Virgin Atlantic Airways Ltd.’s new chief executive officer has given himself two years to cut costs and restore Richard Branson’s best-known brand to profitability without damaging its reputation for doing things differently.
Craig Kreeger, who took over as CEO on Feb. 1, plans to freeze capacity, review staffing levels and squeeze the maximum benefit from an accord with Delta Air Lines Inc. (DAL:US) while retaining the U.K. company’s unique appeal, he said in an interview.
“My focus is to ensure the things we’re investing in are the things that drive the hipness, coolness and customer experience that define Virgin,” Kreeger, 53, said in Edinburgh. “We need to find ways to save money elsewhere, but we have to find ways to keep the energy alive that differentiates us.”
Virgin Atlantic, which has lured passengers with in-flight massages, motorcycle pickups and lounges modeled between a golf resort and trendy hotel, lost 80.2 million pounds ($122 million) in fiscal 2012. A return to profit in the year through February 2015, while requiring “a great effort,” is achievable, Kreeger said yesterday after his first public appearance as chief.
The American, who joined Virgin after almost three decades at AMR Corp. (AAMRQ:US), said the focus of his first year in charge will be to “get the foundations right.” Virgin will avoid capacity gains, the CEO said, with revenue growth coming instead from the pact with Atlanta-based Delta and its first domestic services.
Best-known for its flights to New York and the Caribbean, Virgin has added three routes from northern Britain to London Heathrow to restore feeder traffic lost when partner BMI merged with British Airways (IAG) last year. The Delta alliance, under which the companies plan to share costs and revenue and coordinate schedules, comes after the U.S. carrier paid $360 million for a 49 percent stake that had been held by Singapore Airlines Ltd. (SIA)
“The real big revenue upside for us is increasing the connectivity in our network and strengthening our ability to sell effectively in the U.S. from the Delta partnership,” Kreeger said. “Those things will be more significant next year than this, which is one of the reasons it’s a two-year plan.”
Henry Harteveldt, an analyst at Hudson Crossing in San Francisco, said Kreeger must also spur innovation to satisfy Delta and stop Virgin falling behind Gulf and Asian carriers.
“The people in Atlanta didn’t make a donation to a charity,” he said. “Craig is going to have to find ways to reinvigorate Virgin Atlantic. With the standards and creativity coming out of some other airlines, the bar is being raised.”
Kreeger said that while Virgin has imposed a salary freeze for the year that begin March 1 and may also seek a small number of job cuts, there is no question of the Crawley, England-based company adopting a “shrink-our-way-to-success” strategy.
The CEO said he’s well aware of the need to “keep a sense of fun” at the Branson-controlled company, whose Clubhouse lounges have featured putting greens, hairdressers and shoe-shine booths, and which provided premium passengers with speedboat trips down the River Thames to avoid London’s traffic.
“This is a short-term blip and we have a plan to return to profitability,” said Kreeger, who was born in Little Rock, Arkansas and went to university in California. “Not offering a pay rise was one of those actions, but it’s not long-term sustainable. There are no plans for wholesale redundancies.”
The addition of 10 new Airbus SAS A330 planes over the past 12 months will trim costs this fiscal year, as will the delivery of 16 Boeing Co. (BA:US) 787 Dreamliners starting in September 2014.
“We’ve got a great opportunity to see huge savings associated with fuel burn,” Kreeger said. Virgin Atlantic hasn’t disclosed any costs from the 787’s recent grounding with battery glitches, which has forced some carriers to shuffle their fleets to plug gaps, spokeswoman Sarah McIntyre said.
Kreeger said that his time with AMR’s American Airlines, including six years in London coordinating a venture with BA that has squeezed Virgin’s market in recent years, stand him in good stead to extract full value from the Delta deal.
Delta and Virgin said yesterday they’ve filed an antitrust immunity application to the U.S. Department of Transportation to allow joint operation of 31 peak-day round-trip flights between the U.K. and North America. The filing also seeks permission for five-way coordination of North American flights to include Delta ally Air France-KLM Group (AF) and Alitalia SpA of Italy.
Julie Southern, Virgin’s chief commercial officer and once seen as a likely replacement for former CEO Steve Ridgway, also said in Scotland that Kreeger’s American nationality is “useful” and that his work on the BA-AA tie-up may prove invaluable.
“He’s able to bring us an insider view of some of the do’s and don’ts of getting those kinds of JV arrangements sorted, which is really a key focus,” she said. “He can short-circuit some of the learning for us and that’s fantastically useful.”
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