Virgin Atlantic: From rock to runways

campaignlive.co.uk, Friday, 10 September 2004 12:00AM

In 1984, Virgin Atlantic had one plane and it wasn't even a new one. How times change, The Independent's Simon Calder says.

For marketing people, aviation can appear depressingly generic. Since the demise of Concorde, jet aircraft fly at more or less the same speed. Most passengers regard their experience as much the same as being consigned to hospital or prison: an ordeal that they hope will end as soon as possible.

Just look at those people shuffling on board the bog-standard Boeing 737 at Stansted. Some may neither know nor care whether they are flying on easyJet or Ryanair. All they want is transportation from A to B at the lowest possible fare, and that is all they get. As with any commodity, the brand is irrelevant.

The flying experience was blander still in the 70s, because international rules made it so. The airlines' club, IATA, stipulated everything from the minimum charge for the appalling plastic stethoscopes that served as in-flight audio, to the maximum dimensions of the salt and pepper pots in business class. Slogans such as "Iberia - where only the plane gets more attention than you" and "The Dutch feeling for perfection will greet you every time you fly KLM" were rendered meaningless by a bureaucracy designed to crush differentiation.

No time was wasted by travellers shopping around for the best deal, because every carrier flying a particular route was obliged to charge the same fare.

Indeed, inspectors were deployed to combat price-cutting, with large fines for airlines found guilty of trying to offer the public a better deal. Airlines were largely exercises in national prestige, run for the benefit of government and staff. Passengers looked in vain for anything more exciting than vanilla.

For transatlantic travellers, the stranglehold of uniformity was first loosened by Freddie Laker. His Skytrain operation between Gatwick and New York JFK offered fares about half the prevailing levels. Unfortunately for the soon-to-be-Sir Freddie, his rivals suddenly discovered they could match his airline's deep discounts, and within five years Laker Airways had gone bust.

Two years later, Virgin Atlantic was created to fill the space in the schedules - and, hopefully, the travelling public's heart - recently vacated by Laker. When, in 1984, Richard Branson announced he was to start an airline, most people predicted a short life expectancy. After all, if an aviation veteran such as Laker could fail, what chance for a young record tycoon who probably didn't know his EWR (Newark) from his LGW (Gatwick)?

Branson may have been a shrewd entrepreneur who had made a mint from such divergent acts as Mike Oldfield and The Sex Pistols, but to start an airline on the world's most prestigious international air route, from London to New York, was surely preposterous.

From a distance of 20 years, the trick looks just as baffling: someone from the music business convincing that most sceptical of audiences - transatlantic passengers - they really should switch from established traditional airlines. Furthermore, entrenched interests made life as difficult as possible for Branson. Under the arcane rules governing flights between the UK and US, Virgin Atlantic was initially permitted only to fly from Gatwick to Newark - the secondary airports at each end of the world's premier international air link. Furthermore, the infant airline had only a single, secondhand plane. Yet he managed to lure travellers away from British Airways and the two long-established (but soon to be history) brands of Pan Am and TWA.

Branson's showmanship, which grew up with the airline, was invaluable.

But it worked only because the product was genuinely original and recognised the aspirations of travellers.

A glance at the original Virgin Atlantic frequent-flyer programme showed that this was to be a radically different airline. In 1984, some transatlantic airlines had started to offer free flights in return for long-term loyalty by their most valuable customers. But Virgin Atlantic's offer was sensationally simple and seductive: buy one business-class ticket, get a free economy-class flight - for you, your partner or the guy down the pub - with no strings attached.

The business-class passenger was to be indulged and flattered. Voices of experience managed to dissuade Branson from labelling economy class "Riff Raff", but they wisely acquiesced to the master-stroke of describing the exclusive "bubble" on the Boeing 747 as "Upper Class" - and for his expansive plans for premium customers. In return for paying four or five times the corresponding riff-raff fare, passengers were to be royally indulged in Upper Class. With a limousine to pick them up at their home or office in London and take them to Gatwick, the Sussex airport did not seem too distant; and with another waiting at Newark airport, they could be in Manhattan while passengers at JFK were still in line for immigration.

Virgin Atlantic's rivals were livid. Upstarts usually try to compete with big airlines on price. The incumbent giants routinely swat away the competition by cutting fares to beat the new arrival. But much to the traditional carriers' dismay, Virgin Atlantic was to do something Laker never achieved: compete on quality. In 1989, Upper Class passengers became the first in the world to enjoy individual TV screens. Two years later, a dedicated sleeping cabin was introduced for premium travellers.

