assigned by the British Airport Authority to help develop all the facilities for the A380 gates at Heathrow's Terminal 3.

"It was quite flattering to be brought into that and we feel we can add value," says Ridgway. "Heathrow was always about looking after BA until now."

Jumbo plans

Airbus has high expectations of what Virgin will do with the A380 in terms of interior design. Virgin's design team is wrestling with all the possibilities, such as gyms and shops, but one thing is for sure - Virgin's A380 will not just be a bus. Indeed, it plans to use some of the lower deck for passenger amenities and not just for carrying cargo. "One philosophy is to enable people to move around more for certain services and features like shops, and perhaps to try to make galleys less adversarial. The galleys will be more like bistro bars, where they still perform a function but they have some passenger value as well."

Virgin appraised the A380's economics carefully with SIA, and feels confident the aircraft will both deliver on its unit costs, and play a crucial role as traffic grows. "It's fairly obvious that some of our big trunk routes will have great potential for this aircraft. If you look at constraints at places like Heathrow, to be able to operate the A380 on our scarce slot resources is very sensible," says Ridgway.

Virgin has opted for size with the A380, but it is also interested in speed, and especially supersonic. "Potentially, air transport is the only sector since the industrial revolution where technology was going backwards with the cessation of Concorde flying. We seem to be stuck at a speed of 550mph in very conventional aircraft," says Ridgway. Virgin has already put its name down as a prospective customer for Boeing's Sonic Cruiser even though the project is little more than a design concept. "In whatever form it comes off, I think it will be great, and I think Boeing will get the support to push the boundary," he says.

More imminently, Virgin will study using business jets to offer an ultra-first class product. "BA has had years of halo effect from Concorde, and it is like a different version of that," he explains. Virgin is thinking of launching the luxury service to the USA from airports around London like Stansted or Luton. A decision on the operation, which would feature either Bombardier's Global Express, the A319-based Airbus Corporate Jet, or the Boeing Business Jet, will be made over the summer. The aim is not to cream off its existing traffic to the service, but go for a market it does not currently serve. "I'm not sure it will be super profitable but it is true to our values of looking at new ideas and innovation," says Ridgway.

SIA admires Virgin's philosophy of constantly seeking new, sometimes quirky ideas, and likes the idea that some of these traits will rub off on the traditionally conservative Singaporeans. SIA, which paid £600 million ($850 million) for its 49% stake in December 1999, wants Virgin to remain independent and retain its entrepreneurial streak. "They didn't buy us to turn us into Singapore Airlines, they bought us because of who we are, what our brand is and what we stand for," says Ridgway. "It is clear that we are going to remain where we are and stay true to our values and beliefs, as they are to theirs," he says. "What is interesting is that in putting our frequent flyer programmes together we have the highest crossover in our customer bases than with any of our other partners. This tells you that consumers are saying we know Virgin and we love flying Virgin. We know SIA is very different, but we like what we get from them too.

Making alliances count

"I think there is an interesting message in that these big amorphous alliances will give us an opportunity to remain a series of quite vibrant brands, as people like choice and distinction. In front of the customer we remain very independent and very true to our brand philosophy. Out of sight of the customer we do a lot of intelligent things together: developing products, systems and technology, and buying and selling aircraft."

Although SIA is taking the alliance route as part of Star, it is also pursuing a strategy of buying equity stakes in carriers worldwide. For Ridgway, the Virgin/SIA relationship is more stable than the global groupings. Equity ties, mergers and acquisitions will be the future he argues. "We're ahead of the game in that frankly. Alliances are just a stepping-stone. They are a tension that the industry has thrown up ahead of the scrapping of a load of very archaic rules. Ours is the last great industry that hasn't yet consolidated."

Source: Airline Business