Interview: Virgin Atlantic CEO on Loyalty and Low-Cost Competition

A little more than 30 years ago, a young, brash British entrepreneur named Richard Branson set out to create a fun, irreverent airline that would disrupt the established players — namely British Airways — and make air travel fun again.

By many metrics, he has succeeded. Virgin Atlantic is still around, and passengers tend to like it, awarding it relatively high marks for service and cabin innovation. In part because of Branson’s tireless willingness to promote his companies, Virgin Atlantic has a respected brand — perhaps stronger than British Airways.

But a brand can only take an airline so far. Travelers might love to criticize British Airways, but it has two attributes Virgin Atlantic does not: a strong frequent flyer program and a route network that can take passengers nearly everywhere. If British Airways doesn’t fly to a destination, its partners probably do.

For a long time — perhaps longer than was prudent — Virgin Atlantic hewed to its independent model. Even as British Airways received anti-trust immunity several years ago with American Airlines, Finnair and Iberia, allowing the airlines to share profits on transatlantic flights, Virgin Atlantic remained on its own, a niche airline focused on customer service.

In the end, it was an untenable position. And in early 2014, not long after Delta Air Lines bought 49 percent of Virgin Atlantic, a stake that had been held by Singapore Airlines, Virgin Atlantic entered into a joint venture with Delta. It was nowhere near the size of the British Airways transatlantic pact, but it gave Virgin Atlantic better scale to compete. For the first time, Virgin Atlantic could tap into another airline’s customer base — Delta’s flyers in the United States.

Now, Virgin Atlantic is going further. In July, it said it would join one of the biggest joint ventures across the Atlantic — a pact with Delta, Air France, and KLM. At the same time, Branson sold a major part of his formerly-controlling stake to Air France-KLM, with Virgin Group retaining 20 percent ownership. He remains the airline’s chairman.

The new ownership mix and joint venture should improve Virgin Atlantic’s ability to compete with Europe’s largest airlines. But it will be interesting to see if the airline can retain its unique culture and ethos as its strategy changes.

We spoke last week with Virgin Atlantic CEO Craig Kreeger at the Aviation Festival in London, an annual conference, to ask about the airline’s plans. Kreeger, a former American Airlines executive, joined Virgin Atlantic in February 2013.

When Kreeger started, Virgin Atlantic was facing three consecutive years of losses. Under his leadership, Virgin Atlantic has been profitable since 2014, though it recently warned 2017 might produce a loss, in part from a weakened British pound caused by Brexit.

Note: This interview has been edited for length and clarity. 

Skift: You’re joining the Delta/AirFrance/KLM joint venture, or JV. How will it affect passengers?

Kreeger: The way we think about the JV is about taking more passengers to more places. That sounds trite, so I’ll be more specific. I think for our British customers the biggest upside is a much better frequent flyer proposition. If you’re here in the UK, you’ll be able to earn and use Flying Club miles not just on Delta flights and Virgin Atlantic flights, but on Air France and KLM — giving access to a full range of places where our customers might want to go on holiday but they typically wouldn’t have been able to use their miles to do that.

For Virgin Atlantic, we’ll connect more customers over Heathrow between U.S. flights and European flights than previously. Those customers probably wouldn’t have taken Virgin Atlantic at all, and will now have a competitive alternative to fly via the UK to other places.

Those are the two big opportunities for us.

Skift: Are you saying loyalty is not dead? That frequent flyer programs matter?

Kreeger: Yes, I would say that’s a true statement, but I would go further than that. Look, we are the top-rated airline across the Atlantic, and we are for a reason: We provide something pretty good and pretty unique to customers. Therefore, when you combine a good loyalty proposition with a preferred service, they combine together to create more loyalty than just a loyalty program.

Skift: Does that means people tell you sometimes, ‘I wish I could fly Virgin Atlantic for the service, but I don’t because I want to earn British Airways points instead’?

Kreeger: I do get some of that. But they don’t actually tell me that last part [about British Airways]. It’s what the truth is, but they might not want to tell me.

The answer is yes. We do see here in the UK that having a smaller footprint — truly, we don’t fly everywhere you want to go — [is a challenge]. Being ubiquitous is actually an advantage in a loyalty program.

Skift: You’re unusual because you fly all widebody planes, and every route you fly is long-haul international. That means you have no Boeing 737s or Airbus A320s bringing passengers from Brussels or Paris or Madrid into your hubs so you can fly them to New York or Chicago. Is it a problem not to have what the industry calls short-haul feed bringing passengers to London or Manchester?

