Monday 11 March 2013

The Virgin Killler - APD

I am a great admirer of Richard Branson, he has always done things differently and had many, many successes with this approach. For all his detractors the story of someone who starts with nothing and works hard and cleverly to build that into a massive global empire is inspiring.

Some of his tactics, using PR to make unbelievable claims about his opponents and potential of his own business, are close to the mark, but fun.

Recently though some of his large businesses are starting to either struggle or lose their uniqueness. Virgin Media has become a brand only, with just a sliver of Branson capital in the business and certainly no Virgin management. Virgin trains lost their bid - well may have done, depends on the outcome of the UK Government dispute.  There are though still many successes across his sprawling empire, particularly in the mobile phone sector.

Also, Virgin Atlantic, one of the original success stories has now had two terrible years. An annual loss of £135 million needs to be put in context of a business where in the good years it managed a once a record profits of £46.5 million, but in the past decade a good year was a £10m-20m profit. Since 1984 the airline has done well though to chart a path through many storms.

These record losses are going to be hard to sustain for the medium term, despite the new 49% ownership by Delta airlines, it is a tough job for the new CEO to try to turn around.

After all, Virgin is a holiday flight company to long-haul destination in a time when Air Passenger tax has put this out of the reach of many people who used to be able to afford it. With a UK hub this is an unfortunate turn of events for Virgin as few other countries have gone in for such punitive taxes as this.

With a small fleet and small set of destinations, the main Atlantic hub routes are also under pressure as BA and AA get closer and closer and BA also streamlines Iberia to make it less competitive across the Atlantic.

As ever, something will be done to preserve the brand and the face of the airline if not the infrastructure, but it is in a very tough spot  - and another great example of how Government over-taxing and tax interference can have such a terrible effect on even large and stable businesses.


Bill Quango MP said...

Haven't been long haul for a long while. USA is very sadly out of reach for the kids.

Still, its been a boost for Euro disney. Trampling round in the rain, parka coats and ponchos.

And on Eurodisney, briefly,
there are no Disney dvds in Eurodisney. I've a feeling DISNEY STORE has the rights, and I guess DISNEY STORE isn't in EuroDisneyland.
And no Disney TV channel.
And not all the licences for Disney, such as Hannah Montana and Wizards and Suite life.

They must have sold the rights.

Is this the same in USA, anyone?

Hayek was right said...

'he has always done things differently'

Has he really? Sure the PR spin is that its different, but what substantial innovation has there been. Glam uniforms and neck massages are all that separates the airline from BA. The business models are identical, there's been no fundamental innovation in any of his businesses, just showmanship and PR.

'many, many successes with this approach'

Music (based on Tubular bells sales), Airline (in some years and a lousy sector as Buffett points out often) and ........

Credit for what he has done and putting himself out there. But look past the headlines and its a much more mixed picture. For instance Virgin gaming was quietly sold a couple of months ago after losing market share and under capitalisation.

Anonymous said...

I think Virgin has to compete with 1 x Florida vs. 4 x anywhere in EU courtesy of Easyjet. On top of that the "all foreigners are criminals" mentality of US immigration and customs means it really isn't a nice place to take your kids on a holiday. My teenage son got hauled out of the line to get a thorough check for drugs in full view of everybody. Last time I went to the US two morons from customs detained me over some non-working samples in my briefcase - and I work for a US company.

Branson is a shoman like Michael o'Leary and most of his success comes down to his willingness to make a big noise. There are other genuinely self-made millionaires who have achieved more without making such a noise about it.

Elby the Beserk said...

I can't tell you JUST how bad the Virgin Media support is. Indeed, I don't know why they bother, really, providing "support" at all - if you didn't have a techie in the house, most of the time they would make your problem worse (indeed, they did do that to me once, and I was a techie).

An old friend was his secretary in his first business venture, a student mag. Said he was a total shyster. No time for him at all - and I should note, that before Virgin took over Blueyonder, their support team were excellent.

Elby the Beserk said...

@Anon - my last two experience of immigration to the USA, at Newark, have put me off going back there (not that I can afford it now anyway) for life. Everyone - but everyone - was treated like shit (do you really need to scream at a mum with a little baby) and you had the feeling that had you said anything, you would have been taken into a back office and beaten up.

Electro-Kevin said...

Elby - The treatment can be partly explained by the awful Hollywood representations of us Brits. The latest Argo but in virtually every film now.

Oz - the wicked witch is, of course, the only English person in it.

An old flame of mine was a Virgin air hostess. She was utterly stunning. However, after two years I decided there had to be more to a partner than a cracking pair of norks, legs to die for, luxurious hair, a beautiful personality, wit, intelligence... *sobs*

Sir Richard doesn't get everything right. His stance on legalising drugs does not square with his drugs & alcohol policy on safety critical staff.

Either they are safe for everyone (including pilots and train drivers) or not at all.

Blue Eyes said...

I went on Virgin to Japan a couple of years ago. The aeroplanes were older and had less entertainment etc. than the one I used to get to New York ten years before.

Demetrius said...

Ah well, back to the canal then. Mind you the Grand Union could do with a boost.

Hopper said...

Virgin Atlantic still beats BA in most counts on the USA destinations that they compete on such as SFO and JFK/EWR - far superior service on board, telephone customer service, better quality of product for same price in general - but I'd bet BA are losing money in similar fashion on those routes. APD is definitely not helping either firm, especially in Premium Economy where you pay business APD rates.

Random anecdote - Virgin seem much more expensive than BA for flights booked less than a week ahead.

A once frequent visitor said...

Agree about US immigration and customs. I think they must find most of their staff from the back streets of Harlem or Kentucky hillbilly land. Like many others, I have vowed never to set foot in the place again.

Blue Eyes said...

APD is crazy. My flight to East Africa for this summer cost less than the tax.

How does UK taxation affect the competition with other West European hubs?

CityUnslicker said...

BE - its disastrous, its cheaper now to fly to Schipol and change for most long-haul flight. Not worth it in the South east, but if you are in Scotland or even Manchester and have to get down to London anyway, you may as well got to Holland or even Paris.

It's a shame we want to wreck our own service businesses in this way.

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