Wirraway
29th Sep 2003, 01:08
Mon "The Australian"
Branson's US plan takes off
By Dominic O'Connell, The Sunday Times
September 29, 2003
Sir Richard Branson made an uncharacteristically low-key trip to New York last week.
Unlike previous visits to the Big Apple, when his thirst for free publicity drove him to swing nearly naked from a crane over Times Square and steer a World War II tank down Fifth Avenue, this was strictly business.
He was in town to see Frances Farrow, a former Virgin legal director.
Ms Farrow moved to New York several years ago after marrying an American lawyer, but remains a key member of Sir Richard's inner circle.
She has been entrusted with leading the charge on what could be his boldest business venture yet: the creation of a low-cost airline in the ferociously competitive US airline market.
His decision to press ahead with the airline – he claims Virgin USA, as it is likely to be called, will be launched in the first half of next year – is proof positive of the growing importance that Virgin attaches to rapid expansion in the US.
In the past three years Sir Richard has raised more than £1 billion ($2.4 billion) by culling his widespread business interests, selling large stakes or entire businesses to strategic investors. The process will continue with the float of Virgin Blue, from which he has extracted more than £200 million on an original £4.1 million investment.
"We've been building up cash because we know there are some big opportunities out there and we need to be financially stronger to take advantage of them," he said. "The next big push is into America."
It is a multi-pronged attack. Virgin Atlantic already flies from London to major US cities, and Virgin USA should join some of the dots from next year.
Next month Virgin Mobile, a joint venture with Sprint, an American telecommunications company, will announce it has notched up a million subscribers. The simple, pre-paid calls model has proved a hit with the American youth market and Sir Richard plans to expand the business into Canada and Mexico.
One of the springboards for the push into the US has been the success of Virgin Blue.
Cash from the Australian operation – with more likely to come from the float – will help swell Virgin's coffers.
The sales of recent years – of a half-stake in Virgin Atlantic to Singapore Airlines for pound stg. 600 million, of half of Virgin Rail to Stagecoach, of luxury hotels to Orient-Express Hotels, of a majority stake in Virgin Active health clubs – illustrate a key point about Sir Richard's approach.
He makes money from building up companies and selling all or part of them, and rarely from sitting back and raking in dividends.
He is also adept at finding backers to support his business plans. This will be a key decision when it comes to setting up Virgin USA.
Airline ownership restrictions in the US mean he is not allowed to own more than 49 per cent of the company, with the remaining equity – and control – remaining in US hands.
Speculation to date has centred on financial partners, in particular David Bonderman's Texas Pacific Group, which has had dealings with Sir Richard in the past.
But Sir Richard himself said the choice of partner – and of chief executive – would to a large extent be influenced by whether Virgin USA was based on the acquisition of an existing airline, and its runway slots and airport facilities, or whether it was, like Virgin Blue, started from scratch.
His inclination is to go for a clean sheet of paper and create a new airline from the ground up.
One thing is for sure: Virgin USA will not compete head to head with Southwest Airlines, the giant of the American budget airline scene, or with JetBlue, the new kid on the block that has, to date, made every post a winner. "We see no need to go up against them – there are lots of other places we can go," Sir Richard said.
As with Virgin Blue, timing might be all. In the past, the major US airlines could have been reliably expected to go out of their way to flood the market with cheap tickets and starve the fledgling out.
But the US industry is in parlous health, with United Airlines still languishing in Chapter 11 bankruptcy protection, and US Airways having only just emerged.
"It's a great time to be launching because he will get cheap aircraft and less fierce competition than he might have expected a few years ago," said a leading transport banker.
"But the key thing is that the airline has to be properly capitalised. In the US you have to be able to fight it out for the first few years."
Sir Richard said that because of the presence of a substantial US partner, the upfront investment in Virgin USA did not have to be huge.
In the medium term, Sir Richard is negotiating with Boeing and Airbus over a $US1 billion ($1.48 billion) order to replace existing aircraft and add to the Virgin Atlantic fleet.
He said Boeing 777 twinjets and Airbus A340-600s were in the frame. The aircraft could help Virgin Atlantic to substantially increase its reach – it hopes to start flights to Australia next year. "That's something we've always wanted to do and to connect up with Virgin Blue would be fantastic."