Kreeger: Well, we do have some short-haul feed. We have short-haul feed through Delta’s hubs on the other side. That’s one new form of feed we didn’t have prior to the Delta alliance beginning three years ago. That has been a huge impact on our business.

[In Europe,] we also have codeshare partnerships with some short-haul carriers. For example, with Flybe, which feeds primarily Manchester but a little Gatwick as well. And we get feed on an interline basis from lots of other airlines at Heathrow that aren’t partnered with British Airways. The combination of those things means we do have some, but we could use more. That’s one of the reasons the Air France-KLM deal looks like a good opportunity for us.

Skift: But you’re not going to go out and buy 100 A320s to feed your long-haul flights?

Kreeger: No. Unless Heathrow opens up and gives us the capability to add that feed — which might happen with a new runway — it’s not about whether you could or couldn’t afford it. It’s about whether it’s actually implementable. And it isn’t.

The reason why the attempt we made with Little Red to feed our network, in my mind, was unsuccessful was it didn’t have enough scale. We couldn’t add enough flights to make it competitive. When you’re flying short-haul only one or two times a day, it doesn’t cover the day very well. That was a big limitation.

[Editor’s Note: Between 2013 and 2015, Virgin Atlantic experimented with a short-haul airline called Little Red. It was technically not Virgin Atlantic — flights were operated by Aer Lingus — but planes were painted in Virgin Atlantic’s colors and tickets were sold by Virgin Atlantic. It flew from Aberdeen, Edinburgh, and Manchester to London Heathrow, where passengers would transfer to Virgin Atlantic long-haul flights.]

Skift: Does joining the big joint venture allow you to look at new markets that might not have been viable in the past?

Kreeger: I think it should over time. I don’t think we have anything we are explicitly planning for at this point. But over time when you do add feed or you create more revenue in existing markets and you attract more customers, it should open the capability for markets that might not have been successful prior.

Skift: With Richard Branson selling much of his stake, could the airline’s culture change?

Kreeger: I don’t see Richard stepping back at all. His financial interest will be reduced but his role in the company, I expect, will be exactly the same. I talk to him frequently and he’s, not surprisingly, an idea-generating machine. And he has been very clear that he intends to be doing the exact same thing he has been doing. Despite the equity stake being 20 percent instead of 51, he will continue to have governance over the brand and chairmanship of the brand.

Skift: It’ll take some time before Brexit sorts itself out regarding air rights, and whether the UK will retain Open Skies with the United States. But already, the value of the British pound has fallen against the U.S. dollar. Does this mean you’re selling to more American customers, because they’re more valuable to the airline than a couple of years ago?

Kreeger: The answer is a yes. It’s more responsive than active. We have benefitted greatly from having a very strong partner — Delta — in the United States, with great distribution breadth and strength. In a time period where we have seen a drop in British demand, although nowhere near as much as we expected it to, it was really easy to turn on an alternate source of customers and attract a bunch of new people to fly on us. That’s one of the great values of having partners.

Skift: Your airline has little official relationship with Virgin America, though you share a name and a brand. Virgin America is being absorbed by Alaska Airlines, and its brand is being retired. Did Virgin America help your brand awareness in the United States?

Kreeger: It’s hard to answer that question with a clear yes or no. It is clear that the Virgin brand is very strong on the West Coast. It was to some extent before Virgin America. That’s part of the country that quite naturally fits the Virgin brand — entertainment and innovation and small businesses — so the West Coast was already an area where Virgin Atlantic had done well. I have no doubt that Virgin America’s presence has certainly continued to keep the momentum that we were building. And we’re really thrilled to be adding flights. We just added Seattle, for example — a Virgin America city.

But I don’t have studies that can tell me if the Virgin America brand has helped the Virgin Atlantic brand or not. I suspect it has, but I always know that the Virgin Atlantic brand has been in those markets for quite some time and seems to be a natural fit.

Skift: Technological innovation has always been important to Virgin Atlantic. Three years ago, you gave employees at the London Heathrow lounge Sony Watches and Google Glass and they used the technology to interact with customers. How’d it go?

Kreeger: We had half of our people with Google Glass and half our people with Sony Watch. Our people very quickly got good with the Google Glass — at maintaining eye contact and only looking up at the Glass when they needed a piece of information. But we found with the watch that looking at your watch is the universe symbol for, ‘I’m bored with you.’ And it’s really not a very good customer service proposition for your customer service people to be telling your customers that they’re bored with them. The watch didn’t turn out to be good.

