Talking the talk but not walking the walk: Virgin‘s airlines
Two Virgin Group airline brands, Virgin Atlantic and Virgin Australia, have entered some turbulent air during the COVID-19 crisis. The Australian branch has entered administration in order to cut its fat and return to profitability. Virgin Atlantic was rumoured to be put on sale by Richard Branson after the British government refused to provide it a $621 million (£500 million) loan. Branson‘s spokesperson denied the rumour of a happening sale. However, the investment bank Houlihan Lokey was hired to find a fresh round of investment into the Britain-based airline.
The two airlines were and still are held to a high standard and amongst the most well-known airline brands in the world. Starting from its inception in 1984, Virgin Atlantic’s communication was cheeky, to say the least. The company was not afraid to take the mick out of its competitors, mainly British Airways. The trend has stayed the same until recently, when Virgin Atlantic launched the Two Flag Carriers initiative in order to secure its place in the sometime-in-the-future expanded Heathrow Airport (LHR).
When Virgin Blue, the former name of Virgin Australia, was launched in 2000, Richard Branson stated that domestic flight prices in Australia were “far too high, with far too many restrictions and it's about time Australians can fly without having to spend their entire pay packet.”
The then-CEO of the airline Brett Godfrey mocked the competition, which “already dropped their fares in anticipation of our arrival.”
“We've actually managed to lower the cost of flying without even having a plane in the air,” Godfrey added.
Both Virgin (VAH) airlines always had the cojones to talk the talk. But has the coronavirus highlighted the fact that they can’t walk the walk that the brands have talked about?
Virgin Atlantic and, with Richard Branson behind it, are one of the most outspoken companies marketing-wise. While executives like Ryanair’s Michael O’Leary can call their rivals crack cocaine junkies, Virgin’s (VAH) representatives are a bit tamer, yet a lot cheekier. For example, in 2016, when the London Eye, which was sponsored by British Airways, had a technical problem and they could not erect it, Branson had a field day. He scrambled a blimp with the text “BA can’t get it up!!“ and flew it near the London Eye.
Virgin Atlantic tells the story better than anyone could:
“Richard Branson, our enthusiastic chairman, did anything to get attention for his businesses, including hot air ballooning, abseiling down Manhattan high rises or kissing Spice Girls. The more he got in the news for his adventures, the more Virgin Atlantic became renowned as the airline you flew if you wanted an adventure.”
Aggressive and out-of-the-box thinking led to growth. Sort of. The United Kingdom’s Civil Aviation Authority (CAA) data from FY1998 indicated that Virgin Atlantic finished the year with 2.9 million passengers and an operating profit of $72.4 million. Just ten years later, in FY2008, the Branson-led airline carried 5.6 million passengers with a profit of $20.9 million (£16.9 million).The growth, as the numbers showcase, was not significant.
Again, ten years later, Virgin Atlantic barely inched forward: 5.4 million passengers and an operating loss of $47.8 million (£38.4 million) was not a good result for an airline that wanted to become a second flag carrier. But 2018 was not a freak year for the airline. The past decade was not successful financially: three profitable years and a peak passenger number of 6.1 million in 2014 might not indicate that the company has what it takes to take down the Goliath that is British Airways, despite their best efforts to undermine them in the public eye.
Nevertheless, the airline wants to grow. Or at least renew its fleet, as it introduced the Airbus A350 in September 2019, aiming to operate 12 in total. Further orders include 14 firm and six options for the Airbus A330-900neo. Currently, Virgin Atlantic has 42 aircraft in its fleet: if we were to add the new A330-900neos, including the six options, count in the remaining eight A350s and retire the old 747s, the airline’s fleet would grow to 49 aircraft, bar any remaining older A330s.
The Group had a perfect opportunity to grow with Flybe, as it finally would have had the perfect regional connector to Virgin Atlantic’s hubs in Manchester Airport (MUN) and London Heathrow (LHR). But Flybe, even before it became Virgin Connect, entered administration and took the dream of having a feed network with it.
Trouble down under
Much like its sister in the United Kingdom, Virgin Blue entered the market in Australia to shake things up. Qantas was in a dominant position, much like today, while Ansett Australia was on its last breath: the name was finally put to rest in March 2002.
Virgin’s (VAH) sister airline in Australia started off as a low-cost carrier, trying to put a dent into Qantas’ market share. During the first five years of operations, Virgin Blue grew from having zero passengers to carrying 13.4 million with a fleet of 51 Boeing 737s in 2005. Profitability was not an issue as well, as Virgin Blue managed to achieve a profit and steadily grow its margins. Apart from a blip in 2009, the airline was profitable throughout the first decade of its operations.
Until it went downhill after Virgin Blue established long-haul operations to international destinations under the V Australia brand. While the blip in 2009 could be attributed to the costs associated with the establishment of V Australia, the next decade was eerily similar to that of Virgin Atlantic. Unprofitability was the name of the game. Virgin Australia, as it was known since 2011, posted a profit twice in the 2010s: in 2010 and 2012. The expansion into long-haul services, including extensive partnerships with such airlines as Etihad or Singapore Airlines (SIA1) (SINGY) , including many other famous airline brands, has not worked out.
Seemingly, the governments of Australia and the United Kingdom have little hope for the two carriers, as they both denied governmental loan pleas. While Virgin Atlantic’s fate now depends on the goodwill of investors who are being sought after by Houlihan Lokey, Virgin Australia might not be so lucky. Having entered administration, the airline has a lot of fat to chop off and a lot of debts to pay off. With almost no cash coming in, the situation might be dire. However, a glimmer of hope was that two state governments were fighting where Virgin Australia should be headquartered. Furthermore, having an independent set of eyes looking at the airline’s operations might help it bounce back after the crisis. That is if it survives the crisis.
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