Business Stripped Bare Read online

  In the fairy tale, when the little boy starts laughing and pointing at the naked emperor, everyone – including the emperor – realises the emperor's mistake, and the little boy is instantly vindicated.

  Well, life's not like that. Let me quickly tell you of a couple of occasions when we laughed and pointed at some ludicrous business absurdity – and the emperor's ministers rushed over and promptly smothered us.

  On 25 October 2003, Matthew Parris wrote in The Times: 'When we were younger we thought ourselves the first generation when everyone would fly faster than the speed of sound. We were to be the last, not the first.'

  He was writing about the last commercial flight of Concorde. The BA 002 service from New York touched down at London Heathrow at 16.05 on 24 October 2003, bringing the first supersonic transportation era to a close twenty-seven years and nine months after it began.

  British Airways and Air France's decision to ground the fleet was a disgraceful one because it was taken and executed to ensure that nobody else could ever fly the planes again, in some cases by literally cutting off the tips of their wings. It was an insult to Concorde's engineering brilliance. We knew that we could make a go of the service, and Virgin mounted a Save Concorde campaign. But it came to nought, due to British Airways' insistence that no one else could maintain and run the fleet. They hurriedly dismantled the planes and dispersed them to museums around the country – just to make sure. It was a deplorable way to end such a glorious era.

  At the post-flight bash British Airways chairman Lord Colin Marshall was keen to show the 300 guests, who had just arrived on the three flights, the live BBC news report of the historic arrivals. To his horror, the soundtrack accompanying the picture turned out to be by John Hutchinson – a former Concorde pilot! John lambasted British Airways for retiring the aircraft while still in its prime, and very generously sang my praises for trying to keep her flying.

  Sir Colin disappeared behind the screen – and the sound suddenly cut out, apparently interference from all the TV satellite vans parked nearby . . .

  The moral is that it is important to stick to your guns. The public isn't stupid, and I think we've reaped huge rewards for being forthright in the marketplace.

  In 1997 I came to share my experience about the lottery business with Thabo Mbeki, who was then the deputy president of South Africa. I thought a national lottery would be an excellent way of raising vital funds for the nation.

  A lottery is a licence to print money because there is no competition. There are no risks at all in running a national lottery, and it is also one of the easiest companies in the world to set up. The formula has been tried and tested worldwide. In almost every country and state the lottery is run so that 100 per cent of the profits go to good causes. The country appoints a trustworthy business person with lottery experience and he or she hands the profits straight to the government's charitable arm for distribution to the most important causes in the country – usually for education, health or fighting poverty. What these lotteries don't have is a level of shareholders creaming off the profit between the person running the lottery and the good-cause fund.

  I had made two unsuccessful bids for the National Lottery in the UK – in 1994 and 2001 – and to this day it still perplexes me that Camelot, the company that runs the lottery on behalf of the government, and who employed GTech (one of whose directors tried to bribe us during our bid), has been allowed to make so much money at the expense of good causes.

  There was not a lot of love lost between me and Camelot in those days. The lottery company once hired Madame Tussaud's, the famous waxwork attraction in London, for a corporate evening. A brother of one of our Virgin Atlantic staff was at the party and found that my wax model had been temporarily removed and put in the broom cupboard for the evening. Actually, I think my effigy took one look at the company it was keeping, and walked.

  So I said that if South Africa set its lottery up in the right way, it could be a provider for good. But I was anxious they didn't make the same mistake as Britain. I was seriously concerned that some in the business community were putting pressure on the government to set it up as a profit-making scheme for the business community.

  I pointed out that the Conservative government in the UK made that mistake in 1994 and instead of the lottery being something the whole country has been proud of, it is talked about, even among regular ticket buyers, with some contempt. At the time, the opposition Labour Party realised this terrible mistake and pledged to turn the lottery into the people's lottery when Camelot's licence ended.

  In 2007, with Labour still in power, Camelot were given the licence for a third time – another political promise broken by a government once in power.

  I tried hard to convince Thabo Mbeki and the president not to make the mistake that was made in the UK. But it seems that, in the end, they also fell into the same trap as the UK, and granted the licence to a commercial company, Uthingo Management.

  Sometimes you will fail to transform a business because of other people's short-sightedness. Other times, you fail because of other people's greed. It's that simple and that galling. The fight you lost will turn out to be worth it down the line: the public will respect you for it, and show you great loyalty thereafter.

  Delivery is the moment where your good intentions meet the real world. Delivery is best approached steadily, and with fortitude. You'll need stamina and patience to deliver well – especially when everybody is out to kill you.

