Executive Interview
VIRGIN ATLANTIC SEEKS STRONGER ASIA-PACIFIC PARTNERSHIPS
Virgin Atlantic’s Asia-Pacific network has been shrinking as competition and rising costs forced the closure of several routes. It believes stronger alliances with its partners will keep Virgin Atlantic flying – and profitable – in the region.
September 1st 2015
When Stephen King, 35, took charge of Virgin Atlantic Airways’ Asia-Pacific operations in October 2014, the iconic UK carrier was in the midst of downsizing, and it hasn’t stopped since. Read More » Thirty-one-year-old Virgin Atlantic Airways hopes to return to profitability this year, with a projected £50 million ($78.5 million) to feed its bottom line, King told Orient Aviation in Hong Kong.
King is a Virgin Atlantic loyalist. Before he took up his Hong Kong-based position with the carrier, he held several senior management positions at the airline, where he started as an analyst at its London headquarters. Before his move to Hong Kong he was country head for India, based in Delhi. In his new job, he oversees Virgin Atlantic’s regional operations and revenue, which some might say is an easy task, given Virgin has pruned its Asia network to one daily service each to Delhi, Dubai, Hong Kong and Shanghai out of Heathrow London.
Sydney and Tokyo had to go last year as costs were cut, following five years of episodic performance that resulted in accumulated losses of £249 million ($391 million).
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| Virgin Atlantic rebuilding in the region via airline partners |
King said his new turf was “a tough market” and the only way to expand market share was to forge stronger partnerships with local carriers. King wants to deepen Virgin Atlantic’s partnership with Air New Zealand (Air NZ), which is its primary codeshare partner for flights from Shanghai/Pudong to the Pacific. He also wants to strengthen ties with Virgin Australia in which both Virgin and Air NZ have equity.
Shanghai serves as Virgin’s gateway to the Mainland. From Pudong, the carrier relies on partner, Air China, for onward journeys into China. King said “logistical challenges” at Pudong, including a three-hour minimum connecting time between flights, deterred some passengers, as well as China’s strict visa regulations. Beijing was on Virgin Atlantic’s radar, he said, but access and over capacity were issues as Air China flies double daily between London and Beijing and British Airways has a daily Heathrow London-Beijing service.
As it stands, Virgin has no plans to branch out further in the Asia-Pacific. “We’ve got to focus on what works for us, and give up what doesn’t,” said King. Numbers from Tokyo just “didn’t add up anymore toward the end” and so the Narita link, in service since 1989, was axed last year.
Hong Kong, however, is profitable with the numbers during the peak summer season looking better than 2014. King is working to change the departure of Virgin Atlantic flights to Hong Kong so they arrive in Asia mid-afternoon, which would allow passengers to transit to more Mainland-bound flights.
Virgin Atlantic is carrying out a complete overhaul of its long haul fleet. It is replacing its eleven A340-600s with Dreamliners. The first B787-9 arrived at the airline last October and there are now six of the aircraft in the fleet. Another eleven are on order with five options. The options are likely to convert into firm orders, said King.
“I’ve received a lot of emails congratulating us on the 787 since we introduced it to Hong Kong in early July,” King said. Virgin’s B787s have 234 seats: 31 in Upper Class, 35 in Premium Economy and 198 in Economy. Virgin was the world’s first airline to offer a “wander wall” in Premium Economy. Developed to reflect the design of the Upper Class bar, the social space offers a mini fridge, a water fountain and a self-serve area where passengers can help themselves to snacks and refreshments. “It gives passengers a destination, someplace they can go that’s not the bathroom,” said King.
With more B787s coming into the fleet, Virgin will phase out its B747 operations at Heathrow by 2018. If any B747s remained by then, King said, they would be transferred to the airline’s Gatwick hub.
Interestingly, 2018 is the year the carrier is scheduled to receive six-on-order A380s, already deferred once from 2017. King was cryptic when asked if the order would be fulfilled. He said a final decision would be made by the end of this year.
“It’s hard, but not impossible, to see a world where we want to take the aircraft,” Virgin’s chief executive, Craig Kreeger, said in 2014.
King stressed to Orient Aviation that Virgin Atlantic operated a point-to-point business model. Perhaps that was a hint about Virgin’s A380 inclination, given the super large aircraft is marketed as most suited to airlines with extensive hub systems such as Dubai’s Emirates Airline.
He was reluctant to comment on the Gulf versus U.S. carriers Open Skies dispute. However, he conceded Mumbai loads and yields were no longer sustainable after Middle East airlines increased capacity into India. As a result, Virgin Atlantic followed Delta’s lead and exited from Mumbai in 2014.
That said, Delta Airlines remains Virgin’s most significant partner. Delta bought 49% of the British carrier after Singapore Airlines, who had been looking for a buyer for four years, sold its 49% Virgin Atlantic holding in 2012.
The Virgin Atlantic-Delta Airlines transatlantic joint venture, which has been in service since January 1, 2014, contributes more than four million passengers a year to Virgin’s manifests. It is a significant number given that Virgin Atlantic carried of 6.1 million travellers last year.
No wonder Virgin Atlantic founder, Sir Richard Branson, said last June that his carrier would “be in real trouble without the strategic support from Delta”.
As Delta expands its sphere of influence in the Asia-Pacific region, especially through its growing links with Shanghai’s China Eastern Airlines, Britain’s second international carrier would benefit from the U.S. airline’s expansion.
