Virgin Group's US operations have come a long way since they started...
Virgin Group?s US operations have come a long way since they started out in the USA eighteen years ago in a brownstone building in the West Village in Manhattan. Back then, some of the staff slept and showered just feet away from the desks they worked at. These days the group?s US unit is pushing for the creation of a US domestic airline and expanding its travel agency.
Last month when Sir Richard Branson, the group?s founder, announced that he planned to take it public, he disclosed that $500 million of the proceeds were earmarked for US expansion. However, Virgin Atlantic will report about a 90 million pound ($135 million) loss for the year to May. Flight sales at the airline, which had already started to slump in May last year, were cut in half after September 11? unsurprisingly as about sixty seven percent of its flights are on the carriers trans Atlantic routes.
The airline responded swiftly, cutting routes to Toronto and Chicago and stripping out one flight a day from London to New York. ?Capacity was cut by 20 per cent,? says Chris Rossi, vice-president of sales for North America. Virgin also cut jobs. Sales of tickets between the UK and US are still down by 20 per cent.
Along with other airlines, Virgin has suffered as struggling corporates cut back and opted to send their employees in less style.
Meanwhile, British Airways did its best to compete for the remainder who would pay, aggressively advertising its fully-reclining business class bed-seat and upgrading its cabins to the tune of $200 million.
Virgin seemed slow to respond. ?They?re assuming that flat is best,? argues Rossi, ?but they are discounting that the aircraft flies at an angle.? The Virgin seat is said to beadjustable to anyone?s physique.
For the future, a new Virgin makeover is in the pipeline. Over the next 12 months, Upper Class passengers on the New York, San Francisco and Los Angeles routes will see a $100 million upgrade. State-of-the-art lighting will ease them between time zones by simulating dusk and dawn. The ?Freedom? menu, will allow passengers to eat when, what and how often they wish.
Pampered Virgin passengers will even be offered sleeper suits, although they may feel somewhat out of place among the John Rocha-clad flight attendants and the slick new cabins with chrome and red leather.
The company has also done its best to capitalise on the recent preference for economy, introducing ?Premium Economy? seats on its new Airbus A340-600, to be rolled out this month. The seats have leg rests, bigger TV screens and ?on-demand? entertainment systems with 300 hours of movies and 20 music CDs.
Virgin hopes that it will be able to launch a domestic airline in the US, similar to Virgin Blue, the carrier?s successful Australian domestic airline. The company has long campaigned to end rules that prevent foreign carriers from operating a domestic service in the US. ?We want complete open skies,? says William King, senior vice-president of North America for Virgin Atlantic, adding with frustration: ?You can own 49 per cent of an airline here but you can?t have more than 25 per cent voting shares.? There is no sign as to when things might change but Virgin is encouraged by recent comments by Donald Carty, chief executive of American Airlines, the world?s largest Airline, in support of the open skies approach.
In the interim the company is expanding Virgin Vacations, its US tour operator, to offer holidays within the US. Previously, the unit sold only trips to Europe for Americans. By capitalising on relationships it has built with hotels in Las Vegas and Florida through the UK end of the tour operator, the company hopes to achieve cost savings and provide good deals.
A further $162 million has been pledged for Virgin?s mobile telephone joint venture with Sprint, the US carrier. Virgin has also heavily invested in security since the September terrorist attacks, strengthening its flight deck doors with armour plating used by the military and introducing closed-circuit television.
?We have increased spending on security in the US by 35 per cent and it was in seven figures prior to that,? says Todd Pawlowski, vice-president of customer services in the US.
In the US, where Britishness is a hot commodity, British Airways has an obvious advantage. Virgin has attempted to counter it with its Union Jack wing tips and UK-themed advertising campaigns such as the recent ?Lovin? London? one.
As important for attracting US customers, says Pawlowski, is attitude. ?We don?t take ourselves too seriously and we try hard to avoid bureaucracy. We tell our check-in agents to take a walk around the airport, observe how other airlines are doing it and do the opposite,? he says.
The group?s renewed push into the US, however, will prove a little more costly than a positive attitude. But a series of eight flotations of Virgin companies over the next eight years are pegged to generate $2 billion in cash.
It will be Sir Richard?s second attempt at taking Virgin Group public. The first, in the mid-1980s, lasted just under two years before he de-listed,disillusioned with the fickleness of investors. But with Virgin Atlantic?s continued struggle and the poor performance of some of his other businesses, Sir Richard seems to have little alternative. There are no short-term plans to float the airline but the funds generated by other public offerings will help to support it.
Virgin executives are offended by rumours of a cash crisis, in the wake of Sir Richard?s plans to raise money. ?Flotations raise money, that?s a good thing,? says Pawlowsky. Indeed, things are looking up, they say. The airline made an operating profit of £5 million in it?s last quarter of 2001. Over the summer it will increase capacity by 5 per cent, though it will remain down 15 per cent from pre-September 11 levels. And it is hiring 300 cabin crew and check-in agents in the US over the next few months.
Considering Virgin?s modest beginnings in the US, the optimism is unsurprising. As far as King is concerned, times might be tough but things have been far worse. ?I used to get laughed out of travel agents? offices,? he recalls of early attempts to find vendors for Virgin flight tickets. ??Virgin?? They would say, ?what kind of a name is that??.?