Business Stripped Bare (18 page)

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
The Economist
in 2007, their own poor management and circumstances beyond their control – oil prices tripling, terror attacks in 2001 and a plummeting dollar – lost them a cumulative $35 billion in the five years to 2005, a mind-blowing amount of money for investors to lose.

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
Zagat
's 'best first-class service in America' and 'best domestic airline' in
Travel + Leisure
's World Best Awards. The airline has stimulated competition among carriers and created thousands of jobs. And as a consumer champion, Virgin is making good on our promise of a better overall experience and better prices whether you fly Virgin America not.

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
will be
threats – to existing interests. These interests may look rather paltry to you, but they're life and death to some.

Knowing when to tread carefully, and when to put your foot down
, is a lesson all businesses must learn, if globalisation is ever to bring about change for the better.

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:
'In all my dealings with him and his cabinet, never a hint of corruption. A desire to cut through red tape and get things done
.') I agreed, saying that we weren't interested in being involved with anything that meant backhanders or 'special' payments. If he wanted us to help, then we would work together on a basis of trust.

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 nearly 1 a.m., and a long queue of Nigerians were waiting patiently in the corridor of one of the city's best hotels. Fortunately I was able to jump the queue, as government advisers whisked me to his top-floor suite.

He put his hand on my shoulder and said: 'I like you, Richard.'

'Thanks, Mr President,' I said, rather bowled over by such a welcome. 'Erm, what is it about me that you like?'

'I like the fact that you never wear a tie. I hate those stuffy English gentlemen with their ties.'

Our talks went extremely well and I was able to say that he could be assured of Virgin's commitment to his country. We shook hands on the deal, and the next day we launched a new airline for Africa.

I knew the president admired our flagship, Virgin Atlantic. Though launched as a cut-price airline, its success was also based on giving the business traveller the best customer service in the world. We'd offered our business travellers what first-class passengers on other airlines didn't get. We had pioneered comfortable reclining seats, flat beds, lounges with hairstylists and masseuses, and a motorcycle and limo home-pickup service.

In economy, Virgin Atlantic was the first to provide personal video screens in every seat-back, so that the traveller could choose the films and television shows he or she wanted to watch.

Nigerian Airways had been the nation's flag carrier from 1965 until 2002, but it had been overrun with bureaucracy and riddled with corruption. During the summer of 2004, the Nigerian federal government proposed a new flag carrier as part of its privatisation process. They wanted Virgin's support. On Tuesday 28 September 2004 – the same week we were making an announcement about Virgin Galactic – I flew from London to Abuja to join President Obasanjo once again and the Minister of Aviation, Mallan Isa Yuguda, to sign a Memorandum of Mutual Understanding, which formally established Virgin Nigeria as a new flag carrier.

The airline was created with a $50 million investment, the shares split between the Nigerian investors, with 51 per cent, and Virgin Atlantic, with 49 per cent. The aim was to widen the offering in time on the Nigerian stock exchange. It was set in stone that the home base would be Murtala Muhammed International Airport (MMIA) in Lagos, flying to London, Abuja, Kano and Port Harcourt, then to Abidjan, Accra and Dakar. Although we'd be a minority partner in this new airline, I wanted us to bring all our expertise to help our Nigerian partners create the best airline, not just in Africa – but in the world.

We brought in Simon Harford, who had worked with Barbara Cassani on setting up British Airways' low-cost airline, Go, to be the CEO, and he set about his task with alacrity. He signed up KPMG and Philips Consulting to handle recruitment – a key area for us. We were swamped with applications – nearly 25,000 wanted to join the airline.

Virgin Nigeria was to be built from scratch: a modern airline with excellent service. We believed the business would create several thousand jobs within five years and, indirectly, a further 200,000 jobs.

We set about building a best-in-class terminal for Virgin Nigeria at MMIA, and commissioned EDS to deliver us an integrated airline reservations, ticketing and baggage system that was as good as anything else in the world. We signed a deal to lease the first of our Airbus A320s, with sixteen business-class seats, for the domestic routes.

Meanwhile, Simon and his team were working to finalise approvals from the Nigerian Civil Aviation Authority. On 13 June 2005, tickets went on sale – via phone, travel agents and the Internet – for our inaugural flight from Lagos to London Heathrow, arriving at Terminal 3. The tickets were sold out within a few days. We aimed to fly weekly at first and then three times a week operating an Airbus A340-300, with 187 economy, 28 premium economy and 40 business-class seats.

Our maiden flight left Lagos for London on Tuesday 28 June. The aviation minister, Isa Yaguda, presented the first group of trained cabin crew with their 'wings to fly'.

In the following days the domestic services would be launched too. The initial feedback was tremendous. One regular flyer, Dan Ekpe, said the sight of Virgin Nigeria's aircraft on the tarmac in London had filled him with 'a sense of pride' that a Nigerian carrier was now doing a great job.

In the first ten months, we flew 500,000 passengers on our six planes, two Airbus 340-300s, an A320-200 and three Boeing 737-300s.

On 11 July 2005, President Obasanjo sent Virgin a note to thank us for our commitment: 'I believe that your role in the aviation sector will bring innovation, competition, new technology and, of course, a lot of satisfaction to the Nigerian public.'

He then went on to remind me that there was a need to 'Nigerianise' the staff at all levels in order to anchor the future of the airline on indigenous capacity from management through to technical and cabin crew. 'I know that you have put a quality training facility and programme in place. It is my expectation that you will use these facilities to train Nigerians in all critical areas of airline management and operations.'

We did indeed. We put a lot of time and effort into training and recruiting staff for the airline. We set up a technical partnership with the Nigerian College of Aviation Technology to train new pilots who would then be sent away to get experience on short-haul airlines. We also set up apprenticeships, and offered automatic employment to those trainee engineers who successfully completed their courses.