and with fortitude. You’ll need stamina and patience to deliver well — especially when everybody is out to kill you.
For a long time I have nursed an ambition: to run a profitable airline in America. The most important word in that last sentence is ‘profitable’. It was easier said than done, and although the new baby is now doing extremely well, the arrival of Virgin America, our airline in the US, was a slow and painful birth.
The United States of America is littered with the carcasses of British businesses — and rock bands too — that have tried to make it big and then foundered. I wanted Virgin to be different, and Virgin Records USA and Virgin Mobile USA showed what could be done. But airlines — with their huge amount of federal regulation, issues of ownership and industry resistance — are a different ball game. It’s a bit like Arsenal playing in the American National Football League.
The first hurdle was the certification process. Under US law, foreigners can own as much as 25 per cent of the voting equity in a US airline and an additional 24 per cent of the non-voting stock. I expected negotiations between the US and the European Union on aviation treaties to loosen this, letting in greater foreign investments and stimulating competition. But it wasn’t happening quickly enough, and we had to ensure that at least 51 per cent of the business was owned by Americans.
The arrival of Fred Reid to lead Virgin America, in April 2004, was a boon. Fred, the former president and chief operating officer of Delta Airlines, had a welter of airline experience spanning more than twenty-five years, and he knew his way around Washington, DC. Our legal and political advisers were anxiously pursuing an operating certificate for Virgin America. It was all highly sensitive, and Fred cautioned me and the Virgin people that even the slightest off-hand remark by any of us in any venue official or otherwise could easily trigger a ninety-day delay in certification. It was election year, and our application had unique aspects which made it frighteningly easy for a hostile party to trip us up. And there were plenty of them: Fred told me that every single airline in America was dreading our entry into the market.
After 9/11 and its aftermath, I saw an opportunity to capitalise on the weaknesses of the big US carriers. United Airlines was operating in Chapter 11 bankruptcy protection, and American Airlines and Continental were slashing costs and staff to compete. I’ve been asked if there are such things as insurmountable problems in business. I think there were for these legacy airlines, with their large payrolls, outmoded practices and ageing fleets of planes. According to
We honestly thought that by abiding by the rules of the US government and the Department of Transportation, a timely decision would be made. We did not expect it to drag on and on. Our application turned out to be a lesson in naivety. The US DOT is not accountable to anyone about when it approves applications, and it took its own sweet time. Existing US airlines, although visibly failing to serve the public with decent fares and service, became involved in a spectacular filibustering process to delay and deter us from getting off the ground. We were a visible threat, with our new fuel-efficient aircraft and a genuine focus on the consumer experience. Noticeably absent from all the ganging up were the two airlines we’d surely compete with: JetBlue and Southwest. You would think they had more to lose yet these two healthy and strong airlines didn’t jump up and down and cry, ‘This isn’t fair.’
To meet the DOT’s hurdles, the Virgin Group moved heaven and earth, making concessions beyond what was required by US law. Fred Reid reassured the American regulators that our airline was indeed ‘Born in the USA’. A tranche of sophisticated investors were on board, and those investors hired Don Carty, a thirty-year industry veteran and former chairman and CEO of both Canadian Pacific and American Airlines, to lead the board. Virgin had a statutory right to three board directors but we gave up one.
Eventually, in May 2007, we were granted approval — but there was a sting in the tail. Fred was told by the Department of Transportation that since he’d been taken on by me personally (which was not true) — and I was a foreigner — he would not be allowed to run the business.
This was a blow for Fred, and for us: we had to find someone else to lead it. Virgin America should have been ready to launch at the end of 2003. Instead it launched in August 2007. It had taken nearly four years — Virgin Atlantic took four months. During our battle to cut through the Gordian knots of US regulation, six new planes sat idle on the ground for nearly eighteen months. They alone burned $11 million before we made a penny. In its first year, Virgin America has won all sorts of awards, including
Virgin America’s new president and CEO David Cush, formerly of American Airlines, and his team have a unique business model with the kind of flexibility needed to cleverly navigate these turbulent times. They’re continuing to deliver a great flying experience to a small but growing number of urban point-to-point centres. Now the battle is to make the airline profitable. At a recent Washington Aviation lunch an American Airlines director said to a colleague that it was ironic that American Airlines had lost one of its best people as a result of its own lobbying on Capitol Hill to get rid of Fred Reid. Some clouds do indeed have silver linings.
All businesses, at least when they start, want to be agents of change. This is not always easy — especially if you’re operating on a shoestring in a developing country with poor infrastructure, and where the delivery systems are held together by little more than bribery. In those circumstances, pretty much anything new is a threat to your business.
Equally, it is all very well being cast as an agent of change in an ambitious, developing country — but you can never afford to forget that your arrival is going to hurt people. The welcome changes you’re bringing in may well look like threats — and almost certainly
June 2004: I was with my family, playing tennis in our garden in Oxfordshire, when the call came through. I wasn’t too surprised to get the summons. For a few years, I had been in discussions with several Nigerian officials about airline services into Africa. Now I was to go to Paris and meet the Nigerian president himself.
Nigeria is a great entrepreneurial nation and there are many excellent business people throughout the country. But it is hampered by poor infrastructure.
Chief Olusegun Obasanjo, now the former president of Nigeria, is a commanding character. A retired army general who has served his country, he is a towering presence throughout Africa. What I liked about President Obasanjo was that he came across to me (then) as a very honourable man. He liked me, and I him. That’s the way it is in business. The president was very open and honest about the problems of the past. He was now pursuing a programme of privatisation. The airline industries, however, posed serious difficulties, particularly regarding regulation. In the past, the president acknowledged, there had been all kinds of shady deals and lobbying done between the airlines and the aviation suppliers. He wanted a much fairer and transparent system. (Later, in my notebook I wrote: ‘
The airline industry across parts of Africa has an atrocious record on safety — planes crash quite regularly, particularly in Sudan and Nigeria. I wanted to use our expertise to make a difference. But I was also very mindful of affronting people’s sensibilities — a Westerner criticising a developing nation even as it tries to turn things around. My experiences with Virgin Nigeria were to throw these tensions into sharp relief, as we struggled to attain world- class excellence in an underdeveloped and undercapitalised industry.
I had told the president that my vision was the creation of ‘a world-class airline with a spirit of Africa and Nigeria at the hub’. It was certainly something that Obasanjo thought would give Nigeria a renewed sense of stature. But we had to set about a serious issue: the African air traffic control system was in need of overhaul and investment, its operators were in dire need of retraining — and Nigeria had one of the bleakest aviation track records in the world.
In early September 2004, I was in Nigeria’s capital, Abuja, for another meeting with the president. It was
