Virgin Atlantic ploughs a lone furrow in the Middle East
Virgin Atlantic Airways’ route to Dubai, its sole destination in the Arab world, has always looked a little lonely on the British airline’s global destination map.
Founded in 1984 by the billionaire Sir Richard Branson, the airline took its name from its first transatlantic routes, which were launched in direct competition with its arch-rival British Airways.
For the maiden flight Sir Richard – the consummate showman – packed the airline’s only aircraft, a leased 747, with his friends, celebrities and media. Virgin Atlantic quickly succeeded, launching routes to more than two dozen cities across the United States, Caribbean, Africa, Asia and Australia.
The airline launched its service between London Heathrow and Dubai in March 2006. But it has chosen not to enter other markets in the region and still only operates one flight a day to Dubai.
Emirates Airline, on the other hand, operates eight services to London airports a day.
Saj Ahmad, the chief analyst at StrategicAero Research, says Virgin’s policy of organic expansion had “left them floundering” in the GCC as the region’s “big three” – Emirates, Qatar Airways and Etihad Airways – cleaned up.
“Virgin, like many EU and US airlines, has missed the opportunity-boat in the GCC and is now almost certainly kicking itself for not doing more,” says Mr Ahmad.
“Now it’s too late to make any sort of meaningful impact – not that they have the capital or resources to do it.”
That is not an assessment shared by Nick Parker, Virgin Atlantic’s new head of India and the Middle East. “We see Dubai as a strategically important route,” he tells The National. “It works very well for us and it has been going from strength to strength over the last few years.”
The same, however, cannot be said of the airline itself. Virgin Atlantic reported losses of £51 million (Dh288.7m) in 2013, on top of £102m in 2012. The chief executive Craig Kreeger says the airline will show it returned to profitability by the end of 2014 but results for the year have not yet been published.
Stemming losses has called for some tough decisions at Virgin, prompting the airline to axe several routes as it looks to concentrate more on its core transatlantic services, which make up more than half its network.
The airline will later this year close its UK domestic airline called Little Red, which flies from London to Manchester, Aberdeen and Edinburgh. Last year it axed its route to Sydney and says it plans to cease flights to Tokyo, Mumbai, Vancouver and Cape Town to concentrate on its US services.
John Strickland, an aviation analyst at the UK-based JLS Consulting, says in its quest for profitability, Virgin Atlantic is trying to both stem losses and free up precious landing slots at London’s capacity-constrained Heathrow.
“Virgin was almost trying to be all things to all people, having low frequencies on a lot of these routes, where other players were much stronger, and hence not really making enough headway for these routes to be profitable,” he says.
All that makes Dubai looks even more like an anomaly on Virgin’s route map, given that it is its only route to the Arab world and one of a diminishing number outside North America.
But Mr Parker says Virgin remains committed to its route to Dubai, despite the closure of several other non-core routes.
“We evaluated the routes and decided exactly where we want to deploy our resources to maximise the slots that we’ve got. And Dubai is clearly strategically important to us,” he says.
Virgin’s trump card for turning around its business is its partnership with Delta. The US airline bought a 49 per cent stake in Virgin Atlantic for £224m in 2012, acquiring the shares from Singapore Airlines. The remaining 51 per cent is owned by Richard Branson’s Virgin Group.
At the beginning of 2014, an enhanced partnership between Virgin and Delta saw them starting to align schedules and airport hubs, as well as offering reciprocal frequent-flier benefits and lounge access to passengers. Also last year, Virgin took over one of Delta’s services between Heathrow and Atlanta, the US airline’s base, boosting the number of onward connections it can offer by 100.
Chris Tarry, a consultant at Ctaira, a British aviation consultancy, says the Delta deal could also boost Virgin’s access to business customers from the United States.
“From Virgin’s point-of-view they get access to the US corporate market,” he says.
As the Delta deal blossoms further, Mr Parker says he sees more demand for passengers wanting to fly between Dubai and the US, via London.
“Delta will have a positive impact on our seat-capacity into Dubai,” he says. “It creates a lot more opportunities for people to connect from the UAE through to the US.
“And with Delta’s network in the US it means not just the tier-one cities but a lot of the tier two and three cities as well.”
But Peter Morris, the chief economist at Ascend Flightglobal Consultancy, says the Delta deal is likely to have only a “marginal” benefit to Virgin’s Dubai route.
Tough competition, he says, comes from the big three Arabian Gulf airlines, which can all offer something Virgin does not: greater frequencies from the Middle East, and direct flights to the United States.
Mr Ahmad agrees Virgin poses little competitive threat to the big three Gulf airlines. By ceding control of the Sydney route, the airline has actually given the Gulf carriers a boost, he adds. “All Virgin’s exodus has done is provide Arabian carriers with more customers and a loyal flying base.”
The UAE’s two main airlines actually have strategic alliances with Virgin affiliates: Emirates has a frequent-flyer partnership with Virgin America, while Etihad has a stake in Virgin Australia. But those two airlines are separate companies and neither is majority owned by Sir Richard’s Virgin Group.
Mr Parker acknowledges that the Gulf airlines are competitors, but says Virgin Atlantic offers a niche service. The airline originally positioned itself as an edgier rival to the somewhat fusty British Airways, and is still known for its colourful advertising campaigns and nightclub-like lounges.
“We are obviously a fun carrier to be flying with. So of course we have competitors but we are also in a slightly different niche to those guys,” Mr Parker says.
Mr Strickland says he is “cautiously optimistic” that Virgin can turn itself around and become profitable, especially given the Delta tie-up.
And despite being 31 years old, some of the airline’s charismatic brand appeal – as espoused by Sir Richard’s launch of the maiden flight to New York – is still working for Virgin Atlantic, he says.
“Its reputation is for being a bit of a maverick, doing things differently, and I think there’s a strong following in that,” says Mr Strickland.
“It’s a niche, but that niche has been made all the more powerful by the Delta shareholding.”
Published: February 17, 2015 04:00 AM