The emphasis on creating a better travel experience was just as strong in the cheap seats as in Upper Class. That first fine summer of '84, a couple of hundred thousand jaded transatlantic travellers found that the 3,500-mile long haul could actually be fun, with ice-creams distributed during the in-flight movie. The experience was never quite the "business-class product at economy-class prices" that Branson claimed at one stage in 1991, but it was better - by an order of magnitude - than what had gone before. That same year, every seatback in economy was fitted with a TV screen. Although most other long-haul airlines have now emulated this, there are still many middle-class households in Britain where the idea of flying with children across the Atlantic with any airline other than Virgin is regarded as absurd.

In most normal industries, the incumbents have all the advantages. Aviation is different. As a young airline, Virgin Atlantic has none of the excess financial baggage that continues to dog the older carriers such as British Airways. Deals struck at a time when fares were sustained at artificially high levels have become economic millstones: each time you buy a round-trip ticket on BA, £14 of the fare goes straight to bolster the company's under-strength pension fund. Newcomers have a cost advantage, but they need to add innovation to the mix: Virgin Atlantic conceived an executive lounge that looks less like a hotel foyer and more like somewhere that stressed business travellers might possibly want to spend some time - not least because masseuses and beauty therapists were on duty to transform the airport "dwell time". The airline's greatest advantage, though, was the ability to cherry-pick the most profitable destinations from the world's leading aviation hub, London.

Branson's airline has mostly expanded by the simple expedient of battling for government permission to fly to compete with British Airways on its highest-earning routes. The key development was in 1987, when BA took over British Caledonian, the ailing Gatwick-based airline. Suddenly, with a network amounting to two transatlantic routes - Newark and Miami - plus a small feeder operation from Maastricht in Holland, Virgin Atlantic found itself the UK's second long-haul airline. One consequence was that it earned the right to fly from Heathrow. Which is when British Airways got really upset.

As Martyn Gregory has documented, BA's exasperation at seeing competition on its most lucrative routes turned to subterfuge: staff delved into Virgin Atlantic's reservation system to identify premium passengers. They attempted to poach Branson's most valuable customers - using a combination of bribes such as free upgrades to first class for people prepared to switch to BA, together with fibs about cancelled Virgin flights.

That shabby episode tarnished BA, but it now competes fiercely and fairly with its much smaller rival. For three years from 2000, BA gained a definite business-class edge with its flat beds, forcing Virgin Atlantic to respond last year with the Upper Class Suite. Indeed, even if you refuse to fly Virgin Atlantic, you will reap the reward of competition. With Virgin to keep it honest - and innovative - BA provides more for less. Present-day economy class on British Airways is better than BA's business class 20 years ago, and the fares are much lower.

"If you're not having failures, you're not taking enough risks," is a standard piece of advice in business. No-one could accuse Virgin Atlantic of being a fault-free enterprise. The feeder operation from Maastricht to Gatwick, devised as a low-season filler, could have developed into Europe's first no-frills network a decade before easyJet got going; instead, it was ditched, for fear of tarnishing the brand. Short-haul routes from London to Dublin and Athens have come and gone, with no-one too sure about their precise proposition to the travelling public. Mid Class - an upgraded economy seat - confused travellers until it was rebranded as Premium Economy (a concept duly imitated by BA's World Traveller Plus). And a wide range of ideas, from a water-shuttle link from central London to Heathrow to in-flight jugglers, were tried but soon dropped.

Financially, running an airline is even more precarious than in-flight juggling. In the early days, Virgin Atlantic survived a series of cash-flow crises. By the tail end of the millennium, everything was looking good: a new identity was successfully launched; Branson improved his personal cash flow by half-a-billion pounds after selling off 49 per cent of Virgin Atlantic to Singapore Airlines, and his other aviation interests - Virgin Express in Belgium and Virgin Blue in Australia - were moving into profit.

But the attacks of 11 September 2001 traumatised aviation in general and transatlantic airlines in particular. Suddenly everything went into reverse: the two newest routes, to Chicago and Toronto, were ditched - as were 1,200 staff. Many businesses simply grounded their executives, and when they started travelling again they found themselves downgraded to the economy cabin. The few passengers in Upper Class, which had underpinned the whole operation since Virgin Atlantic's inception, found themselves with absurd amounts of space. And the independent airline was obliged to compete with US carriers that were being shored up with billions of dollars in Federal funds.

That Virgin Atlantic could escape from a seemingly fatal trajectory is a tribute both to smart management (the choice of Port Harcourt as the first new route after 9/11 was a hard-nosed swoop for oil business) and the brand that Branson built. He says he merely set out to "see if we could create the kind of airline that I would like to fly". And he did.

- Simon Calder is the travel editor of The Independent.