  For a long time I have nursed an ambition: to run a profitable airline in America. The most important word in that last sentence is 'profitable'. It was easier said than done, and although the new baby is now doing extremely well, the arrival of Virgin America, our airline in the US, was a slow and painful birth.

  The United States of America is littered with the carcasses of British businesses – and rock bands too – that have tried to make it big and then foundered. I wanted Virgin to be different, and Virgin Records USA and Virgin Mobile USA showed what could be done. But airlines – with their huge amount of federal regulation, issues of ownership and industry resistance – are a different ball game. It's a bit like Arsenal playing in the American National Football League.

  The first hurdle was the certification process. Under US law, foreigners can own as much as 25 per cent of the voting equity in a US airline and an additional 24 per cent of the non-voting stock. I expected negotiations between the US and the European Union on aviation treaties to loosen this, letting in greater foreign investments and stimulating competition. But it wasn't happening quickly enough, and we had to ensure that at least 51 per cent of the business was owned by Americans.

  The arrival of Fred Reid to lead Virgin America, in April 2004, was a boon. Fred, the former president and chief operating officer of Delta Airlines, had a welter of airline experience spanning more than twenty-five years, and he knew his way around Washington, DC. Our legal and political advisers were anxiously pursuing an operating certificate for Virgin America. It was all highly sensitive, and Fred cautioned me and the Virgin people that even the slightest off-hand remark by any of us in any venue official or otherwise could easily trigger a ninety-day delay in certification. It was election year, and our application had unique aspects which made it frighteningly easy for a hostile party to trip us up. And there were plenty of them: Fred told me that every single airline in America was dreading our entry into the market.

  After 9/11 and its aftermath, I saw an opportunity to capitalise on the weaknesses of the big US carriers. United Airlines was operating in Chapter 11 bankruptcy protection, and American Airlines and Continental were slashing costs and staff to compete. I've been asked if there are such things as insurmountable problems in business. I think there were for these legacy airlines, with their large payrolls, outmoded practices and ageing fleets of planes. According to The Economist in 2007, their own poor management and circumstances beyond their control – oil prices tripling, terror attacks in 2001 and a plummeting dollar �
� lost them a cumulative $35 billion in the five years to 2005, a mind-blowing amount of money for investors to lose.

  We honestly thought that by abiding by the rules of the US government and the Department of Transportation, a timely decision would be made. We did not expect it to drag on and on. Our application turned out to be a lesson in naivety. The US DOT is not accountable to anyone about when it approves applications, and it took its own sweet time. Existing US airlines, although visibly failing to serve the public with decent fares and service, became involved in a spectacular filibustering process to delay and deter us from getting off the ground. We were a visible threat, with our new fuel-efficient aircraft and a genuine focus on the consumer experience. Noticeably absent from all the ganging up were the two airlines we'd surely compete with: JetBlue and Southwest. You would think they had more to lose yet these two healthy and strong airlines didn't jump up and down and cry, 'This isn't fair.'

  To meet the DOT's hurdles, the Virgin Group moved heaven and earth, making concessions beyond what was required by US law. Fred Reid reassured the American regulators that our airline was indeed 'Born in the USA'. A tranche of sophisticated investors were on board, and those investors hired Don Carty, a thirty-year industry veteran and former chairman and CEO of both Canadian Pacific and American Airlines, to lead the board. Virgin had a statutory right to three board directors but we gave up one.

  Eventually, in May 2007, we were granted approval – but there was a sting in the tail. Fred was told by the Department of Transportation that since he'd been taken on by me personally (which was not true) – and I was a foreigner – he would not be allowed to run the business.

  This was a blow for Fred, and for us: we had to find someone else to lead it. Virgin America should have been ready to launch at the end of 2003. Instead it launched in August 2007. It had taken nearly four years – Virgin Atlantic took four months. During our battle to cut through the Gordian knots of US regulation, six new planes sat idle on the ground for nearly eighteen months. They alone burned $11 million before we made a penny. In its first year, Virgin America has won all sorts of awards, including Zagat's 'best first-class service in America' and 'best domestic airline' in Travel + Leisure's World Best Awards. The airline has stimulated competition among carriers and created thousands of jobs. And as a consumer champion, Virgin is making good on our promise of a better overall experience and better prices whether you fly Virgin America not.

  Virgin America's new president and CEO David Cush, formerly of American Airlines, and his team have a unique business model with the kind of flexibility needed to cleverly navigate these turbulent times. They're continuing to deliver a great flying experience to a small but growing number of urban point-to-point centres. Now the battle is to make the airline profitable. At a recent Washington Aviation lunch an American Airlines director said to a colleague that it was ironic that American Airlines had lost one of its best people as a result of its own lobbying on Capitol Hill to get rid of Fred Reid. Some clouds do indeed have silver linings.

