Though it has had routes to Asiasince its earliest days, Virgin Atlantic,the UK’s second long-haul carrier, isnot inappropriately named. Even todaythe airline moves two thirds of itscargo tonnage on transatlantic routes– 62.6 percent of it in the ten monthsto January, to be precise.
However, that share has decreasedsince 9/11, before which over 70 percentof tonnage was trans-Altantic, anda major beneficiary has been Asia. 29.4percent of tonnage came from Asianroutes in the ten months to January.
The carrier’s longstanding Asianroutes are Hong Kong, Tokyo, Delhiand Shanghai: it famously won passengerrights to the latter destinationahead of its rival British Airways andfor a number of years had exclusivityon the route.
More recently, in 2004 it extendedits Hong Kong flights to Sydney, andin 2005, it launched flights to Mumbai,under a new liberalised bilateralbetween India and the UK. Virgin’scharismatic founder and chairman RichardBranson has made no secret ofhis ambition for more routes to Indiawhen traffic rights permit.
In April 2006, the carrier also addedDubai to the network, and John Lloyd,Virgin’s director of cargo, says a seconddaily flight to Hong Kong is being discussed,though no firm decision hasyet been taken.
Meanwhile, Asian routes have beenbenefiting from increased capacity asVirgin replaces A340-300s with higherpayload A340-600s. It took deliveryof three of the aircraft in 2006 andused them to convertShanghai, Tokyo andDelhi to –600 service,increasing cargo capacityfrom 12-14 tonnes to asmuch as 25 tonnes. AllAsian routes apart fromMumbai are now servedwith the higher capacityaircraft.
Perhaps the biggestsign of Virgin’s growinginterest in Asia, however,is the creation in 2005 ofa new post of vice presidentAsia Pacific, basedin Hong Kong. "With theadditional frequenciesand capacity into Asia itmade sense," says Lloyd. "We needed someone on the spot."
In his first two years, the holder ofthe post, James Williams, has only beenresponsible for managing Virgin’s GSAnetwork, which until now have handledall Asian sales. But in May the carrierwill for the first time open its own salesoffices in Hong Kong and Shanghai.
The move is both a reflection of thegrowing importance these markets toVirgin, and a response to the needsof multinational customers. "Multinationalforwarders increasingly want amore cohesive approach to sales andthese two locations are obviously keypoints in the network," says Lloyd.
"James has been doing a great job managing an important region through partners, and has already raised our profile with multinational forwarders. But now he will be more hands-on, controlling his own staff. Having Virgin employees there will raise our profile even more."
Despite this, Williams himself isanxious to stress that the move is noreflection on the sales efforts of itsformer GSA in Hong Kong and Shanghai,Dynatrans. "They have representedus in Hong Kong since 1994, and havestuck with us through thick and thin,especially in the early days when theroute had variable capacity," he says. "So it is a sad moment to be parting from them. I would stress that we never had any problems with the service that they provided."
Nor are there any plans to replaceother GSAs in the region, Williams says,though he admits that his appointmentand the opening of offices in HongKong and Shanghai have played tothese fears.
"The upside for our GSAs is that theynow have more support from us and alocal contact to deal with," he says. "I hope that persuades them that they are part of our long term future."
The developments in Asia are partof a wider restructuring by Virgin toreflect the needs of multinationalforwarders. Lloyd says many now liketo deal with carriers on a regionalbasis, and even to negotiate globallyon capacity. To cater for this, the carrierhas appointed a vice president forEurope, the Middle East and Africa, tocomplement its existing vice presidentAmericas.
Last March it also created a global sales manager at its head office in London’s Gatwick airport too. Her job is to talk to airlines who want to make global deals. "This is something we have always done, but never formalised it before," says Lloyd.
This raises the wholeissue of how Virgin is seenby large forwarders at atime when they are focusingmore on preferredcarriers. One thing thatmany large forwarderssay they want from preferred carriers is freighter operations,but Virgin has no plans to get intothat sector.
The carrier did operate a jointfreighter with Malaysian Airlines fora year and a half in the late 1990s, aproject that was launched with greatfanfare and then dropped as a resultof the Asian currency crisis of 1997-8.This failure still hurts. "It worked wellfor a while, but then we were hit bythose huge currency de-valuations,"says Lloyd.
