The Takeoff Episode 02: How Startups Can Adapt and Pivot Sponsored This content is created collaboratively with one of our sponsors.
With both Virgin Atlantic and British Airways in stronger financial positions, it’s a good time for them to throw their weight around over Heathrow’s shortcomings.
Just days after Heathrow submitted its final plans to Sir Howard Davies’ commission showing a third runway would deliver £100bn of benefits to the British economy, it is perhaps unsurprising to find Craig Kreeger flying the airport’s flag.
Kreeger, who was parachuted into the cockpit of Virgin Atlantic 15 months ago to replace the long-standing Steve Ridgway, is chief executive of Heathrow’s second largest carrier and has a vested interest in ensuring Sir Howard makes the right decision when his final report is published sometime after next year’s General Election.
But when he talks about the need for a third runway at the London airport, the American-born Anglophile does not do so in pure self interest.
“The number one thing for me for the long-term success of the UK is to create a genuine hub here. And I’ve always believed the most economically rational way to do that is to take advantage of the fact that customers prefer to fly out of Heathrow than most other airports,” he smiles.
“The UK’s economic competitiveness relies on increasing direct connectivity to growth markets and this can only be achieved with one successful hub airport, which is currently Heathrow.
“The UK’s ability to compete with its European rivals for global trade will continue to be damaged without additional hub capacity.”
Kreeger has met Sir Howard twice to discuss the issues, and though he mocks that he is naïve about British politics, he is adamant when he says that “years of political wrangling” are not what the UK, nor the airline industry, needs come the final report.
“It is important that well-meaning but misguided proposals to create virtual or secondary hub airports are not made a substitute for much-needed capacity in a hub airport fit for the 21st century,” he goes on.
Kreeger cites Amsterdam as an example of how a proper hub can work, noting that, with its coverage of 26 cities across the UK, the city’s Schiphol airport is seen by many in the north of England and Scotland as their main hub for long-haul travel.
Ever the pragmatist, and conscious of Virgin’s significant operation at rival Gatwick, he is quick to point out that a third runway at Heathrow would not mean leaving the Sussex airport from which the Sir Richard Branson-backed airline was born in June 1984.
“It wouldn’t change our perspective at Gatwick at all,” he says. “There’s enough capacity shortfall in this country that one new runway won’t fundamentally be so big that it would eliminate the need for a Gatwick or a Stansted.”
Restricted capacity is just one of the challenges Kreeger has faced in his time running the airline but, listening to him speak, though important it is not the biggest challenge right now.
Instead, that particular hurdle has been returning the airline, which made a loss of £128.4m in the year to February 2013, to an even keel. He says he spent every waking moment of his first six months in the job thinking about how to implement a recovery plan and crafting a new management team.
That recovery plan was centred on a promise to return to profitability by the end of his second year in the job.
Last month, the airline announced a pre-tax loss of £51m in the year to December 2013, roughly half of what it made in the same period a year earlier, albeit made slightly difficult to compare due to a financial year-end change. Is he confident he can turn what is still a sizeable loss into a profit by the end of the year?
“We knew it would be a transition year and laid the ground work for what would be a successful 2014. The goal was to be above break even but, to be quite honest, given the progress we’ve made it will not be a huge amount above break even.”
Loss reduction has come through a string of measures from diversifying sources of revenue – from its year-old domestic service Little Red to its joint venture with 49pc shareholder Delta Airlines – and from a focus on cost.
Some 50 initiatives have delivered £45m of savings on an annual basis, without large-scale job cuts, which Kreeger insists are not on the agenda.
At the same time, the 54-year-old says his focus on “capturing the hearts and minds of our people and our customers” has been essential, noting that customer satisfaction scores have gone up in the period since he arrived.
Some of those hearts and minds were surprised when, just prior to Kreeger’s arrival, Virgin agreed Singapore Airline’s sale of its 49pc minority stake in the carrier to Delta for $360m (£214m), fearing an integration and loss of Virgin’s brand ethos.
“I’ll push back on the word integration,” says Kreeger, when challenged on this point. “Co-operation and co-ordination is the way I would describe our game plan.
And doing so in a way that makes it easier for customers to do business with our two airlines.” The joint venture between the pair only started in January of this year – following regulatory approval – but Kreeger says it would be foolish for both airlines to erode the Virgin brand.
“What Delta needs from Virgin Atlantic is to continue to compete with British Airways on this side of the ocean, and to augment their services to help them compete with American on the other side of the ocean.
“They cannot see us deteriorate our brand one iota. We know it’s our brand and our people and our style that allow us to compete with BA,” he continues. “What will happen is we will find ways to talk about our brands in a way that encourages people to want to try transiting across them – but Virgin Atlantic will be Virgin Atlantic and Delta will be Delta.”
Instead, the changes, to date, have been more subtle.
Since early April, Delta’s JFK-bound flights now leave from Virgin’s home at Heathrow Terminal 3, while in the US, Delta is contracted to help Virgin with ground handling and cargo services.
One area where critics have also pointed the finger is Little Red, the service launched in April last year, the brainchild of Ridgway and chief operating officer Julie Southern, who left last May after missing out on the top job.
Kreeger deflects questions as to how full – or empty – the Little Red flights are, known as “load factor” in the industry. “The real answer is it’s been building steadily and I’m now extremely comfortable with it. The rumours of its demise have been greatly exaggerated.”
Key to Little Red’s long-term success – Kreeger admits the £51m loss would have been lower had he not launched the four-route service – will be regional passengers from the north of England and Scotland transferring into Heathrow and on to long-haul flights. Those passengers are now appearing, he insists.
Part of his recovery plan is predicated on making more of its fleet, which will be made significantly easier come September, when Virgin receives the first of 16 Boeing 787 Dreamliner planes on order.
Although the much-delayed super efficient plane has existing features which will aid travel – such as less humidity and less vibrations – Virgin is planning on using the arrival to change the way it flies at least some of its passengers.
“You’re not going to see a pool or a private bedroom, but I think you’ll see a really nice product,” he says when asked what is in store for passengers in Virgin’s Upper and Premium Economy cabins.
Although the first part of his tenure has very much been about returning the airline to the black, when he talks about the arrival of the 787s – the first one will be in the air in November – there is a slight glint in his eyes.
The same is true when new routes are mentioned. “Further into China and parts of South America” are the answer when asked where he’d like to see expansion, one day.
But it is not long before the glint is replaced with the determination to return Virgin to profitability.
“There will be growth opportunities for us if we continue the path we’re on, but we need a second year of that, and we’re a little way away from considering much growth,” he says, reverting to the mantra.
A little more than one year in the job, Kreeger is keen to show that under him the airline – which celebrates its 30th birthday next month – is in safe hands; at the same time as perhaps wistfully hoping the hair-shirt routine is not necessary for too much longer.