Branson’s pioneer airline flew too close to sun
Aiming to be Britain’s ‘second flag carrier’, Virgin’s wings have bee n clipped hard
Had Sir Richard Branson not been booted off an American Airlines flight to Necker Island nearly 40 years ago, Virgin Atlantic may never have got off the ground.
With his flight from Puerto Rico to the British Virgin Islands cancelled, in typically flamboyant style the music mogul “hired a plane” and encouraged his fellow disgruntled passengers to join him, charging them $39 each.
The germ of an idea was planted. At the time, Branson’s business interests centred on releasing records from the likes of Mike Oldfield, the Sex Pistols and the Rolling Stones.
His team at Virgin Records thought he was mad for entertaining the idea of running an airline. But summoning his inner Mick Jagger, the 33-year-old businessman would not be deterred.
After all, you can’t always get what you want; but if you try sometimes, you might find, you get what you need.
“I wanted to provide something different and better for customers, including myself,” he later said. “I thought if Virgin had an airline we could put the fun back into flying and bring glamour back to the skies.”
Virgin Atlantic’s first flight on June 22 1984, was perfectly timed. With Margaret Thatcher championing the merits of free enterprise, Branson wanted to challenge state- owned British Airways’ dominance over the Atlantic.
Other than the handful of people who could afford supersonic flights with Concorde, BA customers had to endure a drab and expensive service. Virgin Atlantic promised to be exciting and cheap.
Despite the razzmatazz, the airline’s early financial reports reveal significant skepticism among bosses whether the venture would succeed. Some US$2.7 million of costs incurred before the inaugural flight “were written off as an extraordinary item”, the accounts for the year to January 1985 read.
It would have been reasonable to “capitalize” the cost and spread them over the next five years, if the directors felt the airline would last that long.
“However, the directors are of the opinion that in the particular circumstances this treatment would be imprudent,” notes in the accounts concluded.
Nevertheless, advertising mogul Sir Martin Sorrell has fond memories of Virgin Atlantic’s early years. “The cabin service, the atmosphere, the attention to audio and video, the experience of the Club House. It was very much more of an experience than just buying a plane ticket. And it wasn’t purely about cost, it was about providing ... travel in a different way with a different atmosphere.”
He adds: “I think he just, he understood what consumers wanted. They wanted a more enjoyable, more inclusive experience.”
Branson would later claim Virgin Atlantic “transformed” airline travel: “Try to remember what travel was like ... you would sit on a British Airways plane — or a TWA or a Pan Am plane — and you would get dreadful food, you would have to deal with staff who never smiled, you had no entertainment, you had uncomfortable seats ... you were treated like cattle, and it was thoroughly unpleasant.”
Throughout the rest of the Eighties, Branson insisted Virgin Atlantic was not a threat to BA. “We think the market is there for both of us.”
But his increasingly adversarial advertising campaigns suggested otherwise. BA boss Lord King was left fuming when Virgin began flying from Heathrow. Branson dressed up like a pirate, draped a flag over a model of one of BA’S prized Concorde aircraft and declared Britain’s busiest airport “Virgin territory”.
Frosty relations with BA, which had been privatized in 1987, turned toxic in the Nineties. Branson extracted more than US$ 740,000 in damages and a public apology from his rival following a so-called “dirty tricks” campaign.
Among the allegations levelled against BA were attempts to access confidential information held on computers about Virgin Atlantic flights, efforts by BA employees to impersonate Virgin Atlantic counterparts to steal customers, and claims that BA was planting misleading information about Virgin Atlantic in the media.
Branson demanded answers. After ignoring a series of allegations, BA accused the Virgin founder of making up the claims as part of a publicity stunt. Branson sued for libel and Lord King counter- sued over his original allegations. After keeping Fleet Street in copy for more than a year, BA backed down in January 1993, apologizing “unreservedly” and agreeing to also foot the bill for US$3.7 million in legal fees.
