Virgin Atlantic Airways Ltd.’s new chief executive officer has given himself two years to cut costs and restore Richard Branson’s best-known brand to profitability without damaging its reputation for doing things differently.
Craig Kreeger, who took over as CEO on Feb. 1, plans to freeze capacity, review staffing levels and squeeze the maximum benefit from an accord with Delta Air Lines Inc. (DAL) while retaining the U.K. company’s unique appeal, he said in an interview.
“My focus is to ensure the things we’re investing in are the things that drive the hipness, coolness and customer experience that define Virgin,” Kreeger, 53, said in Edinburgh. “We need to find ways to save money elsewhere, but we have to find ways to keep the energy alive that differentiates us.”
Virgin Atlantic, which has lured passengers with in-flight massages, motorcycle pickups and lounges modeled between a golf resort and trendy hotels, lost 80.2 million pounds ($122 million) in fiscal 2012. A return to profit in the 12 months through February 2015, while requiring “a great effort,” is achievable, the American said yesterday after his first public appearance as chief.
Kreeger, who joined Virgin after 27 years at AMR Corp. (AMR)’s American Airlines (AMR1), said the focus of his first year in charge will be to “get the foundations right.” Virgin will avoid adding capacity, the CEO said, with revenue growth coming instead from the pact with Delta and newly introduced domestic services.
Best-known for its flights to New York and the Caribbean, Virgin has added three routes from northern Britain to London Heathrow to restore feeder traffic lost when partner BMI merged with British Airways last year. The Delta alliance, under which the companies plan to share costs and revenue and coordinate schedules, comes after the U.S. carrier paid $360 million for a 49 percent stake that had been held by Singapore Airlines Ltd. (SIA)
“The real big revenue upside for us is increasing the connectivity in our network and strengthening our ability to sell effectively in the U.S. from the Delta partnership,” Kreeger said. “Those things will be more significant next year than this, which is one of the reasons it’s a two-year plan.”
The CEO said that while Virgin has imposed a salary freeze for the year that begin March 1 and may also seek a small number of job cuts, there is no question of the Crawley, England-based company adopting a “shrink-our-way-to-success” strategy.
Kreeger said he’s well aware of the need to “keep a sense of fun” at the Branson-controlled company, whose Clubhouse lounges have featured putting greens, hairdressers and shoe- shine booths, and which provided premium passengers with speedboat trips down the River Thames to avoid London’s traffic.
“This is a short-term blip and we have a plan to return to profitability,” said Kreeger, who was born in Little Rock, Arkansas and went to university in California. “Not offering a pay rise was one of those actions, but it’s not long-term sustainable. There are no plans for wholesale redundancies.”
The addition of 10 new Airbus SAS A330 planes over the past 12 months will trim costs this fiscal year, as will the delivery of 16 Boeing Co (BA). 787 Dreamliners starting in September 2014.
“We’ve got a great opportunity to see huge savings associated with fuel burn,” Kreeger said. Virgin Atlantic hasn’t disclosed any costs from the 787’s recent grounding with battery glitches, which has forced some carriers to shuffle their fleets to plug gaps, spokeswoman Sarah McIntyre said.
Kreeger said that his time with American (AMR1), including six years in London as he helped coordinate a venture with British Airways that has squeezed Virgin’s market in recent years, stand him in good stead to extract full value from the Delta deal.
Julie Southern, Virgin’s chief commercial officer and once seen as a likely replacement for former CEO Steve Ridgway, also said in Scotland that Kreeger’s American nationality is “useful” and that his work on the BA-AA tie-up may prove invaluable.
“He’s able to bring us an insider view of some of the do’s and don’ts of getting those kinds of JV arrangements sorted, which is really a key focus,” she said. “He can short-circuit some of the learning for us and that’s fantastically useful.”