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Branson's US plan takes off
By Dominic O'Connell, The Sunday Times
September 29, 2003
Sir Richard Branson made an uncharacteristically low-key trip to New York last week.
Unlike previous visits to the Big Apple, when his thirst for free publicity drove him to swing nearly naked from a crane over Times Square and steer a World War II tank down Fifth Avenue, this was strictly business.
He was in town to see Frances Farrow, a former Virgin legal director.
Ms Farrow moved to New York several years ago after marrying an American lawyer, but remains a key member of Sir Richard's inner circle.
She has been entrusted with leading the charge on what could be his boldest business venture yet: the creation of a low-cost airline in the ferociously competitive US airline market.
His decision to press ahead with the airline – he claims Virgin USA, as it is likely to be called, will be launched in the first half of next year – is proof positive of the growing importance that Virgin attaches to rapid expansion in the US.
In the past three years Sir Richard has raised more than £1 billion ($2.4 billion) by culling his widespread business interests, selling large stakes or entire businesses to strategic investors. The process will continue with the float of Virgin Blue, from which he has extracted more than £200 million on an original £4.1 million investment.
"We've been building up cash because we know there are some big opportunities out there and we need to be financially stronger to take advantage of them," he said. "The next big push is into America."
It is a multi-pronged attack. Virgin Atlantic already flies from London to major US cities, and Virgin USA should join some of the dots from next year.
Next month Virgin Mobile, a joint venture with Sprint, an American telecommunications company, will announce it has notched up a million subscribers. The simple, pre-paid calls model has proved a hit with the American youth market and Sir Richard plans to expand the business into Canada and Mexico.
One of the springboards for the push into the US has been the success of Virgin Blue.
Cash from the Australian operation – with more likely to come from the float – will help swell Virgin's coffers.
The sales of recent years – of a half-stake in Virgin Atlantic to Singapore Airlines for pound stg. 600 million, of half of Virgin Rail to Stagecoach, of luxury hotels to Orient-Express Hotels, of a majority stake in Virgin Active health clubs – illustrate a key point about Sir Richard's approach.
He makes money from building up companies and selling all or part of them, and rarely from sitting back and raking in dividends.
He is also adept at finding backers to support his business plans. This will be a key decision when it comes to setting up Virgin USA.
Airline ownership restrictions in the US mean he is not allowed to own more than 49 per cent of the company, with the remaining equity – and control – remaining in US hands.
Speculation to date has centred on financial partners, in particular David Bonderman's Texas Pacific Group, which has had dealings with Sir Richard in the past.
But Sir Richard himself said the choice of partner – and of chief executive – would to a large extent be influenced by whether Virgin USA was based on the acquisition of an existing airline, and its runway slots and airport facilities, or whether it was, like Virgin Blue, started from scratch.
His inclination is to go for a clean sheet of paper and create a new airline from the ground up.
One thing is for sure: Virgin USA will not compete head to head with Southwest Airlines, the giant of the American budget airline scene, or with JetBlue, the new kid on the block that has, to date, made every post a winner. "We see no need to go up against them – there are lots of other places we can go," Sir Richard said.
As with Virgin Blue, timing might be all. In the past, the major US airlines could have been reliably expected to go out of their way to flood the market with cheap tickets and starve the fledgling out.
But the US industry is in parlous health, with United Airlines still languishing in Chapter 11 bankruptcy protection, and US Airways having only just emerged.
"It's a great time to be launching because he will get cheap aircraft and less fierce competition than he might have expected a few years ago," said a leading transport banker.
"But the key thing is that the airline has to be properly capitalised. In the US you have to be able to fight it out for the first few years."
Sir Richard said that because of the presence of a substantial US partner, the upfront investment in Virgin USA did not have to be huge.
In the medium term, Sir Richard is negotiating with Boeing and Airbus over a $US1 billion ($1.48 billion) order to replace existing aircraft and add to the Virgin Atlantic fleet.
He said Boeing 777 twinjets and Airbus A340-600s were in the frame. The aircraft could help Virgin Atlantic to substantially increase its reach – it hopes to start flights to Australia next year. "That's something we've always wanted to do and to connect up with Virgin Blue would be fantastic."
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