Special Report: Virgin on a handover

Special Report: Virgin on a handover

Virgin Atlantic announced the departure of chief executive Craig Kreeger yesterday. Ian Taylor reports.

The announcement that Virgin Atlantic chief executive Craig Kreeger will depart at the end of the year came somewhat out of the blue.

Kreeger is far from past his sell-buy date and has been at the airline not quite five-and-a-half years.

His predecessor Steve Ridgway – now chairman of VisitBritain – worked at Virgin Atlantic from 1989, was managing director from 1998 and chief executive from 2001. Continuity is a feature of the airline.

But the manner of the Kreeger’s retirement from the role is in keeping with that tradition.

Ridgway announced he would step down in September 2012 and left in February 2013, when Kreeger took over. No abrupt departure and faux praise masking the reason for change at Virgin Atlantic.

Kreeger’s successor Shai Weiss, the carrier’s chief commercial officer, will take over on January 1 in what looks every bit like a succession plan.

Weiss joined Virgin Atlantic in July 2014 as chief financial officer and moved to his current role in January 2017. He has been on the airline’s board since 2012.

Joint venture

Kreeger joined Virgin Atlantic after 27 years at American Airlines where, among other things, he worked on American’s transatlantic alliance with British Airways.

His first task was to work on a similar alliance or joint venture (JV) with Delta Air Lines, with the difference that Delta had acquired a 49% stake in the airline in 2012 – purchased from long-time ‘sleeping’ stakeholder Singapore Airlines.

That was not the only issue. Kreeger took over a loss-making carrier with an ageing and fuel-guzzling fleet.

Virgin reported a loss of £51 million for the 12 months to February 2013, Kreeger’s start date, and a loss of £51 million in 2013 itself – a fourth successive year of losses totalling more than £300 million.

Kreeger inherited plans to launch a domestic carrier, Little Red, feeding traffic from Scotland and Manchester to Heathrow – which took off in March 2013.

He wasted little time in canning the domestic start-up, operated by Aer Lingus, the following year.

Yet the losses on Little Red did not prevent Virgin Atlantic returning to a profit of £14 million in 2014 – boosted by revenue from 10,000 Delta Air Lines passengers a month connecting to its flights.

The carrier took delivery of its first Boeing 787 the same year. The aircraft, ordered a decade earlier, finally allowed Virgin Atlantic to begin to cut its fuel bill.

Kreeger also began to re-focus the carrier’s schedule on transatlantic services as it aligned with Delta – it ended flights to Sydney, Tokyo, Mumbai, Cape Town – and the JV partners moved in together at Heathrow.

The airline subsequently reported three consecutive years of profit totalling £56 million, before the set back of a loss of £28 million for 2017 reported in March this year.

By 2016, Virgin Atlantic was robust enough to order a dozen Airbus A350s which will start to enter service next year.

‘Challenging environment’

Kreeger blamed the reversal in 2017 on the pound’s fall against the dollar, the industry-wide shortage of Rolls Royce engine parts for the airline’s Boeing 787 fleet, and the severe hurricane season in the Caribbean last autumn.

He insisted: “We are very well positioned.” However, he warned: “We expect a continuation of the challenging macro-economic environment in the UK as we head toward Brexit.”

In an address to an Airlines UK event in London in March this year, he questioned “how Virgin Atlantic would have done without Delta when the pound began its precipitous drop in 2016”.

Rather than suffer a downturn in traffic, he said: “Immediately [the pound fell] we saw an almost 20% increase in US point-of-sale traffic.”

Meantime, in July 2017, it was announced that Air France-KLM would acquire a 31% stake in Virgin Atlantic in a £220-million deal with Sir Richard Branson’s Virgin Group.

This will see Branson relinquish overall control of the airline for the first time in its near 35-year history, as his Virgin Group retains just a 20% stake. Delta Air Lines will become the largest shareholder with its 49% shareholding.

Kreeger had to rebuff repeated claims that Virgin Atlantic was controlled by the US carrier.

Ryanair chief executive Michael O’Leary put it succinctly: “Air France’s investment in Virgin Atlantic is a cover for Delta.”

Willie Walsh, head of British Airways, Iberia and Aer Lingus parent IAG, made the same point, telling a CAPA Airline Leaders’ Summit in Dublin in May last year: “Virgin Atlantic is controlled by Delta.

“The way it is structured, it is clear Delta controls Virgin Atlantic and is leading the joint venture. Delta came up with a smart way of working around the [EU ownership and control] restrictions. That is the reality.”

Kreeger consistently dismissed the suggestions, saying in March this year: “We continue to be Virgin Atlantic in every sense – in our band, our product and our proposition.”

‘My last job’

Walsh had predicted at the time of the Delta acquisition that the Virgin Atlantic brand would disappear in five years. Kreeger and Delta proved him wrong.

The airline remains distinctive, yet capable of punching above its weight.

Air France-KLM will join Virgin and Delta in a new, expanded transatlantic joint-venture from the second half of next year.

By 2021, the airline will have replaced its entire fleet in 10 years.

Kreeger said soon after joining Virgin Atlantic: “I hope this is my last job.” He appears to have meant it.

Travel Weekly described Branson’s deal with Air France-KLM last July as marking “the end of an era”. That assessment stands. Branson will hold a vastly reduced stake in the airline and presumably play correspondingly less of a role even as a figurehead.

But Kreeger’s successor Shai Weiss has worked with Branson at the Virgin Group since 2001, when he joined Virgin Media as managing director.

In that respect, Weiss’s appointment is more in line with that of Ridgway than of Kreeger.

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