New routes, innovations in technology and customer service, and a dynamic partnership with Delta are putting Virgin Atlantic on a fresh course.
A healthy economy makes for a healthy airline, says Virgin Atlantic chief executive Craig Kreeger. It is why he supports the expansion of Heathrow – although the company is headquartered on the edge of Gatwick – and the UK staying in the EU.
But Kreeger is also pursuing what he calls a “plan to win” – an economic model for the company that will cushion it from cyclical pressures and “allow it to survive the inevitable ups and downs of the airline industry”.
He doesn’t want to have to resort to any more “heroic” cost-cutting measures to secure the business’s future – and he has been keen to move on from the more tactical recovery plan to restore Virgin Atlantic to profitability that dominated his first two years in the role.
Now nearly three years in, the American CEO says: “The goal was to get through those two years with the business profitable at the end of it, having continued to improve our customer service ratings and our employee engagement scores.”
And at the end of December 2014, Virgin Atlantic posted profits before tax and exceptional items of £14.4m, compared with pre-tax losses of £51.0m in 2013 and £102m in 2012 – paving the way for a more strategic approach.
This has included making some difficult decisions such as the closure of Little Red, the short-haul operation running services between Heathrow and Manchester, Edinburgh and Aberdeen. The final flights were in September 2015, just 18 months after Little Red was launched.
Kreeger talks about adopting a “real game plan” to find revenue growth by focusing on routes; maturing its relationship with its joint venture partner Delta (which bought Singapore Airline’s 49 per cent stake in 2013); making cost savings from more fuel efficient planes – and buying some rather than leasing them; and taking a “fresh and thoughtful” look at how the whole business can run more efficiently, without it affecting customer service.
“We’re most of the way through our first year of a four-year plan. Our goal for the end of it is to have a company that continues to improve its profitability to the point where it is making the kind of earnings that a company our size actually should make, as opposed to the benchmark being zero,” he explains.
Power to the people
Repairing Virgin Atlantic’s balance sheet is one thing, and Kreeger says there is no debate within the company on the need for change, but he is concerned about the best way to keep people on board with the process. “We need to make sure we don’t compromise the things that make us Virgin Atlantic. We need to be extremely thoughtful about what decisions we make, and how we implement them,” he says. “But we can be very serious about the finances and have fun at the same time.”
The airline’s culture is something Kreeger gets asked about by a lot of business leaders, and he’s not about to “mess it up”, he says. But he struggles to explain what drives it. “It is some kind of combination of logic and science and magic that I can’t really put my finger on. It’s part of the heritage of this company.”
Competition is an ever-present part of that culture says Kreeger, 31 years after the airline was “created explicitly as a competitor” to British Airways. It always wants to “do things better for customers” he adds.
Another cultural value is having the courage to do things differently. “It’s about having a maverick side to business that’s not about keeping an eye on the competition, but asking ourselves the right question and creating what we believe in.”
But he is clear that the company’s people make the biggest contribution to the company’s spirit. Hiring the right people who have fun at work is self-sustaining, he says, as they inculcate new starters into the same environment. “We just have to keep that cycle spinning.”
We encourage our people to fix problems where they see them, even if they do that differently to what I would do
He draws a link between how employees rate the business and the customer experience, and emphasises the importance of empowering staff to do their job, saying that some inconsistencies in customer service are preferable if it means people can be themselves and create a true relationship with the customers they interact with. “We encourage our people to fix problems where they see them, even if they do that differently to what I would do.”
And that feeds back into Virgin’s approach to innovation. Kreeger is working hard within the organisation to boost some of the confidence that he believes it lost alongside falling profits to help this happen. But he’s also making sure there is the structure to facilitate creative thinking.
“We all think of innovation as this incredible ‘a-ha’ creative moment, with someone sitting off in a dark room dreaming up ideas. But most of the time I think it’s actually having a group of people together and asking them the right question,” he says.
Although Virgin Atlantic has trialled Google Glass and Apple watches as a way of getting check-in staff out from behind a desk so that they can engage more naturally with premium customers, Kreeger’s best example of recent innovation isn’t about technology at all. A group of employees were asked how the airline could make the holding area where passengers wait directly before they board for transatlantic flights more fun. “I had my own ideas – putting up a big television, maybe a coffee shop, and so on. But their conclusion was completely different: just don’t put people there.”
There was obviously a risk of delay attached to a strategy of calling people to the gate 15 minutes later – but the idea was tested, it didn’t affect on-time performance and customer satisfaction scores for boarding improved by 25 points.
