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Virgin Atlantic Hones CEO Hunt to Turn Popularity to Profit

October 26, 2012

Virgin Atlantic Hones CEO Search to Turn Popularity Into Profit

Virgin Galactic's private SpaceShipTwo spacecraft, left, and a Virgin America Airbus A320 plane sit on the tarmac at San Francisco International Airport in San Francisco. Photographer: David Paul Morris/Bloomberg

Virgin Atlantic’s next CEO will inherit a brand more popular than profitable as the company seeks to regain its competitive edge over rival British Airways. (IAG)

The airline named travel brand of the year by the Chartered Institute of Marketing may decide before Dec. 25 between one insider and industry candidates to replace Chief Executive Officer Steve Ridgway, the CEO said.

“Their brand is massive, but the airline is relatively small,” Charles Stanley Securities analyst Douglas McNeill said in an interview in London. “There’s a distinct lack of scale.”

Ridgway’s replacement will need to reinvigorate a business battered by the global economic downturn, rising fuel prices and fast-consolidating, better-connected rivals. Virgin Atlantic posted a loss of 80.2 million pounds ($129 million) for the year ended February and has delayed adding bigger planes. The carrier has also cut unprofitable routes to destinations including Nairobi, Kenya, and Kingston, Jamaica.

Candidates to replace Ridgway, 61, include Julie Southern, Virgin Atlantic’s 52-year-old chief commercial officer. Southern joined the airline in 2000 as an executive director and was promoted within three months to chief financial officer, a post she held for a decade. Rob Fyfe, 51, who will step down as Air New Zealand Ltd. chief executive officer at the end of the year, could also be among the people considered, the Sunday Times reported on Sept. 9.

Virgin Culture

“The Virgin culture is definitely very important,” founder and majority shareholder Richard Branson said on a flight from Delhi to Mumbai. “We have people internally who would be very, very capable of doing the job and good external candidates as well.”

The airline may make a decision before Christmas, Ridgway said in an interview in India where Virgin is reinstating a daily flight between London and Mumbai. “I’m hoping we can find someone with either good experience or great ideas.”

Branson said Virgin Atlantic is seeking extra Heathrow slots and applying for more routes to India, where it will invest 300 million pounds.

Virgin Atlantic’s executive search company will probably present a short list of around eight internal and external candidates, to be whittled down to as few as three for interviews, according to Rick White, whose agency has helped companies including Monarch Airlines Ltd. hire executives.

Enlarged Rivals

The merger of BA with Iberia in 2011 and a trans-Atlantic agreement to coordinate schedules and prices with American Airlines ramped up the competitive pressure on Virgin Atlantic out of London’s Heathrow airport, Investec analyst James Hollins said in a telephone interview. BA also added scarce slots at the airport with the purchase of short-haul airline BMI in April, boosting its control of the hub to 53 percent.

“They have to compete with BA and American and that’s a bigger, scarier beast to deal with,” Hollins said. “BA out of Heathrow terminal 5 is very competitive, very well-marketed and then if you look toward the Middle East you have well- capitalized and young fleets.”

Branson tried to gain control of BMI only to be trumped by BA’s 172.5 million-pound offer. The company has sought to replace feeder traffic by adding flights to Heathrow from Manchester starting in March and lost out to EasyJet Plc (EZJ) over connections between London and Moscow.

Attempts to join alliances or develop partnerships have been unsuccessful, though Branson has said he’d consider selling shares to facilitate a deal and Singapore Airlines Ltd. (SIA), a 49 percent owner, has indicated it’s willing to give up the stake.

Making Money

“You can argue that they’ve tried to sell, but it hasn’t worked, so maybe the brief for whoever takes over will be to just get it to make money,” Charles Stanley’s McNeill said.

Virgin Atlantic had a pretax profit of 18.5 million pounds in fiscal 2011, following an operating loss of 132 million pounds the previous year, when a volcanic eruption in Iceland shut down Heathrow for several days.

“The European airline industry has had everything thrown at it imaginable,” Branson said. “The government has allowed airports to increase charges way above inflation, they’ve taxed the passenger more and more every single year, fuel prices have gone through the roof.”

Furthermore U.S. carriers including AMR Corp. (AAMRQ:US)’s American Airlines, United Airlines, Delta Air Lines Inc., US Airways and Northwest Airlines have reorganized under bankruptcy protection.

U.S. Woes

That allows them to “get rid of all their historic costs, dump all the leases they don’t like and renegotiate all their contracts and that’s something a British company doesn’t have the luxury of ever doing,” Branson said. “Steve’s going to be a difficult act to follow.”

The airline started the process to select Ridgway’s successor in July and ensure a smooth handover before his retirement early next year.

“We’ve been through several recessions that we’ve had to navigate our way through,” Ridgway said. “There’s never a right time to go and you never particularly go when it’s a good or bad time, you just go when it’s right.”

Ridgway took over as CEO in October 2001, having emerged from a group of executives dubbed the “six pack” who led the airline in its early years. Over the course of 23 years, the executive has witnessed the carrier grow from two 747s to a fleet of 40 long-haul aircraft that will include Boeing Co. (BA:US) 787 Dreamliners by the summer of 2014, Ridgway said.

Spa and Champagne

Under his stewardship Virgin Atlantic’s red uniforms, new- age entertainment systems and service hearkening back to the golden age of flying -- afternoon tea, spa treatments and Lanson Black Label Champagne -- set a standard for innovation.

Though the Virgin brand is well-known, the airline’s scale is modest in industry terms. BA, Heathrow’s largest operator, carried 51.7 million people in 2011, over eight times more than Virgin Atlantic. It’s the third-largest long distance carrier departing out of Heathrow with 3.3 percent of the airport’s slots, the same as Irish carrier Aer Lingus Group Plc. (AERL)

“Virgin Atlantic requires good operations to manage the fuel and capital management to manage the upgrade of the fleet,” Hollins of Investec said. “That takes good relationships and someone with a huge appetite for hard work; the next person needs to be in there for the long term.”

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


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