Branson pins hopes on new Virgin Altantic CEO to navigate Delta ties
Virgin Atlantic's new CEO Craig Kreeger will be key for its relationship with Delta.
Incoming CEO Craig Kreeger will be key to VA’s growth and working with its new part-owner Delta, especially as Richard Branson focuses his energies elsewhere.
Sitting by the pool of the five-star Taj Mahal hotel in New Delhi, outgoing Virgin Atlantic boss Steve Ridgway seemed pretty relaxed.
In the late October afternoon sunshine, the outgoing chief executive of Virgin Atlantic was keen not to give too much away about who his successor might be. Talking to The Sunday Telegraph about the future of the airline beyond his retirement – he steps down after 23 years at the Sir Richard Branson-backed airline at the end of February – he said little more than that a “global search” was underway, and he hoped to be able to unveil his successor before Christmas.
As it was, it was just after Christmas – last Tuesday, January 8 to be precise – that Ridgway named his successor as the largely unknown Craig Kreeger .
Kreeger, who just last year was promoted to his current role as senior vice president, customer, at American Airlines, where he has worked since 1985, was not on many external short-lists.
Despite not being well known outside the industry, his experience in both the US and the UK, and his knowledge of American’s tie-up with Virgin’s bitter rival British Airways, appeared to clinch the deal.
With an American set to run the airline in which US-based Delta Airlines will, by the end of 2013, own a 49pc stake in, expert watchers are wondering if Virgin is in danger of losing its up-start British roots.
There were certainly other candidates, such as Julie Southern, Virgin’s chief commercial officer. Standing next to the Delta CEO, Richard Anderson, at a press conference in New York on December 11, she looked every inch the next Virgin Atlantic chief executive.
Having flown to the US to explain why having Delta as a new shareholder – the US airline is buying the stake from Singapore Airlines for $360m (£223m) – would help the airline, Southern impressed many in the audience and took most of the questions.
She was one of a small short-list chosen by a tight-knit panel of five confidants of Sir Richard. Led by Peter Norris, Virgin Group’s chairman, the other members of the panel were co-chief executives, David Baxby and Josh Bayliss. Baxby also has responsibility for all Virgin’s aviation investments. The fourth and fifth members were rising Virgin star, Shai Weiss, who set up its Green fund, and Ridgway himself.
The process saw three internal candidates indicate their interest in the job late last summer. Southern was a clear contender, and it is understood Chris Rossi, senior vice president of Virgin Atlantic North America, also threw his hat in the ring.
The third internal candidate is known to have since left the business after not progressing through the process.
Senior sources indicate, however, that Kreeger was identified by head-hunter, Heidrick & Struggles, and early on in the four month process, Norris’s panel saw him as a real contender. Suggestions that Delta pushed for an American – or someone with deep knowledge of the US aviation market – are thought to be wide of the mark.
“Richard trusts the team who ran the process,” said one confidant of the Virgin founder, “and Julie was in the final few, but they felt that the transformation Virgin Atlantic is going to go through needed that extra level of experience [that Kreeger offers].”
The source compared the situation to when Brett Godfrey, founder of Virgin Blue stepped down, to be replaced by John Borghetti, a Qantas lifer. “With that in mind, he [Richard] was persuaded it is beneficial to sometimes bring in an external candidate.”
The billionaire entrepreneur is understood to have met Kreeger before Christmas and was impressed by his experience and ideas. “Richard liked the ambition and that he [Kreeger] was very complimentary of the Virgin brand and saw the benefits of it,” the source said.
Not everyone is convinced however, with Southern said by colleagues to be “very disappointed,” although it is not clear what her next move will be.
An experienced finance director, having joined as chief financial officer in 2000 from Porsche Great Britain where she held a similar role, she would not struggle to gain a similar high profile role in the consumer sector.
“The question has to be what happens to the internal candidates who were passed over,” said one leading transport analyst who asked not to be named. “The new CEO will want to put in place his own team.”
With Kreeger in the lead role and the Delta deal all but done pending regulatory approval, Virgin will have a clear North American focus in the future.
