Virgin Atlantic vs British Airways: A Corporate Clash Which Changed The Course Of The Airline Industry.
The Remarkable Story Of Virgin Atlantic’s Historic Battle with British Airways
As the founder of more than 400 companies, Sir Richard Branson is without question one of the most renowned entrepreneurs of our time. And, as you’re probably aware, this knighted businessman is no virgin to the skies.
Perhaps you may recall his attempt to circle the globe in a hot-air balloon. Or, one of his more recent ventures: Virgin Galactic, the suborbital spaceflight company. But, of course, this is not about hot air balloons or multi-planetary travel.
Rather, today’s episode focuses on the remarkable story of Virgin Atlantic vs British Airways, Virgin Atlantic’s historic battle with British Airways: a corporate clash which changed the course of the airline industry.
If you’re a frequent flier, odds are you’re no stranger to arriving at an airport only to discover that your flight has been cancelled. And, in 1978, that’s precisely what happened to 28-year-old Richard Branson, who found himself stranded in Puerto Rico after American Airlines cancelled his evening flight to the British Virgin Islands. But Branson was determined to reach BVI that night, anxious to see his girlfriend, a woman who would eventually become his wife.
And so, he took matters into his own hands, and did what all great entrepreneurs do; he turned his frustration into action. Branson decided to charter his own plane, which was a freedom he owed to the success of Virgin Records. But instead of flying alone, he would split the cost with other fellow passengers en route to BVI who were also bumped by American Airlines.
In his typical eccentric-style, Branson went around the airport advertising his flight with a borrowed blackboard, which read:
“Virgin Airlines. One Way. $39 to BVI.”
After a short while of recruiting, Branson had officially sold-out his first plane. Upon landing, a fellow passenger sitting next to Branson remarked: “Sharpen up your service a bit, Richard, and you could be in the airline business.”
Intrigued by the idea, he called Boeing the very next day to inquire about any used Seven-Forty-Sevens they may have lying around. After speaking with Boeing, he shared the audacious idea with his staff at Virgin Records, who failed to share his enthusiasm. Even Branson would have to admit that it would be quite the career change. After all, it’s one thing to sell vinyl records. It’s quite another to challenge the fiercely competitive airline business — an industry with more than its fair share of bankruptcies.
But it wasn’t mere curiosity that sparked Branson’s interest in aviation. More than anything, it was his desire to raise the bar in a business that was infamous for neglecting its passengers. Flying was widely viewed as a dreadful experience; offering poor service, sub-standard food, and no entertainment. In other words, the industry was ripe for disruption. Always one to go against the establishment, Branson envisioned a different kind of airline; one that would prove that fun and business can, and should, co-exist.
But purchasing a Seven-Forty-Seven, even a used one, was a risky endeavor — and out of his budget. If the business failed to take-off, he’d be stuck with a depreciating plane, which he would likely be forced to sell for much less than what he paid. Brilliantly, Branson persuaded Boeing to accept a very different kind of deal; one that would completely cap his downside while providing unlimited upside.
Instead of buying the aircraft, Branson would lease it for 12 months. And if things didn’t pan out the way he had hoped after one year in business, Branson could return the plane to Boeing; no harm, no foul.
Fueled by a business plan designed around having fun, Virgin Atlantic finally took to the sky on June 22nd, 1984.
But with only a single plane, offering just a single route, Branson was an underdog, flying in an increasingly crowded sky. For comparison, British Airways boasted a fleet of over 300 planes.
Lord John King, Chairman of British Airways, was quick to dismiss 34-year-old Branson, remarking: “He’s too old to rock’s roll, and too young to fly.” But perhaps he spoke too soon.
After Virgin’s first year in business, Branson renewed his lease with Boeing, and added additional aircraft to his fleet just a few years later. Much to Lord King’s dismay, his once-dismissed competitor was appearing more and more like a formidable threat. If not for trouble-making Branson, British Airways would have enjoyed a monopoly position at Heathrow, as the only long-distance airline which flew from the UK to North America, and other popular destinations.
