Virgin Atlantic Cargo flies under the radar
When it comes to Virgin Atlantic there is probably little need for any introduction. Famous for its off-beat humour in its advertising and seeming irreverence for all things established, its clever marketing led by enigmatic boss Richard Branson has firmly established it in the minds of most air passengers. Its cargo division on the other hand, leads a far more low-key existence, but one that never-the-less has established it as a solid quality player in the industry. By Donald Urquhart.
July 1, 2011
“We don’t want to be the biggest, we just want to be the best,” says Virgin Atlantic’s director of cargo, John Lloyd. “We’ve got limited capacity compared to some of these network operators and we just want to make sure we’ve got the right product the customer wants.” And this is where perhaps the Branson-esque unorthodoxy comes into to play as Lloyd acknowledges that while they clearly have a set cargo products, they’re not nearly as formalised as most other carriers’ products and the carrier doesn’t go out with major marketing of these products. “We don’t have a big collection of branded products that we go out and push. Some airlines have 27 different products, which I do think there’s a space for that, but I think there is a balance,” he says adding that some of the feedback Virgin Cargo has received indicates that their low-key product branding approach can be a little confusing. ” I think there is a balance and this is something we’re thinking about for the future, maybe four or five formalised products. “We’ve pretty much got that but we don’t go out and shout about it in a marketing way – our customers know we can do it and I think because we are a little bit smaller we think the products shouldn’t necessarily be fit into a box. If a customer wants a bit of this and a bit of that we will tailor it around him because we’ve got the flexibility to do that.” He adds that it’s always been the carrier’s philosophy find out what customers want and “if we can do it great, if not maybe we offer something else and be honest about it, if we can’t do it, we can’t do it.” The belly carrier relies on the, not insubstantial, capacity of passenger fleet that is largely comprised of A340s and B747s. A firm order for Boeing’s 787 Dreamliner is expected to roughly maintain the available belly capacity, but because of the rolling delays to the deliveries of the aircraft, Virgin has taken an interim order for ten A330-300s, of which two began operations from early May. Lloyd says Virgin has been quite happy with the A330s so far and reckons that in a readjusted long-term strategy, they will fit quite well. “There are a few routes where the passenger market has softened a bit and we don’t need a big aircraft and the cargo capacity on the ones we’ve taken is pretty much the same as a B747,” due to the passenger configuration which freed up valuable cargo space. “And they’re a twin engine so they are more fuel efficient,” he adds. Competition While the carrier has done well, with only one year of losses, “which compared to most other airlines is pretty good,” he adds, certainly the carrier and its cargo division faces a number of unique challenges. “For many, many years we’ve been fighting the British Airways-American Airlines tie-up for various reasons. Now that it has been ratified we thought we’ve got to take a look from a strategic pointof- view whether we can we survive on our own in light of these massive alliances that are being formed.” This is particularly the case at London Heathrow where there are 27 departures a day between London and New York – “it’s basically a half hourly shuttle and you have to think can we really compete against that?” “With 40 aircraft we’re not at the size of some of these guys and I think we’re able to offer maybe a little bit more what the customer wants and I think if you can stay in the semi-niche market than maybe there is a gap for you where you can stay on your own. “Undoubtedly it’s tough, particularly on some of the lanes where there is a lot of capacity. The London-New York route is obviously a tough market and we’ve seen a lot of capacity coming from people like Delta. So you have to make sure your offering is something different – find the right market segment to target and offer the right product,” he says. This need to take a deep strategic look at the carrier’s place in this environment spurred it to engage financial consultants to look at various options. It could well mean we stay independent, or there may be some other options like joining an alliance outright or joining an alliance as a result of a change of shareholding in Virgin,” he says in reference to Singapore Airline’s 49 per cent share in the carrier. “It’s really no secret they want out, but it’s got to be at the right price with the right partner and it’s not one of those things where we need to sell. We want to see, is there someone out there that we can allow us to grow and allow us to benefit, which is the main thing.” He says nothing concrete has been reached at this point, despite the various rumours of interest by carriers including Delta and Etihad. Lloyd notes Virgin has a good slot base at London Heathrow along