"We felt very bad about letting our customers down by having to withdraw, as we have always been very careful not to dive in and out of markets."
For this reason, while he insists thereis no categorical aversion to freighteroperations at Virgin, they seem veryunlikely in the near future. "We are notsaying never, just that we have neveryet found the right operation from astrategic and financial point of view,"Lloyd says.
Without freighters, how can Virginmake forwarder’s preferred carrierlists, however? Lloyd’s answer is thatwhile it will never be in the first rank ofpreferred carriers, it is seen as a usefulsecond tier carrier by many forwarders."Our network is obviously not ascomprehensive as some airlines, butwe do serve many of the key markets,"he points out. "Each forwarder has a different way of managing their preferred carrier lists, and we are usually on the list somewhere, though maybe not at the top."
Pure belly cargo operatorscan also struggleto be seen as a corebusiness by their parentairlines. Bransonhimself did not helpin this respect when atthe launch press conferencefor the Malaysianfreighter he cheerfullyadmitted he did notknow much about thecargo business.
Despite this, Lloyd insists that cargois taken very seriously by Virgin.
"Richard Branson may not knowmuch about the details of the cargobusiness, but he clearly understands itsimportance to the profitability of theairline," he says.
"Like many belly carriers, we would not be profitable without cargo, and many routes would make a loss. A good example is Shanghai, where cargo is 25 percent of overall route revenue."
Overall, he says cargo is expectedto make a contribution of Â£124m($240m), or around 11 percent of revenue,in the financial year to February2007, and Â£141m the year to February2008. That compares to overall profitsfor the airline in the year to February2006 of just Â£68m, a figure predictedto fall to Â£30m for the year to February2007.
All of this has given cargo an increasedvoice within the airline in recent years, Lloyd insists. "We now siton all the strategy groups in the airline,including the fleet and network one,"he says.
"In the years I have been with the airline there has been an amazing change in that respect. When I first joined, cargo did not get a say at all, but now on key decisions, we have a voice. For example, the decision to purchase A340-600s was influenced by their cargo capacity. That would not have happened 15-20 years ago."
Cargo also can influence whichaircraft is used on a particular route.An example is a planned new route toNairobi, due to start in June. This willbe operated by one of Virgin’s remainingfive A340-300s, which on a route ofthis length will give a satisfactory cargopayload. "But if we had looked at thefigures and the payload had been toosmall, we could have asked for a -600instead," Lloyd says.
The proposed second daily HongKong flight apart, it is Africa and theAmericas that seem set to get mostof the new routes in the year ahead.As well as Nairobi, flights to Chicagowill start on 23 April and Mauritius inNovember.
The existing daily Washington flightwill also go double daily on 24 April.
The Mauritius flight falls into thecategory of holiday flights, whichlargely occupy Virgin’s 13 B747s thesedays and fly out of London Gatwickand Manchester airports rather thanHeathrow, which is the base for its moreregular flights, including allthe Asian routes.
The carrier started itsleisure services with flightsto Barbados, Antigua and StLucia in the Caribbean in1998, and has since addedHavana, Grenada, Tobagoand, last July, Montego Bayin Jamaica. Its Orlando andLas Vegas flights also fallinto this category.
Lloyd admits that these flights are not huge earners on thecargo side. "They operate in a morehigh density passenger configuration,which suits us as there is not a hugedemand for cargo on them," he says. "Having said that, Barbados, whichwe serve daily, gets a goodamount of cargo in both directions.In other places, suchas Montego Bay, where we fly only twice a week, there is not a lot of business."
Nairobi and Chicago aremore promising prospects forthe cargo department however.Lloyd is looking forward togood cargo loads on the dailyKenyan flights, particularlynorthbound, where thereare large quantities of flowersand vegetables to ship to theUK. He expects the flights to add Â£4-4.5million in revenue in its first year, withChicago adding slightly more.
Some other route plans have doubtlessbeen put on the back burner by theairline’s decision to spread delivery ofthe remaining six A340-600sit is due (it has received 19out of an order for 25) overthe next four years insteadof two. Lloyd says many ofthe proposed routes – asecond Boston flight, forexample – were not of vastinterest to cargo anyway.
Delivery of Virgin’s sixA380s has also been deferredby Airbus’ productionwoes from 2008 to2013, but that is probablyno great concern to cargo,as Lloyd admits the aircraftwould have worse cargopayloads even than theA340-300.
