The Branson Way: Planes, Trains And Promotion

The Age

Saturday December 4, 1999

Simon Mann

RICHARD Branson was up to old tricks yesterday. Just four days after putting the frighteners on Australia's domestic aviation industry, he was abseiling with a Spice Girl down the side of a new three-storey Virgin Megastore in Glasgow.

Naked self-promotion is Branson's calling card. He once shaved his legs and slipped into a bridal frock for a photo opportunity. He has stripped to his boxer shorts alongside Pamela Anderson, decorated himself as a Zulu warrior and delivered an annual address in a rabbit suit. British teenagers once ranked the businessman second only to Mother Teresa as a 20th century icon.

``He's never conformed," Branson's mother said in a rare interview last year. ``Bringing him up was rather like riding a thoroughbred horse. He needed guiding, but you were afraid to pull the reins too hard in case you stamped out the adventure and wildness."

Of all the qualities she hoped to instil in her little blond-haired boy, Eve Branson wanted independence and toughness. Once she chose the hedge-lined country lanes of Devon to impart a survival lesson. ``Ricky must have been four or five. He was being a bit bolshie in the car. So I stopped it, opened the door and shoved him out. Then I drove off and made him find his own way home." Several hours later a farmer appeared at the door to return the lost child. ``Ricky was none the worse and I have no regrets about it," said his mother. ``I thought he was getting a bit namby-pamby and needed toughening up."

Branson is hardened to the task of taking on Australia's market duopoly with his proposed low-cost airline, modelled closely on his Belgium-based ``no frills" Virgin Express.

The company began in 1991 as EuroBelgian Airlines, chiefly a charter service cramming Belgian sun-seekers onto 737s to the Canary Islands. When Branson acquired the company in May 1996, charter flights were about 70per cent of its business. He rebadged the fleet in Virgin's instantly recognisable red and white livery, imported a couple of hot-shot US managers who remodelled the airline along the lines of the leading American ``no-frills" operators, and took the company onto stockmarkets in Belgium and New York.

The airline flies to 10 European cities for as little as 27 pounds ($A68), is consistently adding new destinations (Berlin last month, Dublin and Paris soon) and is turning a modest profit (4.95 million euros, about $A7.5million, in the September quarter).

Its formula looks relatively straightforward, and easy to sell to price-conscious consumers: slash costs, put safety ahead of cabin luxuries, charge for the in-service drinks and forget about customer loyalty. As one cut-price operator noted recently: ``There's no such thing as brand loyalty on short-haul flights."

This makes Virgin Express something of a paradox as it seeks to trade on the strength of the ubiquitous Virgin name, while competing on price on some of the world's most competitive sectors.

The philosophy contrasts sharply with Branson's other, hugely successful operation, Virgin Atlantic, which combines competitive - but not rock bottom - fares with good and quirky service.

Some of Branson's detractors say the billionaire's brand dependency is a two-edged sword. They warn that a couple of failures among his myriad other interests - from trains and holiday packages to clothing, soft drinks, records, cosmetics, financial services, TV and radio, even bridal wear - could undermine the group's star performers.

``When I'm delayed on a Virgin train I start wondering about Virgin Atlantic," writes Marcus Mitchell, a brands specialist, in Accountancy magazine.

``Every experience of a brand counts, and negative experiences count even more."

So far, Virgin Express is doing well in the cut-price market. If it's an aviation hybrid, it's a hybrid that successfully combines brand recognition with a bums-on-seats ethos. But analysts predict a crunch in six months because of rising cost pressures and the fact that Virgin Express is inadequately hedged against exchange rate fluctuations and escalating fuel prices. Slower-than-expected route access has also stunted earnings growth.

Virgin's major asset remains the Brussels-London route, which it flies under contract for the Belgian carrier Sabena. The downside is that it has anchored Virgin Express in Brussels, which is by no means cheap, while it inconveniences customers from high catchment regions like London by having to put down in Brussels enroute to southern Europe.

Ticket prices are the compensating factor. Travellers might take more than four hours getting from Heathrow to Rome but they have five fare options - ranging from 91 pounds (A$230) return (discount) to 126 pounds (A$318 flexible) - and the choice of eight flights. London-Brussels offers similar choice, from 27 pounds (A$68) to 55 pounds (A$139) return.

Yet ``Virgin Express has not been one of the great successes of low-cost operators in Europe," says a market analyst. ``Ryanair and easyJet are beating them on costs, and they are almost mindlessly aggressive price-cutters."

Kevin O'Toole, editor of Airline Business, says he is surprised Virgin Express hasn't more closely mimicked Virgin Atlantic's operating approach. ``Virgin Atlantic has made its name by being slightly friendly and kooky, stylish and independently-minded ... I think they have managed to make it work, to get that certain `feel'. I think that those less-easily qualified ingredients should never be underestimated."

Bigger problems are brewing for Branson's empire. Falling government subsidies and the prospect of fees payable to the British Government from 2002 have raised doubts about Virgin Rail's long-term viability. Some analysts even wonder whether Branson might offload Virgin Atlantic - estimated to contribute about two-thirds of the empire's total profits - to raise enough cash to make the railway investment flourish.

They point to his decision in 1992 to offload the then hugely prosperous Virgin Music to EMI for $US1billon, and say it wouldn't be the first time Branson has sold his past to finance his future.

Although the group has managed to brush aside occasional rumors about financial difficulties, Branson's operating style, expressed in his autobiography, Losing my Virginity, could not soothe nervous bankers.

``Back in the early 1970s I spent my time juggling different banks and suppliers and creditors in order to play one off against the other and stay solvent. I'm still living the same way, but I'm now juggling bigger deals instead of the banks. It is only a matter of scale."