‘We aim to be the most-loved travel company’, Virgin Atlantic chief executive Shai Weiss outlines the airline’s strategy. Ian Taylor reports
Virgin Atlantic has long punched above its weight, taking on British Airways at its Heathrow home and on its most-profitable routes across the Atlantic despite the carriers’ vast difference in size, resources and profitability.
The carrier has done so by competing on service and increasingly, through its transatlantic joint venture with Delta Air Lines which owns 49% of the airline, through the schedule it can offer.
Now Virgin Atlantic chief executive Shai Weiss believes the airline is positioned to take on the mantle of a “second UK flag carrier”.
Virgin’s growth at Heathrow has long been stumped by the shortage of available take-off and landing slots, so the development of a third runway and the extra capacity it would be bring are key to the carrier’s long-term growth.
The third runway may still be years away, but Weiss believes Virgin Atlantic’s role in the Connect Airways consortium which recently acquired Flybe demonstrates the seriousness of its intent.
Weiss said: “We bought Flybe, saving over 2,000 jobs and 1,400 pensions. It’s a great opportunity to feed passengers into Manchester and Heathrow.”
Flybe has 12 pairs of slots at Heathrow and 340 at Manchester.
Weiss added: “We’re investing in Manchester where we we’ll increase capacity by 20% from May.
“We’re taking delivery of 12 Airbus A350s which are 30% more fuel efficient [than the Boeing 747s Virgin currently operates] and we have a wholly new cabin.
“We’re going after new markets – we’ll fly to Tel Aviv from September and to Sao Paulo from 2020.
“Later in the year, we’ll extend our transatlantic joint venture with Air France-KLM.”
The carrier is just awaiting US regulatory approval for the deal, having launched a first phase of code-share arrangements with the Franco-Dutch group in March.
‘Fix the financials’
Weiss took over as chief executive from Craig Kreeger at the start of this year, having joined Virgin Atlantic in 2014 as chief financial officer.
He said: “Five years ago we had a simple mission statement: ‘Fix the financials without destroying the magic’.”
In January, Weiss launched a new three-year strategic plan branded Velocity. Put simply, he said: “The magic is still there. Now we desire to become the most-loved travel company.”
He suggested: “No one else would dare say that or, if they did, no one would believe them. But we will fuse magical service with an unbelievable product. By the end of 2022, we’ll have a transformed fleet.”
Alongside that, Weiss said: “We have everything we need to become the second flag carrier from Heathrow.”
This is the thinking behind Virgin Atlantic’s decision to acquire Flybe as part of the Connect Airways consortium with US private equity group Cyrus Capital and Stobart Group, the owner of Southend Airport and Stobart Air.
The deal, announced in January, went through in two stages with the consortium acquiring Flybe’s assets for £2.8 million in February and buying out Flybe Group’s shareholders in March for £2.2 million.
Weiss dismissed the disruption Flybe suffered at the start of April, when the carrier was forced to cancel multiple flights at several airports owing to a shortage of pilots, saying: “We don’t think it’s a systemic problem.”
He said: “We own Flybe with our consortium partners, but we don’t control it. We don’t have clearance [yet]. But it’s fundamentally a good company with good people.
“Our name will be on the planes. But the last thing we want to do is just put our livery on the aircraft. It has to come with the commitment to service.”
Flybe will bring 12 slots at Heathrow and 340 slot pairs at Manchester, which could provide extensive feeder traffic and allow Virgin Atlantic considerable expansion at the airport.
Weiss said: “It’s a great addition to our group. It’s a necessary step to create a more complete airline.”
He insisted Virgin Atlantic had “absolutely not bought Flybe for the short term”, saying: “We would not have bought it if it was not an interesting proposition.
“It was a beautiful acquisition price and the [Flybe] debt is backed by the planes.
“Flybe will be transformed. It will be rebranded by 2020 and recover to profitability by 2021-22.”
However, it’s the government go-ahead for a third runway at Heathrow that is key to his strategy with Flybe.
An important part of the economic and political rationale for the third runway is to allow more flights into Heathrow from UK regional airports and to make additional capacity available to more airlines – or as Weiss puts it, “to encourage fresh feed and favour competition”.
