Business Stripped Bare

2–3 per cent of their bookings on the Net. Virgin Blue’s Internet bookings were 60 per cent of the total at the launch, and 92 per cent within six months. The Net was easier to use, and because the transaction fees were minimal for us, this gave us an edge on costs.

Then, in June 2001, we received an unsolicited offer for Virgin Blue. Brett was approached by Gary Toomey, Air New Zealand’s CEO, and they had dinner at the Chairman’s Club Lounge in Melbourne — an opulent place with its gold-plated toilet seats. They chatted away and Brett said that he would definitely listen to any offer, and wanted to keep the channels open if there was any way they might work together. A few weeks later, Brett was invited to catch up with Gary again at the Crown Casino in Melbourne, a popular haunt for big dealmakers. Before their hors d’oeuvres were ordered, Gary offered him $70 million for the airline. Brett, as quick as a flash, asked if this was US dollars. ‘Of course,’ replied Gary.

That was A$120 million.

When Brett finished supper he phoned me with this info. It meant that at least we had a valuation for the business on the table. As far as the wider Virgin Group’s position was concerned, it would have been a good time to realise some of the investment but, in truth, it was far too early to contemplate.

We turned down the offer but it wasn’t long before we had another, more significant approach. The chief executive of Singapore Airlines, Dr C K Cheong, called me up. I knew him well. In December 1999, we sold a 49 per cent stake of Virgin Atlantic to Singapore Airlines for ?600 million, using the proceeds to invest elsewhere within the Virgin Group.

Singapore Airlines had a 20 per cent stake in Air New Zealand — and Air New Zealand owned Ansett. We knew that Ansett was in deep trouble. Air New Zealand had bought it for too much money, only to discover it couldn’t afford the number of planes necessary to replace Ansett’s ageing fleet. Given Ansett’s troubles, it didn’t surprise us that Cheong wanted Virgin Blue out of the way.

What startled us was his offer. ‘Look,’ he said to me, ‘it only cost you A$10 million to launch Virgin Blue last year. Now I’ll give you A$250 million for the company. But you have to give me a decision by tomorrow morning. If you don’t say yes, we’ll put massive investment into Ansett, and put Virgin Blue out of business within six months.’

Cheong was our new partner. And this was a friendly conversation! But Virgin Blue was a fantastic airline. It was really making a difference in Australia. It was a fun airline to have a stake in. It had the best cabin crew, wonderful new planes and everyone thought the world of it. So we had a dilemma. On the one hand we had this amazing offer — it really was a fantastic return on the money we had invested. On the other hand the business had massive potential and the public and the staff relied on us.

Brett understood the position. He knew that I might sell at this stage. We met up in Brisbane and had a long chat. We walked around the hotel room all evening, discussing the different options. There was something fishy in all this. Why were Singapore so desperate to get rid of us? Why were they willing to hurl their money down the bottomless pit that was Ansett, just in order to destroy Virgin Blue? They were our partners. They had taken a stake in Virgin Atlantic. I couldn’t figure out their intentions.

My executive team was keen that I sell up and take the money, but my instinct was to run the other way. As I’ve explained, for a good slice of the upside, I’ll generally accept the greater risk. Then Brett called up his supporters and they came round to see me to try to persuade me to hold on and build the company. On the way back to the hotel lift I took Brett aside and said, ‘You know, you didn’t need the posse: I’m not going to sell.’

Then the fax arrived. And we were back to square one.

Quarter of a billion Australian dollars. There it was, Cheong’s offer, in black and white. Brett and I sat there staring at it. This was twenty-five times the amount it had cost us to create, less than a year ago. Were we going mad?

I rang up Andy Cumming, our corporate director at Lloyds TSB in London. I told him we had an offer of A$250 million on the table and that we could sell tomorrow, but we wanted to keep hold of the airline. If we turned this lucrative deal down, would the bank still support us?

