The airline industry veteran now battling to maintain Virgin’s transatlantic ‘cool’
The clock is ticking on one of the aviation industry’s most colourful wagers. In 2012, Willie Walsh, chief executive of International Airlines Group, which owns British Airways, bet Sir Richard Branson a “knee in the groin” that the Virgin Atlantic brand would disappear within five years, after US carrier Delta Air Lines bought a 49 per cent stake in the British carrier.
But with just a year to go, it looks like Mr Walsh could be in for some pain.
After three years of losses, Virgin Atlantic returned to profit in 2014, boosted by its transatlantic joint venture with Delta, which helped funnel more passengers on to its network. The British airline is expected to announce this week a further improvement in profits for 2015, helping Virgin Atlantic on its way to beat its record annual pre-tax profit of £99m by 2018.
Craig Kreeger, the first American head of Virgin Atlantic, who was brought in three years ago to revive the flagging airline, dismisses any possibility that Sir Richard could lose the bet to his arch rival Mr Walsh.
“The brand can’t go away,” he insists. “If Delta and Virgin Atlantic together can help fill more seats and get more customers to try Virgin Atlantic because that [Virgin] brand is positive that’s only going to make us more effective against British Airways and against every other competitor.”
Wearing a blazer, with his top shirt button undone and no tie, Mr Kreeger looks every inch the relaxed Virgin Atlantic executive, reclining in a fashionable leather armchair.
It is apt that he is delivering his fighting talk at Virgin Atlantic’s London office, which is known as the Battleship Building because of its resemblance to a warship. Virgin Atlantic was founded in 1984 by aviation upstart Sir Richard with a battle in mind: taking on the might of BA on transatlantic flights.
The once trailblazing airline quickly became known for its customer service and pioneering product innovation, which saw it become the first to bring in televisions at every seat and the launch of its upper class suite, which offered the longest flat bed in business class and onboard bar.
But over the past decade, the constant competition began to take its toll. In the five years to the end of 2013, the group racked up total pre-tax losses of more than £300m. High fuel prices and a struggling UK economy played a big role. But Virgin’s poor performance was accentuated after BA’s deal in 2011 for a joint venture with American Airlines: the British flag carrier became an even tougher competitor on lucrative transatlantic routes.
Mr Kreeger, who grew up in Sacramento, California, knows all about the potency of BA’s transatlantic partnership. Before he joined Virgin, he spent 27 years at American Airlines, including running its international operations. This made him the perfect choice to help Virgin Atlantic’s joint venture with Delta get off the ground.
“I get more credit than I deserve for the progress we’ve made,” admits Mr Kreeger. “My assessment coming in was that I was entering at the bottom, and many of the things that were going to help the company be more successful in the future were decisions that had already been made.”
This included the purchase of 17 Boeing 787 Dreamliners to replace its old and more costly A340 planes, and the 2012 joint venture with Delta.
Over the past three years, Mr Kreeger has pushed ahead with cutting costs, including restructuring his management team and closing a number of the airline’s international routes to refocus on its core strength, the transatlantic market.
Like other airlines, Virgin Atlantic’s 2016 profits will be helped by the low oil price. That factor has already boosted profits at some of Europe’s struggling flag carriers, for instance at Air France-KLM last year.
“[The low oil price] hasn’t fundamentally changed our targets. I do think it allows us to feel pretty comfortable about 2016 continuing on track. We think we have an awful lot of momentum,” says Mr Kreeger.
But not everything has gone smoothly. In 2014, Mr Kreeger announced the closure of Little Red, the group’s UK short-haul service, only 18 months after it was launched because it failed to gain enough traffic to compete successfully.
The grounding of this domestic business, alongside retrenchment from international routes including Tokyo, Mumbai and Cape Town, has left some in the industry fearing that Virgin Atlantic has lost its pioneering edge and become boring.
“In the past, the Virgin Atlantic brand was about being a challenger and a leader in the industry where it could be,” says a former executive. “It never was boring. That’s their issue now — if you are a more boring airline you don’t stand out.”
While not as flamboyant or prone to publicity stunts as Sir Richard, Mr Kreeger is adamant that Virgin Atlantic has not lost its magic. “I joined this company because the experiences I had competing with it and flying on it as a customer were so cool and so fun, that the last thing I would want to do is focus on anything that would prevent that from still being the case,” he says.
Some of this may be out of his hands, however. With Delta owning a 49 per cent stake in the carrier, there has been an obvious shift from showmanship to a focus on financial discipline under Mr Kreeger’s reign.
He denies the suggestion that Virgin Atlantic is being run from the US.
“Yes, we took planes out of four other long-haul markets and ended up moving them into the US market, taking the transatlantic portion of our network to about 70 per cent. But coincidentally, that’s exactly the same percentage that the airline had in 1999 and 2000, its last really successful years. So we have returned Virgin Atlantic back to the mixture that it was most successful with,” says Mr Kreeger.
He acknowledges that Virgin Atlantic will no longer have “unlimited funds” to spend on new products, which will make it harder to compete against the deep pockets of the Gulf carriers that have been leading the way with business class innovation in recent years. However, despite this, he insists Virgin Atlantic can retain its “challenger brand status”.
Looking forward, there are further battles on the horizon. And this time not just with BA. The rise of Norwegian Air Shuttle and its aggressive plans to expand its low-cost transatlantic business means Virgin Atlantic and Delta are considering ways to respond. Mr Kreeger says this could see the airline use different planes or a different mix of seats on its planes to compete better, but it has no plans to launch its own low-cost subsidiary. “We haven’t really seen a big impact yet in demand for our product as a result of their presence . . . but knowing that they are planning on growing, we are trying to model . . . five or 10 years from now,” he says.
Mr Kreeger clearly wants to be around for the fight. He has just committed to staying in the UK by buying a home in Battersea, south London, after years of renting.
Just like Virgin Atlantic, he is keen to get on with “fixing it up”.
Copyright The Financial Times Limited 2016. You may share using our article tools.
Please don’t cut articles from FT.com and redistribute by email or post to the web.