with a big base at Gatwick and a fair sized and growing base at Manchester. Gatwick is mainly leisure routes to the Caribbean, Las Vegas, etc., “which is still pretty good routes for us,” he adds. In China Virgin flies to Shanghai which Lloyd says is a very good cargo generator, despite the fact market has substantial capacity and in fact a over-supply supply. In fact Nairobi, South Africa and Shanghai are the best markets for Virgin Cargo. “One of the routes we would dearly love to get back is the second Hong Kong flight – we used to do two daily to Hong Kong, but from a passenger perspective I think there’s too much for one but not enough for two flights at the moment. It’s building up though,” Lloyd adds. Strategic alliances The carrier also has a number of interlining partners with various airlines and does a lot of work with Emirates and South American carrier LAN Chile in particular. “Apart from our own network we feed in and out with others and from a partner perspective we’ve obviously got V Australia. This has joined our network together for us and gives us a lot more options in terms of routing, traffic through and from Australia,” Lloyd says. Virgin Atlantic has also recently a cargo alliance with Brisbane-based Strategic Airlines under which Virgin will manage Strategic’s entire long-haul cargo activity, including Strategic Airlines’ new twice weekly Phuket and Bali routes which are served by an A330-200. Lloyd said the new agreement supports Virgin Atlantic Cargo’s strategy of growing their global size and reach by acquiring complimentary capacity. Strategic has also applied for allotments of capacity to fly between Australia and the US and Australia and China. The Virgin group recently undertook a rebranding Downunder, with Virgin Blue and its associate airlines – V Australia and Pacific Blue – rebranded ‘Virgin Australia’ after Singapore Airlines, 49 per cent owner of Virgin Atlantic Airways, reached an agreement with Virgin Group chairman Richard Branson regarding the use of the Virgin name on international services to/from Australia. This is aimed at better positioning the carrier to take on Qantas in its home market. “One thing we have learned over the past five years, you’ve got to have the right aircraft on the right route – we have had a few occasions where maybe we’ve had too big an aircraft or too small an aircraft on certain routes. There’s a bit of science that happens in the back room somewhere and the good thing for us, 10-15 years ago cargo wasn’t involved in that, but now we’re very much plugged into the fleet planning.” He notes that some of Virgin’s routes see as much as 40-50 per cent of total route operating profit generated by the cargo division which has helped boost the profile of cargo division giving it a “big say now in terms of aircraft type and deployment and route structuring.” “The one thing we don’t want is to be constrained by the Virgin Atlantic passenger network which is why we’ve done the deals with Virgin Australia and a few more airlines. He adds they have a handful of additional airlines they’ve identified – a sort of ‘black book’ he says – as being potential partners to work with. “It’s not a formal strategy, but we think it’s something that works because we’ve got a good product and there might be some airlines out there that would rather trust their cargo product to someone else and we can make some money and give good return.” Forward planning Going forward Lloyd says there’s nothing major on cards in terms of route expansion. “Route and fleet planning is a three to five year plan and the middle of last year was really only when it became a reasonable environment, before that it was pretty much a horrible place for everyone to be,” he notes adding that like most carriers, “the end of year ended up fantastic”. “We’ve taken a bit of a conservative approach. We’ll get these A330s in, thicken-up some existing routes and there’s a bit a wish list of where we’d like to go – Beijing is probably on that list. Richard’s always wanted to get into South America but I think the numbers aren’t quite stacking up, but from cargo perspective it’s promising. There are some destinations, especially in the US on the list – some prime routes only served by our competitors from the UK – where there are some good opportunities.” He also noted that some work will be put into developing their cargo products a bit further. “We can probably do a bit to clarify our products – one of the things we’ve noticed is that we do all these products but we don’t shout about them. While that’s good in one way, I think there are obviously people who don’t know we carry live animals for instance, so there might be a bit of product formalisation and market push on that.” Another move will see a further focus on working with multinationals. “We have a pretty good penetration and reputation with them considering out size – again based on product integrity.” Lloyd notes that a recent survey identified attributes like reliability and professionalism as being identified with Virgin Cargo, saying “we just need to keep it up because I think it’s what is going to keep us in the game. If we try to be everything to everybody we’ll lose that edge,” he says.