While the High Court action had been brought to an end, the bitter rivalry continued. Branson hung a blimp over the London Eye emblazoned with “BA can’t get it up!” after technical issues left the Ba-sponsored attraction on the ground. “BA don’t give a Shiatsu” was Branson’s “finest” advertising campaign, the businessman later said.
By this point, running airlines had gone from a sideline to one of Branson’s primary concerns. He sold his music business to EMI for more than US$678 million in 1992 and reinvested the proceeds in Virgin Atlantic.
Tony Blair’s Labour administration knighted Branson in 2000 for services to entrepreneurship; and as Britpop gripped the nation, so did a new wave of airlines: low- cost specialists such as Go, easyjet and then Ryanair.
Such short-haul airlines were not direct competitors to Virgin Atlantic. But they ushered in a new customer psyche — air travel was not about glamour; it was about getting from A to B as cheaply as possible. John Strickland is an aviation consultant who was tracking the industry even before Branson came on the scene. He has watched as ticket prices have fallen and profit margins have been squeezed, pushing some airlines into the red.
“Virgin began life as a challenger maverick brand in the Eighties and has been able to retain some loyalty from that time,” he says. “[But] the airline has struggled with profitability for some time and has not been able to build up the level of cash reserves that some of its larger competitors have amassed.”
As Virgin adjusted to the rapidly changing landscape during the 2000s, Branson began trading blows with Willie Walsh, who took over at the helm of BA in 2005.
Writing in The Daily Telegraph in 2012, he railed at regulators over their decision to allow BA to acquire troubled regional airline BMI.
Branding the decision “uncompetitive”, the businessman said it would “undoubtedly damage the British airline industry for years to come”.
As his empire embarked on new ventures — everything from Virgin Cola to Virgin Brides — he sold a 49 per cent stake in 1999 to Singapore Airlines for US$740 million. The Asian carrier off-loaded its investment to US airline Delta 13 years later for just US$271 million.
Branson was optimistic about the Delta partnership. “It signals the start of a new era of expansion, financial growth and many opportunities for our customers and our business,” he said at the time.
Craig Kreeger, an American Airlines lifer, was hired in 2013 with a plan to wrestle the airline out of the red within two years.
He delivered. By 2015, pre- tax profit was US$ 111 million; it doubled to US$ 222 million the following year — the last time Virgin was in the black.
Current boss Shai Weiss formally took over from Kreeger last year with a similar mission to turn a profit. “Shai’s focus is always on where it makes sense to fly, where there may be a gap in the market — not embarking on a race to the bottom,” says one company insider.
Virgin Atlantic insiders say the airline had been on course to turn a profit before Covid-19 hit. Last autumn, Weiss set out a grand vision to become Britain’s “second flag carrier”.
“They made some good progress on reducing the cost base,” says one airline executive. “But most of the benefits of cutting costs were lost on the adventure of buying Flybe.”
Desperate to connect Virgin’s transatlantic services with regional airports across Britain, Flybe was bought for just US$1.23 a share little more than a year ago. The consortium Virgin led pumped a rumoured US$ 123 million into the Exeter-based carrier before it folded a month ago.
Tuesday’s decision to axe more than 3,000 jobs, quit Gatwick and retire its fleet of jumbo jets, followed several weeks of determined — but unsuccessful — lobbying to access a US$ 617 million loan from the Government.
Hopes remain of British taxpayer support. But sources say that the focus for Branson’s lieutenants is winning an injection from private backers, adding: “All options are on the table.”
Branson has even offered to mortgage his Caribbean home of Necker Island to secure new funds. “We have weathered many storms,” Weiss said earlier this week. “But none has been as devastating as Covid-19.”
Such pessimism contrasts with Branson’s optimism days before Virgin’s first flight in 1984. “Initially, I was very skeptical, but then we looked at the figures,” he said. “There is an enormous demand from people who want to fly to America cheaply.”
The City was unconvinced. Max Dolding, then a leisure analyst at stock broker James Capel & Company, said: “They are just leasing a jumbo jet and flying across the Atlantic.”
Almost 36 years later, Virgin Atlantic is doing neither.