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Virgin Atlantic (UK)

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Virgin Atlantic is the flagship business within Sir Richard Branson's Virgin Group empire. It is the UK's second largest long-haul carrier behind British Airways, although it is considerably smaller than its rival, carrying around 5.5m passengers a year, compared to BA's 35m. Although widely identified with Branson himself it has in effect been a joint venture since 2000, when Singapore Airlines acquired a 49% shareholding. The airline's reputation as a challenger brand was established in the 1990s by a bitter public relations battle with British Airways, in which Virgin was able to demonstrate that the national carrier had mounted a behind-the-scenes campaign to destabilise the new upstart. The resulting publicity secured Virgin Atlantic's future. The Virgin Group has diversified since then, establishing separate short-haul airlines in Australia, Africa and the US, all as partnerships with other companies. Meanwhile, competition in the long-haul sector has remained challenging for Virgin Atlantic. At the end of 2012, Delta Air Lines of the US agreed to acquire Singapore Airlines' 49% stake, drawing Virgin into its SkyTeam alliance with Air France-KLM. The latter acquired man additional 31% stake in 2017. Virgin Group also has investments in airlines in Australia and other markets, and is continuing to pursue a long-held dream to launch commercial space travel under the Virgin Galactic banner.

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Virgin Atlantic celebrated its 30th anniversary in 2014. It now flies to 26 destinations in North America, the Caribbean, South and Central Africa and Asia, and is the UK's #2 long haul air operator behind (some way behind) British Airways. Despite its strong public image, Virgin Atlantic trails its larger rival by market share with just 5% of weekly flights from London's Heathrow Airport, compared to BA's 51%. Although closely associated with Branson's personal image, it has been co-owned since 2000 by much larger partners. That year, Branson sold a 49% stake in the business to Singapore Airlines for £600m. Those shares were in turn acquired by Delta Air Lines in 2012. Virgin has had codeshare and promotional partnerships with its larger partners as well as with South African Airways, US Airways, Air China and others.

Fierce competition between all the airlines led to a slump in 2000 and 2001, but despite continuing problems in the worldwide industry, Virgin Atlantic was back in profit by 2003. Passenger numbers peaked in 2008 and 2009 at 5.7m, before slumping back in 2010 to 5.3m. Since then there has been a slow but steady increase, and Virgin claimed 6.16m passengers in 2014. However cutbacks of less profitable flights led to a decline by 2016 to 5.4m. Its busiest routes by far are to and from the United States, which accounted for more than half of volumes. North America accounted for over 70% of revenues by destination and the Caribbean for a further 15%. The most lucrative are to the Far East, contributing just under half of operating income.

However the gradual consolidation among worldwide airlines has created a growing threat to Virgin Atlantic. The most serious blow was the merger of arch-rival British Airways with Iberia to create IAG, and that company's subsequent deal to acquire another major UK-based carrier, BMI. Over the years, Virgin had itself entered talks with BMI on several occasions to discuss closer co-operation, partnership or even merger, but no deal materialised. Instead, BMI was acquired by Lufthansa in 2008, and when put up for sale again in 2011, Virgin was trumped by a higher offer from IAG. Facing increasing marginalisation, Virgin Atlantic said it would even consider majority acquisition by a stronger partner. At the end of 2012, Singapore Airlines agreed to sell its 49% shareholding in Virgin Atlantic to Delta Airlines, for $360m. As a result, Virgin Atlantic became part of Delta's SkyTeam alliance with Air France-KLM. The latter was said to be considering the purchase of part of Branson's remaining holding to give SkyTeam effective control of the business. That finally materialised in 2017 when Virgin Group agreed to sell 31% of equity to Air France-KLM for £220m. It retains a 20% holding.

In Feb 2013, Virgin Atlantic launched new short-haul sub-brand Little Red to operate regional flights within the UK between London, Manchester, Edinburgh and Aberdeen, using slots formerly controlled by BMI prior to its acquisition by British Airways. The plan was to use the regional service to feed Virgin Atlantic's long-haul service, but take-up was limited and Little Red was shut down in Sept 2014.