“I think the main thing it says is about the Virgin [in] the next 10 years than the last 10,” said one former Virgin director who asked not to be named. “American [Airlines] in my time were competitors but were not on the radar as one we admired. They’re a very different beast and it will be interesting to see what Kreeger does with the business.”
Key on Kreeger’s agenda – and presumably that of the Virgin hierarchy who chose him – is to ensure that the key strategic weakness in Virgin Atlantic’s offering is no longer a concern.
“By going for an outsider there is the intent to bring new thinking to the business,” said Gerald Khoo, transport analyst at Espirito Santo.
That strategic weakness is that in spite of the success of Atlantic – which flies between 5-6 million passengers each year – it has failed to capitalise on domestic US traffic.
As a result, the majority of business customers continue to prefer what is on offer from British Airways’ tie-up with American Airlines, rather than flying with BA’s rival.
“This is a significant step, appointing an American figurehead of a strong British brand that wishes to be seen as more of a global airline, especially with Delta,” said Paul Charles, a former Virgin executive.
“Virgin has hired for gravitas here in the US market, hoping to gain higher market share in the US to London and beyond. Virgin definitely becomes more corporate with Kreeger’s appointment, but perhaps it needs that to be taken even more seriously by US corporates.”
Kreeger, who is originally from Arkansas, played a role in fashioning American’s joint venture with BA. After being rejected by regulators in 1997 and 2001, the carriers’ long-held ambition of a tie-up across the Atlantic was eventually given approval in 2010.
The venture now controls about 50pc of the flights from the east coast of the US into Heathrow. “To bring someone who has an experience of dealing with an arch rival like BA will give them an inside track,” says John Strickland, an aviation consultant who runs JLS Consulting.
“The combined [Virgin/Delta] venture will compete much more strongly with BA/AA and then feed into Heathrow,” added one Virgin insider.
Virgin Group, which retains its 51pc stake in the airline, will expect Kreeger to bring past knowledge to bear as Virgin and Delta work out the best way to co-operate on flights across the Atlantic. Virgin will also be hoping to tap into Kreeger’s broader knowledge of the US airline industry and market.
“Success in the airline business lies in generating good demand at both ends of your routes,” says McNeill of Charles Stanley. “Virgin is quite reliant on traffic originating in the UK.”
Having worked in London for six years while at American, Kreeger knows he is joining an airline that has worked hard to establish a reputation for good customer service.
It is a reputation many American airlines have struggled to maintain in a decade beset by bankruptcies, labour disputes and rising fuel costs.
The key concern for many is what Kreeger’s appointment means for the Virgin brand.
Although Sir Richard continues to refer to Atlantic as his “baby”, insiders point out that he spends less and less time promoting the airline.
Whereas once he used to fly on all inaugurals – flights to new destinations – he now regularly meets the inaugural flight at its destination, using his own jet to ferry himself between business meetings and his increasing philanthropic commitments.
Concerns about the brand will be raised in the spring when Virgin begins its new UK domestic flights, aimed at funnelling passengers to Heathrow following BA’s purchase of BMI which meant the British flag carrier having to give up some domestic UK routes.
Virgin flights from Manchester will begin first – on March 31 – with three daily flights, followed by Edinburgh and Aberdeen in early April.
“Whether Virgin can replicate the Atlantic brand in-flight on some old Aer Lingus planes remains to be seen,” said one former director.
“There’s a real risk it hurts its brand with a sub-par service.” But Virgin sources dismiss this, saying the domestic routes are simply about delivering passengers to Heathrow and on to its global network.
On the subject of Sir Richard and the brand, insiders confirmed that his love for Atlantic remains undiminished, but at 62 it is understandable he might veer to things he has become more interested in, such as ecological issues and Virgin Galactic, which is due to send its first passengers into space later this year.
“He’s still the major shareholder and has a real personal affinity with the business,” Strickland said.
“He’s not planning the airline’s strategy day to day, but this on-going tough relationship with BA acts as a motivator. It’s deep history as far as he is concerned, and he’s not going to give up without a fight.”