But the final straw came when Virgin Atlantic infringed on that monopoly and received permission to operate from London’s Heathrow airport, with Branson dressing as a pirate to celebrate the event; in the eyes of British Airways, Heathrow wasn’t just a profitable airport: it was their profitable airport.
British Airways had had enough. Up until this point, Lord King was the undisputed leader of Britain’s aviation industry. Prime Minister Margaret Thatcher even nicknamed the magnate as her “Favorite businessman”. With his reputation on the line, it was clear that Virgin had to go. Under no circumstance was the Lord King going to risk bruising his prestigious image- especially to some long-haired hippie from the record business.
From Lord King’s perspective, the spacious skies only had enough room for one airline. With Virgin Atlantic now in the crosshairs, Lord King called an urgent and secret meeting with fellow executives, demanding that they “Do something about that Branson fellow.”, and orchestrated a plan to take down Virgin, by any means necessary. With all ethics tossed aside, British Airways formed a secret undercover unit to pursue what would infamously become known as “The Dirty Tricks Campaign”. And this is how battle Virgin Atlantic vs British Airways started.
Rogue telephone helpline agents used the same booking system as Virgin, which allowed them to intercept Virgin’s reservations and call the competition’s passengers. The covert team, pretending to be Virgin employees, informed passengers that their flight had “unfortunately” been canceled, but of course, they would be happy to accommodate them with British Airways. Lord King’s office also hired private investigators to spy on Branson and even dig through his trash, scavenging for anything they could find to attack Virgin Atlantic and his other ventures. Most damning of all, the covert team allegedly leaked rumors to the press about Virgin’s finances, calling its solvency into question.
Everything up to this point was underhanded and sneaky, but this act could annihilate an airline. If rumors spread that Virgin was broke, paying for fuel upfront, and flying empty planes, then Virgin’s days in the sky were numbered. Branson already knew of British Airways’ Dirty Tricks when embarrassed agents from the unit broke down and told Branson what they had been ordered to do. But when journalists began asking why every Virgin flight was late when departing from Heathrow airport, and to comment on the company’s desperate cash position, Branson could prove the libelous attack.
It was finally an offense that provided the necessary ammo that he needed to shoot down the Dirty Tricks Campaign once and for all. Before he could take his case to court, he needed the financial muscle to battle the legal team at British Airways. Branson’s Virgin Atlantic was feeling the pain from British Airways’ dirty tricks, posting an operating loss of nearly 10 million euros in October of 1993, only heightening his money troubles. With a heavy heart, Branson faced the most difficult choice of his entire career: He could either sell his beloved record company to fund his legal battle, or, roll the dice in court: potentially bankrupting both Virgin Atlantic and Virgin Records.
With tears flowing, Branson sold his most prized jewel in the Virgin portfolio: Virgin Records, in June of 1992. His record company was acquired by EMI for nearly a billion dollars. And now with the money to go to war, Branson took British Airways to court for libel in 1993; where it was proven that the CEO of British Airways, Sir Colin Marshall, had clearly directed the smear campaign. Virgin’s lawsuit also exposed British Airways for conducting the exact same “dirty tricks” against Air Europe, an airline which had gone bankrupt just the year before.
Finally, in December of 1993, Branson emerged victorious. Lord King and British Airways would settle out of court and pay a collective sum of nearly a million dollars, in addition to over 3 million more for legal fees. The landmark victory was the largest libel damages ever awarded in UK history. Since the win came around the holidays, Branson decided to distribute the proceeds equally amongst all of Virgin’s staff, dubbing it the “BA Christmas Bonus”.
As part of the settlement, British Airways was also ordered to give a public apology. Which they did, offering sympathies to Virgin for: “Regrettable incidents involving a very small number of employees in unrelated incidents.” After the scandal was made public, British Airways had no choice but to reshuffle its top leadership with Lord King and David Burnside stepping down in disgrace.
Virgin Atlantic vs British Airways, and Richard Branson’s success story of how he defeated British Airways shows what can happen when you’re not afraid to go against the establishment and fearlessly challenge the status quo with an audacious idea. The story of Virgin Atlantic also proves that integrity is a winning formula, and that the underdog can, and often does, emerge victorious.
Source : Business Casual
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