Benefits of scale
There are plenty of examples of bigger innovation at Virgin Atlantic too. On the more experimental side, it is working with LanzaTech to create jet fuel out of manufacturing waste – although the biggest environmental contribution the airline is making is by replacing more than a third of its fleet in four years with more fuel-efficient and quieter models.
But on the technology front, it’s the airline’s partnership with Delta that is providing the impetus.
As a smaller company, it's harder for us to keep up on technology. Delta gives us the benefit of scale
Virgin is currently switching over to a clone of Delta’s passenger service system, which Kreeger says will both save money and improve capabilities. The system manages everything from making a booking and printing a boarding pass to checking in and printing a bag tag – and other systems, such as the frequent flyer programme, feed from that.
“As a smaller company, it’s harder for us to keep up on technology. Delta has the benefit of scale, so having them invest in developing new stuff and us being able to use it at cost is a nice equation.”
Delta has also contributed to Virgin’s turnaround by resolving its limited network reach and ability to sell successfully in the US. “We didn’t serve a lot of destinations [in the US] conveniently, except for the ones we flew to non-stop,” Kreeger explains. Now customers landing at New York’s JFK airport can connect to another 44 destinations, or those arriving into Atlanta can continue on to another 200.
Delta also has a very large frequent flyer programme and a significant number of corporate and travel agent relationships. “For the purposes of those agreements, we’re now a Delta aeroplane,” he adds.
But what about the fear that Delta is getting too much influence over Virgin, or, taking it a step further, that another great British brand is at risk of being lost to overseas ownership?
“That question has been ever-present, inside the company as well as outside, but the answer is clear,” says Kreeger. “Our behaviour must consistently reinforce that we are uniquely Virgin Atlantic. We’re not seeking to look like Delta, we don’t fly the same aeroplanes in the same configuration, and we do it in a Virgin Atlantic way.
“And the reason why I’m confident that is always going to be the case is because for this relationship to make sense for Delta, we have to still beat BA on this side of the ocean. There is a preference by British customers for a British brand and we only win for Delta if we keep honouring that.”
Actions speak louder than words though, which is one of the reasons Kreeger has set aside £300m to ensure that Virgin Atlantic is investing to improve customer service – and the customer experience. And so far the budget has covered improvements to food and snacks, putting in wifi on all planes, and adding a new lounge in Los Angeles.
Closer to home, Virgin has also added new routes from regional airports – the airline now flies from Manchester to Atlanta, Glasgow to Las Vegas and Belfast to Orlando, and Delta is helping to link Manchester and Edinburgh to JFK. But part of the reason for this is the lack of capacity from the UK’s traditional hubs at Heathrow and Gatwick, which Kreeger knows – by the time anything is built – won’t be resolved for the next 10-15 years.
Perhaps surprisingly considering Virgin Atlantic is based at Gatwick, and Heathrow is dominated by its arch-rival BA, Kreeger is in favour of expansion at the latter. “It is what I believe is best for the country. It has been demonstrated to be the preferred airport in and around London. It would be excellent for the economy and will bring more jobs and more commerce and more tourism as a result.”
He’s not so sure it provides the best outcome for Virgin, raising two “open questions”: how it’s going to be paid for, and how the additional capacity will be allocated.
On capacity, he wants fair competition that benefits UK customers, not “some arbitrary standard formula”. But he is vehemently opposed to passengers today stumping up the costs of extra capacity tomorrow. “The UK is already too darn expensive for our customers from a taxation perspective,” he says.
But his concerns about air passenger duty (APD) could be about to mount, regardless of the decision about the new runway, as he sees regional devolution as both a threat and an opportunity.
The UK is already too darn expensive for our customers from a taxation perspective
“It creates the potential for different rates in different regions. Scotland has made a decision that it’s going to decrease its APD and I wholeheartedly endorse that. Along with many other governments it has recognised the value that lower APD creates for trade and tourism. But without central government looking at this holistically, Newcastle will be next because otherwise it can’t compete with Scotland. And after Newcastle, pretty soon it will be Birmingham and Manchester.
“It might feel good to be promoting other parts of the UK,” he adds. “But if it adds to the cost of doing business and tourism in London, that’s bad for the UK economy as a whole.”
Kreeger applies the same argument to the UK staying in the European Union. He says he is “not comfortable” with the idea of an exit because the relationship with the EU “is great for the British economy”.
“We don’t fly to Europe, so there will be less direct impact on our business, but what’s good for the UK economy is good for Virgin Atlantic.”
Kreeger says it is his mission is to ensure the airline has a business that can compete successfully in an evolving environment. But he’d rather not put his “plan to win” to the test at the expense of a healthy wider economy.