It's not easy finding an investor who has devised a growth strategy since September 11, much less one who has sunk money into the Asia-Pacific region. But that's exactly what Richard Branson, the flamboyant CEO of British-based Virgin Group, is doing. Virgin is nothing if not diversified -- with units ranging from Virgin Cola soft-drinks to Virgin Mobile cell phones and the Virgin MegaStore chain of CD and movie retailers. And one of his industries is airline service, of all things, through Virgin Atlantic Airways and now, Virgin Blue.
To hear Branson tell it, he's taking advantage of the drop in U.S. and transatlantic travel by buying younger, more fuel-efficient planes at bargain-basement prices from airlines that are cutting capacity. And he's redeploying them in the fleet of his domestic Australian airline, Virgin Blue, which, along with rival Quantas, is soaking up market share from newly collapsed airline Ansett. Virgin's airfares are 50% lower than Quantas', he says, and his planes are cheaper to run because they're newer and more fuel efficient.
At the same time, Branson is busy making low-risk investments in Singapore. On Oct. 10, he visited the island for the commercial launch of Virgin Mobile, a new cell-phone network. Branson lends his brand and puts in only 10% of the cash in this $500 million joint investment with state-owned Singapore Telecom. "We use the appeal of the brand with other people who put in their money," he explains. Singapore be warned: Virgin Cola and Virgin Radio are next in line.
Branson considers himself prepared to ride out a bad few months. But he admits he's not ready for the current business environment to last a year. "I don't think it will exist for a year," he says. "If this lasted for a year, things would be pretty serious. If it did, you would see airlines all over the world grounding a lot more planes."
Branson discussed his strategy with BusinessWeek Singapore Bureau Manager Michael Shari during a visit to the city-state on Oct. 12. Here are highlights from their conversation:
On the performance of his various business lines since September 11:
Some [have performed] badly. Some, believe it or not, well. The "badly" is at Virgin Atlantic [airline]. Seventy-seven percent of our business was over the North Atlantic. [The airline has] been severely affected by the lack of business travel, though economy and freight are holding up well.... The reverse of that is in mobile phones. People are spending a lot of time on the phone on domestic and international calls, talking about what's going on the world.
On the Australian airline market:
Virgin Blue, our low-cost carrier in Australia, is doing extremely well. We're expanding rapidly. We're buying up planes and moving them to Australia. The cost of buying planes has dropped by half. We're looking for 10 to 20 737s over the next 12 months.... In times of recession, people switch from higher to lower priced airlines. We're half the price of Quantas. We have a younger fleet. Our costs are less.
On his strategy for the future:
We've already taken action with Virgin Atlantic: We've reduced capacity. We've grounded fuel-guzzling, expensive planes. Now, we're...much more fuel-efficient. We need to see ourselves through to the good times again.
On the potential impact if the bad times drag on for a full year:
Thirty percent capacity has been taken out of the North American market. Seats on planes flying even in this crisis situation are less than the people who want to sit in those seats.... We should deal with the situation if the problem goes on.... By reducing capacity to meet new demand, airlines should survive.
On the value of his investments:
Virgin Mobile is a $500 million joint venture with SingTel -- we put in $50 million. In Australia, we put $50 million into Virgin Mobile. In Virgin Blue we spent, if you don't count the planes, $50 million.
On the backlash against Muslims in America:
I met a number of Arab students who had left America. They said they were not treated well. The brain drain and monetary drain of students is quite sad.
Edited by Douglas Harbrecht