Almost since its inception, Virgin Atlantic has fought a long and often bitter campaign against its much larger rival British Airways. That enmity results primarily from a "dirty tricks" campaign launched by BA in the 1980s. Since then Virgin has gone out of its way to repeatedly knock the larger company in its marketing. In 2003, Branson also campaigned to take over the Concorde service after it was marked for closure by British Airways and Air France. Inevitably that offer generated acres of press coverage for Branson, after which the bid was quietly dropped.

More recently, Virgin assisted an investigation into surcharge price-fixing in the industry by divulging information about British Airways that led to the suspension and resignation of the latter's commercial director. In fact, Virgin Atlantic had itself participated in the price-fixing before shopping the other members of the cartel in return for immunity from prosecution. However it was, along with the other airlines, the target of a subsequent class action lawsuit related to this matter. In 2008 Virgin agreed to join with the other members of the cartel to reimburse a total of $204m among all passengers who had bought tickets affected by the price-fixing arrangements. Later that year it renewed its verbal attacks on BA over disruption at Terminal 5, and in protest at the planned merger with American Airlines and Iberia. It has continued to complain vociferously over virtually every subsequent strategic move by BA.

Tour operator Virgin Holidays is a subsidiary of Virgin Atlantic. It launched in 1986, initially to resell seats on the main Virgin Atlantic routes. It now offers holidays in the USA, the Caribbean, the Far East, South Africa and Mauritius, and claims to be the largest and most successful transatlantic tour operator, and the market leader to the USA and Florida. Virgin Vacations is a sister unit based in the US offering travel packages to Europe. The UK-based Virgin Sun package holiday business, launched in 1998 to offer low-cost Mediterranean holidays, was sold to First Choice in 2001.

For calendar 2016, Virgin Atlantic Group reported a further 3% decline in revenues to £2.69bn. Net profit more than doubled to £187m, but that included significant exceptional gains from hedging of fuel costs and accounting adjustments. Underlying pretax profit rose 2% to £23m. The main airline accounted for revenues of £2.24bn and operating profits of £155m; Virgin Holidays added revenues of £607m but an operating loss of £1.5m. Revenue passenger kilometres were 37.1bn.

Several other airline businesses operate as separate entities under the Virgin Group banner. The biggest after Virgin Atlantic is Virgin Australia. It carried a total of 22.3m passengers in fiscal 2015, with a network of 47 destinations within Australia, and codeshare partnerships and alliances with Delta, Air New Zealand, Etihad and Singapore among others. This business was first launched in 2000 under the name Virgin Blue as a joint venture with Australian transport and logistics group Patrick Corp. Initially the local #3, it became the country's second-largest carrier behind Qantas following the collapse of rival Ansett in 2002. The company floated part of its equity at the end of 2003, with Virgin reducing its own stake in the business to just over 25%, although it retained effective management control, while Patrick was the biggest shareholder with 45%.

In 2004 the airline launched its first service outside Australia, flying to other South Pacific destinations under the Pacific Blue and Polynesian Blue banners. However this move coincided with a steep rise in oil prices, as well as a price-war initiated by a new low-cost spin-off carrier from Qantas. Virgin Blue announced two profits warnings during the year. As a result, Patrick, already a critic of Virgin Blue's over-expansion and pricing, launched a hostile bid to seize management control of the business and change its strategy. Despite opposition from Virgin Group, Patrick captured the necessary majority shareholding in March 2005.