TIMELINE

1970: January - First commercial flight of the Boeing 747, on Pan Am

from New York JFK to London Heathrow

1976: January - Concorde enters service with Air France and British

Airways

1977: September - Laker Skytrain takes off from Gatwick to New York JFK

1979: June - The incoming Conservative government abandons the limits on

the amount of foreign exchange that British travellers can take abroad

1982: February - Laker Airways goes bust thanks to price-cutting by

rivals

1984: June - Virgin Atlantic starts flying from Gatwick to Newark

November - Virgin Atlantic starts flying from Gatwick to Maastricht

December - Virgin Atlantic ends the year with one aircraft, 169 staff

and a turnover of £19 million earned from 245,000 passengers

1985: February - Sterling falls to its lowest-ever level against the US

dollar: £1 = $1.07

May - The Sinclair C5, a mass-produced plastic car running on batteries

and selling for £399, is unveiled. By November, the company has

called in the receivers

1986: February - Margaret Thatcher and Francois Mitterand sign an

agreement to build a rail tunnel between England and France

April - Virgin Atlantic starts flying from Gatwick to Miami

October - M25 orbital motorway around London is completed

1987: July - British Airways takes over the UK's second-largest airline,

British Caledonian and Virgin Atlantic becomes the nation's number-two

long-haul airline

1988: December - A bomb placed on Pan Am flight 103 explodes an hour

after leaving Heathrow; the Boeing 747 crashes on Lockerbie, killing all

259 on board and 11 people on the ground

1989: January - Virgin Atlantic launches the first deep-discount

transatlantic ticket: a standby deal costing £89 from London to

New York, $89 (then about £55) in the other direction

May - First breach in the Iron Curtain; Hungary opens its border with

Austria

May - Virgin Atlantic starts flying to Tokyo, via Moscow

July - Virgin Atlantic's annual turnover has risen to £107m from

620,000 passengers; the airline has 1,034 staff

September - Virgin Atlantic starts flying from Gatwick to New York JFK,

its sixth route

1990: May - Virgin Atlantic starts flying from Gatwick to Los Angeles

1991: May - Virgin Atlantic starts flying from Gatwick to Boston

August - Virgin Atlantic gets permission to fly from Heathrow, and

transfers routes to New York JFK, Los Angeles and Tokyo

1992: May - Virgin Atlantic starts flying from Gatwick to Orlando; Mid

Class (rebranded 18 months later as Premium Economy) launches

1993: March - Virgin Atlantic starts flying from Gatwick to Athens

1994: January - Virgin Atlantic starts flying from London City to Dublin

February - Virgin Atlantic starts flying from Heathrow to Hong Kong

May - Virgin Atlantic starts flying from Heathrow to San Francisco

October - Virgin Atlantic's turnover exceeds half-a-billion pounds for

the first time: £503 million earned from 1.68 million passengers

by 3,278 staff

November - First scheduled Eurostar train departs from London Waterloo

to Paris

1995: November - Stelios Haji-Ioannou, a Greek millionaire, starts

easyJet, the first no-frills domestic airline in Britain

1996: June - Virgin Atlantic starts flying from Heathrow to Washington

DC

November - Sir Freddie Laker unveils Laker Airways mark two, flying from

Gatwick to Florida. It lasts less than a year

1997: June - Virgin Atlantic starts flying from Heathrow to Johannesburg

November - Virgin Atlantic A340 makes an emergency landing at Heathrow

after part of the undercarriage fails to deploy

December - A guidebook to Mars, three travel guides to Antarctica and

one to the Moon are published.

1998: September - Virgin Atlantic moves into the Caribbean with flights

from Gatwick to Barbados and St Lucia; Antigua follows a month later

November - Richard Branson announces a new no-frills domestic airline

for Australia: Virgin Blue

1999: June - Virgin Atlantic unveils new aircraft livery and a fresh

corporate identity

July - Virgin Atlantic starts flying from Heathrow to Shanghai

December - Virgin Atlantic ends the millennium with a turnover of £1.07 billion, 24 aircraft, 3.6 million passengers, 15 destinations and

6,592 staff. Richard Branson sells 49 per cent of Virgin Atlantic to

Singapore Airlines; ten days later he is knighted in the New Year

Honours.

2000: June - Virgin Atlantic starts flying from Gatwick to Las Vegas

July - Virgin Atlantic starts flying from Heathrow to Delhi

December - The number of people using Heathrow in a single year exceeds

Britain's population for the first time

2001: July - Virgin Atlantic starts flying from Heathrow to Lagos

September - Following the terrorist attacks in America, Virgin Atlantic

cuts capacity by 20 per cent; when Ansett Australia goes bust three days

after the attacks, Virgin Blue becomes Australia's second airline

2003: February - Virgin Atlantic starts flying from Heathrow to Port

Harcourt

May - Virgin Atlantic starts flying from Gatwick to Grenada and Tobago

2004: August - Virgin Atlantic announces an order for up to 26 new

Airbus A340-600s and predicts a doubling in size over five years

December - Virgin Atlantic plans to starts flying from Heathrow via Hong

Kong to Sydney; the airline expects to carry 4.4 million passengers in

its 20th year

This article was first published on campaignlive.co.uk

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