  All businesses, at least when they start, want to be agents of change. This is not always easy – especially if you're operating on a shoestring in a developing country with poor infrastructure, and where the delivery systems are held together by little more than bribery. In those circumstances, pretty much anything new is a threat to your business.

  Equally, it is all very well being cast as an agent of change in an ambitious, developing country – but you can never afford to forget that your arrival is going to hurt people. The welcome changes you're bringing in may well look like threats – and almost certainly will be threats – to existing interests. These interests may look rather paltry to you, but they're life and death to some.

  Knowing when to tread carefully, and when to put your foot down, is a lesson all businesses must learn, if globalisation is ever to bring about change for the better.

  June 2004: I was with my family, playing tennis in our garden in Oxfordshire, when the call came through. I wasn't too surprised to get the summons. For a few years, I had been in discussions with several Nigerian officials about airline services into Africa. Now I was to go to Paris and meet the Nigerian president himself.

  Nigeria is a great entrepreneurial nation and there are many excellent business people throughout the country. But it is hampered by poor infrastructure.

  Chief Olusegun Obasanjo, now the former president of Nigeria, is a commanding character. A retired army general who has served his country, he is a towering presence throughout Africa. What I liked about President Obasanjo was that he came across to me (then) as a very honourable man. He liked me, and I him. That's the way it is in business. The president was very open and honest about the problems of the past. He was now pursuing a programme of privatisation. The airline industries, however, posed serious difficulties, particularly regarding regulation. In the past, the president acknowledged, there had been all kinds of shady deals and lobbying done between the airlines and the aviation suppliers. He wanted a much fairer and transparent system. (Later, in my notebook I wrote: 'In all my dealings with him and his cabinet, never a hint of corruption. A desire to cut through red tape and get things done.') I agreed, saying that we weren't interested in being involved with anything that meant backhanders or 'special' payments. If he wanted us to help, then we would work together on a basis of trust.

  The airline industry across parts of Africa has an atrocious record on safety – planes crash quite regularly, particularly in Sudan and Nigeria. I wanted to use our expertise to make a difference. But I was also very mindful of affronting people's sensibilities – a Westerner criticising a developing nation even as it tries to turn things around. My experiences with Virgin Nigeria were to throw these tensions into sharp relief, as we struggled to attain world-class excellence in an underdeveloped and undercapitalised industry.

  I had told the president that my vision was the creation of 'a world-class airline with a spirit of Africa and Nigeria at the hub'. It was certainly something that Obasanjo thought would give Nigeria a renewed sense of stature. But we had to set about a serious issue: the African air traffic control system was in need of overhaul and investment, its operators were in dire need of retraining – and Nigeria had one of the bleakest aviation track records in the world.

  In early September 2004, I was in Nigeria's capital, Abuja, for another meeting with the president. It was nearly 1 a.m., and a long queue of Nigerians were waiting patiently in the corridor of one of the city's best hotels. Fortunately I was able to jump the queue, as government advisers whisked me to his top-floor suite.

  He put his hand on my shoulder and said: 'I like you, Richard.'

  'Thanks, Mr President,' I said, rather bowled over by such a welcome. 'Erm, what is it about me that you like?'

  'I like the fact that you never wear a tie. I hate those stuffy English gentlemen with their ties.'

  Our talks went extremely well and I was able to say that he could be assured of Virgin's commitment to his country. We shook hands on the deal, and the next day we launched a new airline for Africa.

  I knew the president admired our flagship, Virgin Atlantic. Though launched as a cut-price airline, its success was also based on giving the business traveller the best customer service in the world. We'd offered our business travellers what first-class passengers on other airlines didn't get. We had pioneered comfortable reclining seats, flat beds, lounges with hairstylists and masseuses, and a motorcycle and limo home-pickup service.

  In economy, Virgin Atlantic was the first to provide personal video screens in every seat-back, so that the traveller could choose the films and television shows he or she wanted to watch.

  Nigerian Airways had been the nation's flag carrier from 1965 until 2002, but it had been overrun with bureaucracy and riddled with corruption. During the summer of 2004, the Nigerian federal government proposed a new flag carrier as part of its privatisation process. They wanted Virgin's support. On Tuesday 28 September 2004 –
the same week we were making an announcement about Virgin Galactic – I flew from London to Abuja to join President Obasanjo once again and the Minister of Aviation, Mallan Isa Yuguda, to sign a Memorandum of Mutual Understanding, which formally established Virgin Nigeria as a new flag carrier.