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CEO Interview - Chief Executive of Virgin Atlantic, and Independent Thinker

Steve Ridgway, Chief Executive of Virgin Atlantic

Steve Ridgway, Chief Executive of Virgin Atlantic, believes there is still room for independence in a liberalized and harmonized world. 

Have the recession and subsequent recovery forced you to revise your strategy?

No. We have always grown the airline and continually developed our distinctive business model. We are a widebody-only operator serving prime business and leisure markets around the world from the UK.

Virgin Atlantic has created a very strong brand and is unique in many ways. All airlines fly the same planes, use the same airports, and are subject to the same regulations, yet the Virgin Atlantic brand conveys a sense of something completely different. We led the charge to boost customer service, and we have retained a reputation for great innovation.

And we have made the most of the strength of the UK market. Two full-service long-haul carriers are based in London. There is nothing comparable in Paris, Frankfurt, Hong Kong, or most other main hubs. That is good news for the UK market and has led to a great competition in product and service, to the benefit of consumers.

Will the new UK coalition government help aviation to be successful?

Obviously, the government has other priorities right now. Reducing the budget deficit has to be top of the agenda rather than transport policy, and we understand that.

Nevertheless, there has to be a debate about transport strategy at some point. Aviation is a key driver of the global economy, and the UK is a very important part of that economy. It means aviation decisions are vital to the future competitiveness of the UK as a whole.

Developing the right policies will be difficult but a good starting point would be putting aviation alongside other modes of transport. Because aviation exists largely in the private sector, it is often regarded as requiring different treatment from rail and road. While we’re certainly not against the development of high-speed rail and other transport efficiencies, it is vital that a comprehensive policy also allows aviation to develop.

Too many decisions seem designed to stop improvements in aviation. Look at the proposed third runway at London Heathrow. It is probably the most heavily scrutinized piece of infrastructure development in aviation history. It has been tested and challenged at every step of the way. Yet the government has immediately decided against building it.

Has the UK Air Passenger Duty (APD) affected your business?

APD has risen extremely fast, and it is affecting the UK’s competitiveness. There will be a slippage in traffic to other hubs such as Amsterdam and Paris. There is a host of anomalies within the tax itself. For example, surely there are some obvious differences between short-haul and long-haul flights? With long haul, passengers simply have no alternative means of transportation.

APD must be reevaluated and it’s good that the government has agreed to consult about the tax. However, one suggestion is moving it from a passenger tax to a per plane tax. The government says this could encourage airlines to fly with fuller aircraft. This makes no sense at all. No airline in the world can afford to fly empty planes. Virgin Atlantic has load factors in excess of 80% and has had for most of its 26 years of operation, because that’s how we remain profitable and stay in business.

APD was implemented under a green guise. What role should environmental taxes play once the European emissions trading scheme (ETS) comes into force?

A “cap and trade” emissions trading scheme is far better than taxation. But we shouldn’t have both, and we shouldn’t have a regional trading scheme. Aviation must have a global solution for the environment, brokered through ICAO to ensure a level playing field.

We’re complying with the ETS implementation right now and, while that is not a big problem in itself, the figures will be heavily distorted because of the ash cloud fiasco from earlier this year. This distortion must be addressed, otherwise it will have a long-term impact on European carriers.

Can aviation ever persuade governments and the public that it is doing a good job in environmental terms?

The industry was slow in talking about its real position in regard to its emissions. Remember, aviation emissions are about 2% of total carbon output.

We need to be more effective and challenging in talking with governments. A global solution is the right way forward. All stakeholders are united and there is a real drive to achieve the IATA targets.
The industry is moving forward in a coordinated way and we should expect governments to do the same. It’s a shame COP-15 in Copenhagen didn’t achieve what we hoped, and it looks as though we will have to wait until 2012 and COP-17 in Johannesburg for a big turning point.

When you look at the progress being made in infrastructure, aircraft, engines, and biofuel, it is clear that we are making huge reductions in our carbon footprint and will continue to do so. People may be skeptical about what we can do in the future but if you look at our track record—for example the solutions we implemented on an individual and collective basis to reduce noise—there is no reason to doubt that the industry can achieve significant carbon reductions and still be able to grow.

Can we improve security harmonization between the United States and Europe?

Aviation has been key to globalization. It is ironic that the airline industry remains more heavily regulated than any other in terms of serving global markets freely. The telecommunications, car, and computer industries, for example, have quite happily consolidated globally. We have to bring down the barriers faced by airlines.

There is also the specific issue of security. It is quite clear that there is no logic in the United States and Europe having separate systems and layering regulation on regulation. We all live in the same difficult world and we are looking to achieve the same levels of security.

Should the entire industry be liberalized?

The industry needs liberalization. Every airline is subjected to different regulations, and yet most fly over large parts of the globe and interact with each other in various ways. Obviously, such a situation isn’t conducive to efficiency.

If we look at the historical profitability of the industry it’s clear that something needs to be done. The constant is the stifling regulation that is stopping airlines from rationalizing their business.
Virgin Atlantic, like some other airlines, has countered these obsolete rules by starting completely separate airlines in different markets. This is not an ideal solution. Ultimately, airlines need to make enough money to reinvest in the industry and provide the services and environmental improvements everybody wants. Liberalization is the way forward.

Increasing automation will also play its part in a sustainable future. But is this changing the airline-customer relationship?

Yes, it’s improving it. We are a full-service airline. It is absolutely vital that we maintain an intimate relationship with all of our customers. Technology isn’t hindering that—in fact it is enhancing it. We are providing the technology that customers want to use.

It gives them choice. It gives us better knowledge of a customer’s preferences and we blend it all with a first-class customer service at all the points of contact with our staff and crews.
Virgin Atlantic isn’t daunted by technology. All technology is doing is replacing a host of dull processes that were time consuming for passengers and staff. Now we can redeploy staff to provide the types of service that really count.

Can the industry do more to ensure profits in the long term?

We need to get smarter, especially in terms of capacity management. Even a cursory glance at the figures shows the industry has often been too quick to add too much capacity. The recession was a wake-up call and it is important we maintain the balance between demand and capacity as we go forward.

We need to constantly reappraise our way of doing business—the technology we use and the processes we employ. We must also look at new aircraft, new engines, efficient infrastructure, and optimised air traffic control. And, as it is reasonable to assume fares will continue to come down in real terms, we must do an even better job in controlling costs.

For more information visit: www.virgin-atlantic.com

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