Bloomberg News

Branson Trials Hubs as Virgin Links Bollywood to 5th Avenue

October 25, 2012

Branson Trials Hub Model as Virgin Links Bollywood to 5th Avenue

Having failed to persuade the European Commission to block the BMI purchase, Virgin is seeking Heathrow slots that the enlarged BA has been ordered to surrender in return for anti-trust approval. Photographer: Simon Dawson/Bloomberg

Richard Branson’s Virgin Atlantic Airways Ltd. is endorsing more than just the merits of India’s largest city with its resurrection of Mumbai flights this week.

The service is timed to arrive or depart London’s Heathrow airport within two hours of flights to and from cities including New York and Washington. That’s a change from a strategy based on single journeys and marks the emergence of a hub model aimed at snaring lucrative inter-continental transfer passengers.

Adding destinations east of London makes the best use of Virgin’s 88 weekly services from Heathrow to North America as trans-Atlantic routes attract increased competition from British Airways (IAG) and ally American Airlines. Passenger numbers on its existing New Delhi-London-New York service rose 20 percent last year, with gains spurred by a doubling in bookings from the U.S.

“As you grow, you get to a stage where you can’t just fill your planes on point-to-point passengers, you need some connecting passengers,” Chief Executive Officer Steve Ridgway said in an interview today at the British high commissioner’s residence in New Delhi. “You either build a network and have waves of short-haul flights like the Germans or the Dutch. The other way you can do it is you feed traffic from your own flights to your own flights.”

Market Recovery

The Mumbai service, which starts Oct. 28, marks Crawley, England-based Virgin Atlantic’s return to a route dropped in 2009 as traffic tumbled in the wake of terror attacks on three hotels in the city that killed more than 160 people.

Virgin, active in the Indian market since 2000, when it first flew to Delhi, also faced a squeeze from local operators including Kingfisher Airlines Ltd. (KAIR), which announced a daily London-Mumbai flight five months before the U.K. carrier exited.

The number of foreigners visiting India has since rebounded, growing almost 25 percent between 2009 and 2011 to 6.29 million, according to government data, and the number of Indians taking trips abroad is up by about the same proportion to 14.2 million.

While Mumbai was Heathrow’s 12th-busiest route last year, attracting 1 million passengers, competition has eased after Kingfisher halted flights following a strike by employees over unpaid wages. Other airlines flying directly between the two cities include British Airways and Jet Airways India Ltd. (JETIN)

Indian Growth

“India’s phenomenal growth continues to drive travel to the U.K. and the U.S.,” British billionaire Branson said in March. Fares are likely to increase by as much as 8 percent next year, according to a report this month from American Express Co.

The Mumbai route will be operated by Airbus SAS A330 wide- body planes, of which Virgin is due to receive six this year, featuring the carrier’s revised Upper Class layout and service, which including Lanson Black Label champagne, a new onboard bar and 6.5-foot flat-bed seats. The flight will be staffed by a mix of Indian and British crew.

The 9 1/2 hour flights from India will depart around 3 a.m. local time and arrive in London at about 8 a.m., with services departing the U.K. capital after 10 a.m.

“You have to have slot times that work and one of the reasons we’re going back into Mumbai is we now have got very good slot timings, much better than we had before,” Ridgway said. “We will now have what we call four-way connections.”

Expanding Network

“Suddenly our team in the U.S., instead of just selling London is now selling London and Mumbai and Delhi and conversely, the team here is selling London and all those destinations in the States as well,” he said.

Unlike network carriers such as British Airways, Deutsche Lufthansa AG (LHA) and Air France-KLM Group (AF), which have turned their main bases into hubs where passengers transfer between short-and long-haul flights, Virgin has generally concentrated on a point- to-point strategy focused on business and tourist routes that are busy enough not to require feeder traffic.

That model may make it more difficult to find viable new routes and has come under increasing pressure after an accord between British Airways, the top operator at Heathrow, to coordinate trans-Atlantic prices and schedules and share revenue with AMR Corp. (AAMRQ:US)’s American Airlines and Iberia of Spain.

That was followed in 2011 by a merger between BA and Iberia to form International Consolidated Airlines Group SA, which in April purchased Lufthansa’s U.K.-based BMI unit to take its share of operating slots at Virgin’s main Heathrow base to 53 percent.

Domestic Feed

Having failed to persuade the European Commission to block the BMI purchase, Virgin is seeking Heathrow slots that the enlarged BA has been ordered to surrender in return for antitrust approval. The positions would be used for its first domestic flights, from Scotland and northern England, sustaining feeder traffic that BMI had previously provided.

Virgin Atlantic, which is 49 percent owned by Singapore Airlines Ltd. (SIA), lost a bid to U.K. discount carrier EasyJet Plc (EZJ) to provide Moscow services. That would have allowed Virgin to connect with onward flights to U.S. cities including New York, Boston and Los Angeles that together accounted for 55 percent of revenue in fiscal 2012. Ridgway said Virgin may consider appealing the decision.

In embracing transfer travel, Virgin faces competition from larger European rivals and fast-growing Gulf carriers including Emirates of Dubai and Abu Dhabi-based Etihad Airways, which have built up hubs offering connections around the world.

In targeting the New York market, the new Mumbai service will also vie with United Airlines (UAL:US) and Air India, which offer direct flights between the cities. Spokesman Greg Dawson said Virgin will seek to make a virtue of the option of stopping off in Britain as an alternative to a single 15-hour trip.

“A lot of people like to break their journey and they will have family in London, so they can drop in, do some shopping and then hop on a connecting flight,” he said.

To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


Video Game Avenger
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • UAL
    (United Continental Holdings Inc)
    • $56.6 USD
    • 0.35
    • 0.62%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus