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RICHARD BRANSON CLEARS THE RUNWAYS
Selling his music group will help his Virgin Air battle British Airways
`Too many entrepreneurs have gone down because they were not prepared to cash in their chips at the right time," says Richard Branson. On Mar. 6, the irrepressible 41-year-old Briton took his own advice -- and hit the jackpot by selling his Virgin Music Group to Thorn EMI PLC. The price: a staggering $ 880 million in cash, $ 540 million of it for Branson. Hardly the type to retire to his tropical island (he owns one), Branson is bubbling with ideas for spending the windfall. His top priority: Virgin Atlantic Airways Ltd.
Branson now calls the scrappy little carrier his "first love" and vows to "put in the time, commitment, and whatever money it takes to make it work." With more than $ 500 million in his pocket, that's some promise. Founded by Branson in 1984 with one 747 flying from London to Newark, Virgin has grown into a $ 500 million carrier. The course has hardly been smooth: Buffeted by the recession, the airline lost $ 5.2 million before taxes in fiscal 1991, ended July 31.
MOVING IN. Nonetheless, Branson has mapped out a plan to double his fleet to 16 planes by 1995, and to add a half-dozen new routes, including London to Johannesburg, Chicago, and San Francisco. To fund the expansion, Branson, who owns 90% of Virgin Atlantic, had been seeking an investor to put up $ 95 million for a 20% stake. Now he may use Thirn money instead. His windfall could also go toward a few used 747s now available at bargain prices.
With the Thorn money, Branson could turn Virgin into more than a mere annoyance for British Airways PLC, its $ 8.6 billion archrival. "BA can no longer hope that Virgin will simply disappear," says Sir Michael Bishop, chairman of British Midland Airways Ltd. Branson intends to limit Virgin to just 12 routes, but those account for the lion's share of BA's profits. He figures the London-Johannesburg run alone generally brings BA operating profits of $ 55 million and says he plans to move in on that route this year. BA is expected to post pretax profits of about $ 500 million in fiscal 1992.
In designing Virgin, Branson drew lessons from past flops. He figures that People Express Airlines Inc. and Sir Freddie Laker's Skytrain, for example, erred by courting the unprofitable backpacker set. When major carriers cut prices, the upstarts were left with a similarly priced product and poorer service. Virgin's motto, if it had one, might be: "superior service at competitive prices." Economy fares are similar to rivals'. But Virgin offers seat-back TV sets, toiletry kits, and free headsets.
The key to Virgin's success, though, has been its Upper Class service. The price is comparable to BA's business class, but Upper Class offers near-first-class comforts. Seats are the full-sleeper type used in first class. Drinks are free. So is limo service. And on some flights, free neck massages are offered.
Upper Class has won Virgin many plaudits. Executive Travel, a British magazine, hands out a prestigious set of awards every year based on a passenger survey. Winners have included Singapore Airlines and BA. But Virgin has won "Best Airline" two years running, and this year swept most of the top categories. BA won only such uninspiring awards as "Best In-Flight Magazine."
NASTY RUMORS. The rivalry between the two airlines has built to a fever pitch. Last year, the British government riled BA when it took four of its landing slots at Tokyo's Narita Airport and gave them to Virgin. Since then, Branson has charged BA with waging a dirty-tricks campaign to discredit his carrier. He alleges that a BA public relations adviser promulgated rumors that Virgin had weak finances and that BA tried to pirate Virgin passengers at the airport. BA's aim, says Branson: "To get rid of a competitor." BA declines to comment. But Branson vows legal action, perhaps an antitrust suit, unless BA apologizes.
Virgin's expansion is hardly risk-free. Other carriers have started as niche players, become dazzled by expansion, and crashed. Says Branson: "We're not planning to get delusions of grandeur." That's wise, considering that Virgin faces a dearth of available slots at busy Heathrow Airport. And U. S competition has gotten tougher. Virgin prospered in the late 1980s against ailing U.S. carriers. But now, American Airlines, United Air Lines, and Delta Air Lines have expanded, adding routes between London and the U.S.
Nonetheless, Branson shows no worry. He's hatching plans for a third class of service to be launched this spring. "It'll be business-class service at economy prices," he says. If it flies, a whole new crowd may become fans of Branson's enterprising little airline.Mark Maremont in London