A year later, Patrick was itself taken over by ports operator Toll Holdings. Repeated attempts by Richard Branson to win back control of the business from Toll over the next two years proved unsuccessful, although the two sides appeared to establish a comfortable working relationship. In 2008, however, Toll decided to quit the business in the wake of the growing weakness of the international airline sector and a collapse in Virgin Blue's share price. It announced plans to spin off its own holding to Toll shareholders, re-establishing Branson as the company's biggest individual shareholder. Virgin Blue launched a low cost service to the US West Coast at the end of 2008 under the V Australia banner. In 2011, all three operating brands were merged and the airline relaunched as Virgin Australia in a bid to convince customers that it had "grown up" into a full-service operator. In 2013 it acquired regional carrier Skywest, followed by a majority shareholding in the Australian arm of low cost Singaporean rival Tigerair. It acquired the reamnining shares in Tigerair in 2015.

Virgin Group's stake in Virgin Australia is now just 12%. Instead it has sold effective control to other carriers in the region to cement codeshare partnerships. By the end of 2013, Air New Zealand had increased its shareholding to 25%, while former Virgin Atlantic shareholder Singapore Airlines and Etihad Airways of Abu Dhabi each have 20%. In 2016, China's Hainan Airlines agreed to acquire 13%, a move that will dilute all existing holders. Revenues for the year to June 2015 were A$4.75bn, with a loss of A$94m.

The most recent extension to Richard Branson's airborne empire was Virgin America, a low cost US airline flying out of San Francisco to more than 20 cities across the US. The service was originally announced in 2004, but funding took longer than anticipated to fund, and the company faced a series of objections from rival carriers over its ownership structure, and especially the influence wielded by Richard Branson. To comply with regulatory limitations on foreign ownership, Virgin Group eventually agreed to reduce its voting rights to just 25% although it owns 49% of equity. The remaining shares are held by VAI Partners, a consortium comprising investment firms Black Canyon Capital and Cyrus Capital Partners. After months of negotiation with regulators, Virgin America finally received formal approval in May 2007, and made its first flight three months later. In Nov 2014, Virgin America issued an IPO, raising around $307m. However, consolidation within the industry made the airline an increasingly attractive target. It was acquired in April 2016 by Alaska Air after a bidding war with JetBlue. The merger was approved by regulators at the end of that year. Alaska Air has said it will phase out the Virgin America brand by 2019.

For 2015, Virgin America reported revenues of $1.53bn and net income of $341m. The airline carried 7.0m passengers.

Virgin's most spectacular aerospace project so far was unveiled in 2004, with the launch of Virgin Galactic, which hopes to begin offering commercial spaceflights to paying customers at a price of $250,000 per ticket. The company has repeatedly postponed the anticipated date of its maiden passenger flight since 2007. A serious question was raised over the viability of Virgin Galactic with the mid-air break-up of the spacecraft during a test flight, killing one pilot and seriously injuring the other. Branson has vowed to press on with the project, but the disaster is likely to push back the debut flight by several years.

The group owns or runs a small portfolio of luxury resorts including Necker Island, one of the Virgin Islands, and Ulusaba Private Game Reserve in South Africa. These are marketed to customers under the banner of Virgin Limited Edition.

Not all of Virgin's airline ventures have been successful Virgin Express was a separate low cost airline operating scheduled services out of Brussels to 18 European destinations. Launched in 1994 as EuroBelgian Airlines, Branson acquired a 90% shareholding in the quoted business in 1996 and rebranded it under the Virgin banner. However, the airline had a rough ride. Revenues peaked at €290m in 2000, but steadily decreased over the next five years. In 2005, Virgin Express was merged into Belgian national airline SN Brussels. For a while, it continued to operate as a separate brand under SN Brussels' management, before being discontinued in 2007.

Virgin Atlantic was also the biggest shareholder in Virgin Nigeria, which launched in June 2005. That business, which was 51%-controlled by Nigerian institutional investors, flew from Lagos to other major cities. However despite regular campaigning, the group was unable to secure clearance for a route in and out of New York. Following an increasingly bitter dispute with the Nigerian government over the location of its administrative offices, Virgin began attempts in 2008 to sell out of the venture. It eventually quit the business in 2010, selling its interest to Nigerian Eagle Airlines. The resulting business now trades as Air Nigeria.

Background

see Virgin Group profile for history.

Last full revision 14th March 2016

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