Google Glass turned out to work very well. Google is kind of un-investing in that product so we didn’t end up pursuing it further, though we would have, if they were supporting it. That one actually was a really good way of getting our people to engage with our customers. The good news is that having done that test, they’re pretty good at engaging our customers anyway, and they can go back and get data as they need it, rather than stay behind the counter. I still think there is room for technology and freeing up our people to do what they do best.

Skift: What’s next for innovation at Virgin Atlantic?

Kreeger: We’re right now a year and a half away from our next big aircraft delivery. We’ll start taking A350-1000 aircraft in early 2019. We’re continuing to evolve with what we put on airplanes. For us, innovation is not just about technology. Where we think about technology, we think about, how can we provide our people better tools to take care of our customers? We want to get more information about who they are and what they like, or have more ability to resolve situations in the moment. We think about technology as a means to augment the Virgin brand experience delivered by our people.

I think innovation sometimes gets viewed as, ‘I have a solution, let’s see how we can apply it to a problem.’ Actually, we have found the best innovation at our company happens when you start with a good problem — not with the solution.

Let me give you an example. We do a bunch of research on how customers are feeling at different points in the journey. Without a doubt, the low point in the customer journey for our airline was turning out to be after people have checked in, and they have gone to the gate, and they get in the gate hold area and wait for boarding. That area is not remotely a Virgin space. It’s an airport space. It looks like what Ellis Island probably looked like. There are a bunch of little tiny chairs and tables, with no light.

It’s not the experience we want for our customers. Yet it serves a purpose in giving people a place to go once they’ve been through the last security check. We asked our team, ‘how can we make this a more Virgin experience?’ The group came back not with what I was thinking — something glitzy and entertaining with lights, or a coffee shop. They came back with a very different solution. The solution was, call the customers to the gate 15 minutes later. The premise was that if you call them 15 minutes later, we will have already started boarding and they will just walk straight through the hold area and they’ll never even sit down. Therefore the solution to ‘how do we make the area more Virgin’ is not to put people in the area at all.

To me, technology is a great enabler of innovation, but sometimes it gets used the wrong way. In fact, you can make the argument that our experiment with the watch and the Google Glass — with companies that came to us and said, ‘you guys should use this technology,’ — was not the correct approach. [It could have been,] how can we make things better for customers? Start with that and then figure out if the technological solutions.

Skift: What are your thoughts on personalized service? Airline executives often talk about how great it would be if flight attendants could guess what customers wanted. Perhaps flight crew might prepare a customer’s favorite drink and serve it automatically after boarding. Some people think it’s brilliant. Others call it creepy. What do you think?

Kreeger: We are on a journey to get better data in the hands of our front-line people. I think things like whether we know your order should be the customer’s decision. They can decide if that’s something they want their airline to do. But our people should know that you flew on us three times in the last 12 months and you had great experiences and you wrote a compliment letter, or that we lost your bag and you wrote us a complaint letter. We should know that and take care of you the next time. It’s just like I would do if I were running a restaurant.

Personalization I think is critical, but I think the levels of how much it is utilized should be the responsibility of the customer to give you the permission to make their experience better if they want it to be.

Skift: The technology already exists to offer on-board personalization. But few airlines do it. Why?

Kreeger:  It’s a great question. Airlines have an advantage that we’re very good with frequent flyer data, and as a consequence we already have a pretty good basis of information to do a fair amount of what I just described. But merging it all together? Different companies have grown at different rates with different technologies and getting them to talk together is a big project. And that’s why it takes awhile.

Skift: You have a new competitor on some of your long-haul routes from London. Norwegian Air is flying to many U.S. cities from Gatwick. How are you handling the competition?

Kreeger: I have always been of the view that low-cost and low fares were going to be an issue on long-haul. The fact that it’s Norwegian instead of someone else is today’s [issue]. But we have got to price in a way so that customers see our combination of price and experience as valuable enough that they choose to book on us. In some cases, that means matching almost exactly and in some cases maybe not. But in all cases, we have to take into account that they are there. This company was created 34 years ago as a competitor, not as an incumbent. We have a spirit of competition about us, and we are happy to take them on.

Skift: Could we get to a point someday where I fly Virgin Atlantic and I pay for my meals or my bags?

Kreeger:  You can never answer that question with ‘someday’ with anything other than a ‘the world can change a lot.’ But I would say, as you think about Virgin Atlantic, we really are about the experience. We have to find ways to make sure we deliver the value customers expect from our brand. We can’t be something that we aren’t.