Andy and many of his bank colleagues have been very helpful allowing us to grow and prosper. They knew the score. Andy said our other projects were safe — we still had their backing.

Then we went back to the sofa and stared some more at the fax.

The next morning we made our decision. We called a major press conference, with dozens of TV cameras and most of the Australian press, at the terminal in Brisbane. There was hush when I stood up.

‘Hi, everyone. I’ve got some good news and some bad news. The good news is that I have this cheque for A $250 million.’ I held it up. (The cheque was a prop, written out on a Qantas Savings Bank cheque belonging to one of the airport managers.) ‘And I’m back off to England. Obviously, we’ve had a fantastic time in Australia. It’s sad that we are selling out today — it’s an offer we can’t refuse.’

Some Virgin Blue girls broke down in tears. I was so startled I forgot my lines. Before I could recover myself an Associated Press reporter rushed out of the hall to file her story. This news would be around the world in a matter of minutes. ‘Only joking!’ I cried, ripping the cheque up into tiny pieces. I threw them up into the air. ‘There is no way we would sell out.’

There were cheers and loud hurrahs. The AP reporter heard the commotion, came back and went white. ‘I’ll lose my job because of that!’

I got down on my hands and knees and kissed her feet.

The night before, as we sat there staring at that fax, Brett and I had become more and more convinced that something was fishy. Singapore Airlines just seemed too desperate to get rid of us in Australia and New Zealand. Why would they throw good money after bad, propping up an obviously ailing company like Ansett?

We came to the conclusion that Singapore Airlines had no intention of propping up Ansett. Ansett’s only hope was if we could be made to blink, and give up Virgin Blue in return for cash.

The very next day they decided to pull the plug on Ansett, and on 13 September 2001 the company was placed into voluntary administration and the fleet was grounded. Competition from Virgin Blue and the shock of September 11 and the attack on the Twin Towers in New York City knocked the last breath out of them.

More than 16,000 people lost their jobs — the largest single loss of jobs in Australian history. The Ansett collapse became a political issue in the Australian election campaign of 2001. Kim Beazley, the Labor opposition leader, made a promise to keep the airline going and subsidise the jobs. But this brought a challenge from John Howard, the Liberal leader, who said that the free market should dictate and propping up a dying airline wasn’t good for Australia. Howard’s coalition victory with the National Party put paid to any plans to restart Ansett.

The black irony of September 11 was that many Australians stopped travelling abroad because of fears of terrorism. Instead they turned, en masse, to their own country for holidays in the outbackyard, Cairns and the Gold Coast. As a result, Virgin Blue — with no competition from Ansett — doubled its fleet in six months, then doubled it again, and doubled it again. Its thirty-six aircraft were nearly 100 per cent full, since many chose not to go to Europe or the US.

In terms of productivity, Virgin Blue was streets ahead in the efficiency stakes: while Ansett had carried 10 million passengers at its peak with 16,000 staff, Virgin Blue was employing 4,000 people to carry 15 million.

‘Virgin Blue is a lot of media hype.’

‘The market is not big enough to sustain Virgin Blue.’

‘Virgin Blue doesn’t have deep enough pockets to cope.’

‘Qantas will employ any options to see off the interloper.’

‘They’ll be unlikely to survive a year.’

‘Claims by Richard Branson that domestic fares are high are misleading.’

This was a range of opinions from senior airline executives quoted in a number of press interviews. We were certainly beginning to make waves in some Qantas back room or other. When I announced we had been given the British rights to fly to Australia (all that was left was for the Australian government to grant us landing rights), a scathing article in the Australian Financial Review said that our plans were a ‘lot of hot air’.

Enough was enough. In 2003, I wrote a letter to the Australian.

I’m willing to lay down the following challenge to Geoff Dixon. If Virgin Atlantic is flying to Australia within 18 months he’ll agree to eat humble pie by flying on our inaugural dressed as one of our stewardesses serving our customers throughout the flight. If I’m not flying to Australia by December next year I’ll