Weiss said: “British Airways continues to have a dominant position [at Heathrow]. Politicians understand the need for more competition. Britain needs a second flag carrier from Heathrow [and] we need significant slots at Heathrow.”
And for that, he said: “We need to change the slot regime at Heathrow. We are pushing this forward. I’m sure it will change [and] we are the only credible carrier [to take advantage].
“The decision [on a third runway] will be taken in the next 12-24 months. In the meantime, we will demonstrate we’re serious.
“We bought Flybe to demonstrate we are serious about feeder traffic. This is a step towards a third runway at Heathrow.”
Virgin Atlantic reported a pre-tax loss of £26.1 million for 2018 last week, a result Weiss hailed as “a significant improvement on 2017” when the airline’s restated loss was £49 million.
He said: “Of course, the result was impacted by the sterling-dollar exchange rate [and] the economic uncertainty following the Brexit vote [in 2016] did not help.
“The weaker pound hurt us. We are very exposed to the exchange rate – 60% of our costs are in dollars and 31% of our revenue in dollars.
“There is weakness in the UK. We see that from our partners and attribute that to the uncertainty. If people are unsure about the future, discretionary spending tends to suffer.”
But he said “operationally, it was a pretty good year”, the loss “was smaller than expected” and the airline is now embarked on “a return to profitable growth”, adding: “Our target is to return to profitability by 2020.”
Weiss expects the airline’s results this year to be broadly on a par with 2018, saying: “We do face some headwinds. There is a bit of weakness on the leisure side, which is not surprising given the uncertainty around Brexit.
“Summer looks pretty good for now. We are in line with our expectations for the summer but it’s difficult to call the end of the year.
“But we are back to growth. This is a seminal year. Everything we are doing is geared to a return to profitability.
“Should the pound strengthen or the fuel price fall we would change our guidance. The macro-economic environment could be stronger for UK plc.”
The Loft has arrived
Also last week, Virgin Atlantic unveiled the cabin for its new fleet of 12 Airbus A350 aircraft, the first of which will arrive this summer and go into service between Heathrow and New York JFK.
A further three A350s are due for delivery this year and the remainder through 2020- 21.
The cabin features a new Upper Class and lounge area, the Loft, to replace the bar on existing aircraft. There are bigger seats in premium economy and larger entertainment screens throughout – those in economy will be close to the size of the old screens in Upper Class.
Weiss said: “The Loft is a natural evolution. It’s absolutely ‘Virgin Atlantic’ – very modern. A bar is interesting, but what people want is to mix work and play.”
He adds: “You can stay there in flight if there is turbulence.”
He describes the new cabin as “a labour of love”, declining to reveal the investment other than to say “it is billions”.
Weiss said: “The first seven will be based at Heathrow, then five at Gatwick perhaps by 2021.”
‘This will be a seamless joint venture’
Weiss summarises Virgin Atlantic’s immediate prospects, saying: “We are buying the best aircraft. Flybe adds connectivity. Air France-KLM adds its network.”
He expects US clearance for the joint venture with Air France-KLM in the summer, pointing out it “will allow a consumer to fly from Newcastle to Chicago via Amsterdam on our system and earn and burn miles” across the combined network of Delta, Air France-KLM, Virgin Atlantic-Flybe and other Virgin Group companies.
Weiss insisted: “This will truly be a seamless joint venture.”
As part of the joint-venture agreement, Air France-KLM will take a 31% stake in Virgin Atlantic alongside Delta Airlines’ 49%, leaving Sir Richard Branson and Virgin Group with just 20%.
But Weiss dismissed the view of an unnamed aviation analyst quoted by the Sunday Times (April 7), who said: “Shareholders representing 80% of the group will, over time, get fed up supporting a minority boutique carrier that makes a loss.”
Weiss said: “When we went into the joint venture with Delta five years ago, the question was ‘Will we disappear?’ It’s not going to happen. Virgin Atlantic is going nowhere.”
He added: “This is our break-out year. Business class across all our cabins is doing well. There is a bit of weakness in UK leisure traffic, mostly due to the uncertainty.
“There is still a lot of politics to be done [on Brexit], which has a major impact.”
But he insists the carrier is prepared for whatever comes, saying: “We don’t fly to Europe, but we are ready for no deal.
“We recommend politicians not allow a no-deal Brexit. We would like more clarity and certainty, but that does not change our readiness.”