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Deep Dive: Virgin’s rapid growth to pandemic struggle

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Richard Branson’s Virgin brand has become an iconic household name to many – but is the pandemic proving too much?

Virgin Group is a British multinational venture capital conglomerate founded by Sir Richard Branson and Nik Powell in February 1970.

At the time, Richard Branson and his friend Nik Powell launched a mail order record business and chose the name Virgin, because they were entirely new to business.

Branson – the British business magnate soon extended Virgin across many businesses and industries.

A rapid business venture

Over the past five decades, the Virgin brand has expanded across banks, travel services, airlines, telcos, gyms, cruise lines, hotels, healthcare, media, soft drinks and space travel.

Richard Branson has the reputation of being a prominent marketer and is well-known for his publicity stunts –  attempting to circumnavigate the globe in a hot air balloon, as well as most recently flying to space.

Nowadays, the brand is licensed at a fee to organisations across the world. That fee is understood to be around $20 million a year.

Virgin’s Richard Branson.

The history of the Virgin brand – The Good and the Bad:

Many companies tied to the Virgin brand have either proven to succeed or flop.

While many have been very successful such as Virgin Records – others – such as airlines haven’t been so lucky.

Some analysts say that Virgin’s brand overextension and hefty licensing fees are to blame for many collapsed ventures – while also causing damage to the iconic name itself.


Virgin America

Richard Branson says many of his airline businesses were born out of frustration.

Virgin America began service in August 2007 – with the goal of making flying good again.

Virgin America became the first airline to offer fleet-wide WiFi, soothing mood lighting, touch-screen seat-back entertainment, an on-demand food ordering platform, and power outlets at every seat on every flight. 

The airline’s unique and stylish product and brilliant customer service have won every major travel award.

“Virgin America won the hearts and fierce loyalty of consumers around the country. People love this airline.”

Branson in 2016 said that he and the company had a commitment to create a truly guest-focused airline.

In 2007, when the airline started service, 60 per cent of the industry was consolidated. 

It was only a matter of years before Virgin America received a takeover bid by Alaska Airlines, who proposed a merger deal in 2016.

The Alaska Air Group acquired Virgin America in April 2016, reportedly at a cost of approximately $4 billion and continued to operate Virgin America under its own name and brand until the airline was fully merged into Alaska Airlines on April 24, 2018.

Why the Virgin America brand vanished completely:

The decision came down to two key issues.

The first was the cost of maintaining the Virgin branding, which required a licensing fee to be bestowed upon the Virgin Group with some regularity.

While it’s difficult to pinpoint exactly what the annual reimbursement to Virgin would have been for Alaska, when the airline was flying as Virgin America, it shelled out 0.7% of its approximately $1.5 billion annual revenue to its parent brand.


Virgin Australia

Richard Branson and Virgin Australia employees fly the Australian flag on the steps of a Virgin Australia aeroplane

Virgin Australia has become Australia’s second largest airline.

In 2000, Virgin Australia, back then known as Virgin Blue, entered the Australian aviation market with one route, two aircraft and 200 employees.

Virgin Blue’s first flight was from Brisbane to Sydney on August 31, 2000.

By the next year, 2001, with rapid progress, the airline launched a further 14 new routes and welcomed its millionth guest.

2001 also saw the collapse of Ansett Australia — an airline that had been flying the Australian skies for 65 years — after it was placed into voluntary administration.

Although Virgin Blue had several aircraft on standby, the airline didn’t have enough pilots on hand – and it took them years to fill part of the gap left behind by Ansett’s departure.

Somewhat ironically now, Virgin Group founder Richard Branson made an important decision later in 2001, which some say played a significant role in the collapse of Ansett.

Singapore Airlines (which together with Air New Zealand, controlled Ansett) made an offer to buy out VA – that offer was believed to be worth $240 million – and hoped to to increase Ansett’s market share and remove its competitor.

The $240 bid seemed enormous at the time –  but during a live presser, billionaire Branson wasn’t having any of it.