Like all European carriers,Lloyd reports that thewestbound market fromEurope to Asia is "relativelytough" with a significant fallin yields. However, as a purebelly operator, Virgin is notas exposed to it as freighteroperators, and Lloyd insiststhat outbound to HongKong the carrier has beendoing rather well recently.
This is part of a widerabove target performanceout of the UK in recentmonths. "In January and February, we were 20 percent above target on tonnage and 15 percent on revenue. We have been pulling cargo in from mainland Europe and Ireland by truck, and have had various pricing initiatives."
This growth might seemsurprising, given that thedollar has been falling against the UK pound, but one reasonfor it is a growth in transit traffic. Thisis not something Virgin did very muchof in the past, being mainly a pointto point carrier, but with its networkgrowing, and particularly with the additionof flights to Dubai, India andAfrica, Lloyd says this kind of trafficis growing.
The US is the main beneficiary, butthere is also some Africa to Asia traffic.Outbound cargo from the US has also grown, rising 10 percent in tonnage,though on three percent in revenuedue to currency factors, in 2006.
Nairobi apart, Virgin’s Africanroutes include Johannesburg and Lagos.It also serves Cape Town seasonally,but has now ceased flying toPort Harcourt in Nigeria. Inthe US, in addition to destinationsalready mentionedabove, the carrier flies to JFK, Newark, Miami, SanFrancisco and Los Angeles.
A carrier that pridesitself on its straightforwardapproach, Virgin has alwaysavoided specialist products."We have an express productand a must-ride product,but research from our customerssays that is all theywant," says Lloyd.
"They say that product names don’tmean anything to them. We do carryvaluables and perishables, and if customerswant special services such as Envirotainers, we can offer them. Butwe don’t tell our customers what to do – we listen to what they want. It is a flexible approach, rather than one of rigidly-defined products."
At press time, final figuresfor the year to February2007 had not beenpublished, but Lloyd wasexpecting the year to endwith a rise of 16 percent inrevenue to Â£175m, on a 10percent rise in tonnage to180,000 tonnes.
For the coming financialyear, he is targeting a15 percent rise in revenueand an 18 percent rise intonnage on an 11 percentincrease in capacity.
"The difference betweenthe revenue rise andthe capacity rise will comefrom better revenue andcapacity management,"he says.
One tool here is CargoMaxrevenue managementsystem, which Virgininstalled about a year ago,and is still getting to gripswith.
"So far we have onlyused it for capacity forecasting,linking into thepassenger systems so wecan better forecast whatwe will have available to us.The more historical datawe build up in the system,the better the forecasts aregetting, and I expect thatto have quite an impacton revenue in the yearahead," says Lloyd.
|Branson goes greenClimate change may not be such a big issue in Asia yet, but in Europe it is becoming a hot topic.
In the UK, the two largest political parties are vying to come up with the most green policies, including some proposals to curb flying, while press reports criticise the UK prime minister, Tony Blair, for flying to Miami for a holiday.
Ever one to lead trends rather than following them, Virgin’s charismatic founder and chairman Richard Branson, has been prominent in the debate, launching a series of high profile green initiatives.
One – dubbed the "Starting Grids" concept – was announced in September, and has the idea of towing aircraft from the terminal to the end of the runway to cut down on fuel emissions on the ground. Trials of the concept took place in December.
Branson is also championing flatter descent paths into airports – the so-called "Continuous Descent Approach" and urging his executives to remove unnecessary weight from his aircraft. Last but not least, Branson is investing $400m of his estimated $6 billion fortune in Virgin Fuels, an attempt to find bio-ethanol alternatives to aviation and other transport fuels.
What role does cargo play in all this?
John Lloyd, Virgin’s director of cargo, admits that cargo is "heavily involved" in Branson’s environmental project, though it is early days and beyond using electronic fork lifts and saving on office energy, he is unable to point to any specific initiatives as yet.
But Lloyd says that it is certainly a subject that concerns forwarders, who in turn are being pressured by their customers to come up with low emission supply chains.
"Shippers say this area is all kicking off, and they want to know what they can do about it," he says. "We were the first airline to talk to them about it, and we have had a very welcoming response. There is no doubt this is going to be an important topic in the future."