Interview: Virgin Atlantic's Julie Southern And Chris Rossi

"Signaling the start of a new network which will provide regional feed to its long-haul service," Virgin Atlantic Airways last week announced plans to launch in March its first domestic U.K. service, three daily flights between London Heathrow and Manchester. Prior to that announcement, chief commercial officer Julie Southern and senior vice president of North America Chris Rossi discussed with BTN's Jay Boehmer plans to build a short- and medium-haul network, the independent carrier's efforts to attract corporate clients in an era of joint ventures and the closer cooperation for corporate business among airlines in the Virgin family. An edited transcript follows.

Tell us about your plans to build out short- and medium-haul operations.

Southern: Coming out of the British Airways acquisition of British Midland there were 12 pairs of remedy slots, which are linked to particular routes [from London Heathrow]: Aberdeen, Edinburgh, Nice, Moscow and one or two others. Basically, we intend to apply for all of those remedy slots. We think it's pretty important that the European monitoring trustee keeps the slots together, because this is supposed to be about remedying where there is competition reduction. If you're going to remedy that, you have to have someone who can come in and be a genuine competitor, and fragmenting the slots isn't really going to remedy the problem. If we're successful, then we'll fly to Moscow, to Aberdeen and to Edinburgh using those slots.

Moscow is a slightly more complicated process because it's a bilaterally constrained route, so there will be a bilateral hearing in the U.K. to see if we can get designated as the second U.K. carrier on the route. That's probably likely to happen in early October this year. As long as we're successful on that, we'd expect to start services no later than April next year, but potentially sooner.

Then the U.K. domestics go through a European process, with an outcome expected at the end of November. That would mean we'd start next summer season when the remedy slots are released. It's exciting for us. It will be a way of Virgin taking competition to BA in the way perhaps we started doing years ago in a slightly different area, from the international arena. It will really support connectivity.

You're adding another New York JFK frequency in October. What prompted that?

Chris Rossi: It will be our fourth Kennedy service. It fills that gap of a morning departure. We used to have one in the last decade, but we stopped it in 2008 or so. Technology is changing the idea of, "I don't want to blow off the day to take the morning flight. I need to be productive." We don't sense that as much anymore, about losing the day by taking the morning flight. That is coupled with the fact that we've got more of a connection schedule, into Africa primarily. That will help that morning departure from the States. Then the return sector from Heathrow will be outstanding. It will be a 7 p.m. departure from Heathrow into Kennedy, which is prime for the business traveler. That will be our last departure into Kennedy, and we've got an 8 p.m. into Newark. We've got good schedule coverage there. We've been asked a lot about the American Airlines-BA thing, running their shuttle [between New York and London]. Our view is that we may not run 15 frequencies a day, but we'll run frequencies at the right time of day with the right aircraft capacity. It would be foolish for us to try to match that frequency. The market is huge, but it's not that huge.

Does the fourth daily out of JFK give you better position with corporate clients?

Rossi: It does. Our positioning with the corporates has and continues to be as a vibrant secondary carrier. With the alliances gaining traction we're hearing more that clients want us to de-risk the reliance on one alliance. We've always been sort of a market regulator, keeping the other guys honest, keeping things competitive. It fits for us. That's how corporates see us and that's how we see us. It's a match. We don't want 90 percent market share; we want 30 percent. We want our vibrant secondary position. There's always room in the market for a carrier that offers a good product and service.

Tell us about competition with AA and BA. Have you picked up any share?

Rossi: It's been very customized. On some accounts, yes, we've gone from 15 percent (market share) to 30 percent, some have gone from 25 to 30 percent and some accounts it's been the same. In really no instances has it gone down, though, which is important for us. The positioning has been solid. I say customized because that's the thing for Virgin that is different than with some of the other carriers. As complex and challenging as it is, we have to embrace the gray area within these companies. We try to simplify things as best we can for our own sanity, but we have to take a customized approach. New York is such a fulcrum, and the most important market, but we're trying to get focus on the other gateways, even for New York-based companies, who may not have as much traffic out of a Boston or a Chicago. Some of the alliances don't have the lift out of those other cities and the corporates have needs there.

You've coordinated on frequent flyer programs and interlining with other carriers in the Virgin family. Are there steps you can take to coordinate from a corporate-client perspective?

Rossi: The frequent flyer program was a big thing. The marketplace by and large thinks we're all one carrier—Virgin Atlantic and Virgin America. There's a lot of brand affinity and association between the two carriers. From a frequent flyer standpoint, we wanted to be able to satisfy the earn-and-burn and the redemption. Also, we have an interline relationship so we can through-ticket and do those sorts of things. For Virgin Atlantic and for Virgin America, the question is how can we collaborate to approach the corporates to say, "They fill some of your network needs; we fill some of your network needs." We can't necessarily price together, but at least Virgin America's sales force can go in and my sales force can go in and put something together. It's sort of filling the network gaps together. They're strong in transcon, especially in L.A., especially in New York.

Is there an opportunity for antitrust immunity with them?

Southern: It's not something that's on the agenda at the moment. It's, as Chris said, baby steps to see more benefit we can get by being more proactive and working together, stopping short of joint pricing. But the sales teams now have good relationships with bringing each other in where it makes sense.

What is Virgin's overarching approach to alliances?

Southern: We like being independent. To some extent, it's in our DNA. The real trick is to get to a point where if you're making a decision to go into an alliance you're doing that from position of strength and not a position of "please, please, please let me in." I think we'll continue to do what works for us as an independent airline, but building on that connectivity at Heathrow is pretty important particularly to Star Alliance, if you think about how they've lost their [BMI] anchor feeder at Heathrow in terms of U.K. domestic that's gone off to Oneworld. It potentially supports some discussions with Star if we ever wanted to go down that route. And we know we're pretty attractive to SkyTeam because of the New York offering that we would bring to them. It's much better to have two people to talk to from a position of strength, but it's not a must-do. It's something that, if we want to, we'll get to it because it's right for the business. In the meantime, we'll continue to tread our own path. That's worked for 28 years, and we've been a force for good in the industry being independent.

You're enabling voice calls inflight. What has the response been?

Rossi: Text is getting some take-up. Voice is as well, but we're aware of the opinions on voice, and it's not a free-for-all, where 300 people on the plane are talking at once. It's six devices at a time that have the capability.

Southern: I think it will be quite self-regulating. A lot of people like the idea of it, but I think text and data will end up being used much more than voice.

Rossi: I think that will be further quelled if and when Wi-Fi capabilities come on as well. That seems to be the real demand, Wi-Fi.

What are your Wi-Fi plans?

Southern: We're trialing some. We don't want to roll something out unless it really does work and the speed is right. There would be nothing worse than rolling it out and it being just a frustration to people. Obviously, it's not as straightforward when you're doing long, overwater international legs compared to U.S. domestic. We're trialing it at the end of this year on three aircraft, and depending on what we get out of that, our hope is to roll it out. That's our desire, but I don't want to roll something out that doesn't deliver on the promise.