Not only did he turn the offer down – but the British businessman was intent on again, making a scene of it. 

At the press conference held at Melbourne Airport – he first pretended like the deal had been done, holding up a cheque for a quarter of a billion dollars…..but just as the mood turned sour in the terminal, Mr Branson revealed he was joking before ripping the cheque to pieces and throwing it away.

A short time later, Ansett collapsed.

According to reports, Ansett’s departure in the aviation market meant Qantas’s market share jumped to about 90 cent before Virgin was able to start making inroads.

Virgin Blue successfully floated on the Australian Stock Exchange (ASX) in 2003. Though right now the airline is no longer a publicly listed company, over those years, it formed codeshare deals with major carriers like United, Etihad Airways and Singapore Airlines.

In May 2011, the company announced its new name — Virgin Australia — and confirmed international airlines Pacific Blue and V Australia would also adopt the same branding.

By 2012 it was a full-service airline.

Fast forward to 2020, VA has gone through major changes due to COVID-19.

Flight cancellations at the start of COVID put Virgin Australia on the edge of insolvency, with about $5 billion of debt.

To prevent burning though money, VA, like many other airlines in Australia right now, temporarily stood down about 8,000 of 10,000 workers as it grounded most of its planes due the coronavirus pandemic.

With only one flight a day, 129 of the company’s 130 planes were sitting on the ground.

In order to not go bust, Virgin Australia asked the Federal Government for a $1.4 billion loan to help through the COVID-19 crisis.

The Federal Government declined to assist, stating it was up to the wider aviation market to save the airline.

By mid 2020, the airline went into voluntary administration.

It was snapped up a short time later by US private equity firm Bain Capital, who became the new owner of Virgin Australia in September 2020.

The airline was sold to Bain Capital for $3.5 billion.


Virgin Atlantic

Virgin Atlantic has become a leading airline in the UK.

The airline commenced flying in 1984, when the first jet took off from Gatwick airport.

With a parent brand that had owned a music label and record stores, the airline used marketing and public relations to their advantage.

Using the same skill the Virgin Group had developed promoting the likes of Culture Club and Simple Minds, Virgin Atlantic set out to “inspire the public to fly with us.”

The airline flew to desirable destinations.

It came up with innovative new products and services that would make the journey much more fun.

The company prided itself on hiring “happy people with lively personalities” to be its cabin crew, and stated the airline didn’t charge the earth.

Virgin Atlantic gave people a choice. “A bright red, fun, friendly, fabulous choice that made travel attainable for everyone.”

“Back then, our personality was cheeky and over the top. We were a tiny airline up against much bigger players. We needed to use quite radical language to get attention.”

Fast forward to today, Virgin Atlantic, like other airlines, has been hit by COVID-19.

As the airline seeks to recover from losses due to a shutdown in travel, the company has turned to the stock exchange to raise capital.

According to reports, the airline has received positive responses from institutional investors about an initial public offering, with an autumn announcement likely.

The airline is 51% owned by Richard Branson’s Virgin Group and 49% by Delta Air Lines.

Sadly though, Branson would also likely give up control of the company under an IPO unless he elects to subscribe to new equity in the airline

Virgin Atlantic has received adequate financing to get through the next few months, insiders at the airline say. However, Branson and other executives are reportedly open to the IPO idea to provide future funding opportunities as the airline industry recovers from the COVID-19 pandemic and beyond.


The collapse of Virgin Mobile Australia and USA

The cost of having the Virgin brand is costly. Due to that – many of the brand’s telcos have failed.

Virgin Mobile Australia operated on the Optus network. On 30 May 2018, Optus announced that they would be phasing out the Virgin Mobile brand and would transfer Australian Virgin Mobile customers over to Optus. They said the phase out would take them roughly two years.

Sprint is shutting down its prepaid Virgin Mobile USA phone business and moving customers over to sister brand Boost Mobile. As part of the merger with T-Mobile, Sprint agreed to sell off its subsidiaries Virgin and Boost to Dish Network. Combining the two brands simplifies that process

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