INTERVIEW: Service pays off for Virgin Atlantic and deepening ties to Virgin Australia are expected to improve results
AirCargo archive stories issue 235
Wednesday, 04 March 2015
Continuing economic uncertainty in Europe, a slow down in China, plus security concerns and high fuel prices have proved challenging for the air freight sector in the past few years.
UK-based Virgin Atlantic has for the most part done better than many of its peers, posting record performances in two of the past five years. For the most part, it has used available capacity cleverly and has been able to exploit the changing pace of its various markets in the face of yield reductions.
Fortunately, Virgin Atlantic’s primary market - the US - has recovered, fuel prices have fallen dramatically and 2015 is looking very positive.
An announcement due later this month (March) is expected to elaborate on the deepening relationship between Virgin Atlantic’s and Virgin Australia’s air cargo operations and networks.
AirCargo Asia-Pacific recently spoke to John Lloyd, director of cargo for Virgin Atlantic on the changing markets and the direction Virgin Atlantic is headed in 2015.
Lloyd joined Virgin Atlantic Cargo in 1987 and has more than 30 years’ experience in the cargo industry. While recognising Virgin Atlantic Cargo will never be the biggest cargo carrier, he has instilled a passion for customer service in the organisation that has ensured it is consistently rated as one of the best cargo-carrying airlines in the world, winning 13 ‘Cargo Airline of the Year’ awards since 2002.
He joined Virgin Atlantic Cargo as Cargo Operations Officer based at Gatwick and has steadily progressed within the company from supervisory and management positions based at Heathrow and Gatwick, to general manager – Operations and general manager - Cargo before he was promoted to his current position of director of Cargo.
In his role, he and his team manage Virgin Atlantic’s cargo operations around the world. In addition, Virgin Atlantic Cargo offers a further 350 on-forwarding destinations world wide including those of its local partner Virgin Australia.
Last year was a year to forget for growth and yields in the air freight industry. How is 2015-16 shaping up for Virgin Atlantic? Every airline wants and needs to operate with the best possible margins and, in our case, optimise the contribution cargo makes to the airline overall. While there have been significant fluctuations in the air cargo market in the last few years, our business and share of the market have been quite resilient. Two of the past five years have been record years for our cargo business. In 2013, we maintained our revenues at GBP225.3 million very close to the previous three years and we carried 224,500 tonnes. Our figures for 2014 have yet to be reported but our tonnage was on a par with 2013 and we will be between one and two percent of that again, despite some capacity reduction. Overall, we held our position last year, achieved a slight increase in market share and had a load factor of 74 per cent, significantly above industry average. We are quite confident about the year ahead.
A couple of cargo carriers have moved to introduce surcharge-free pricing. The industry seems largely to support the move at least in principle. Any comment on the initiative and any plans to follow suit? We are discussing this right now. It would be easy to just make a snap decision but we want to get some feedback from our customers first about what works best for them. We fully support a clearer, simpler charging structure but we do need to consider processes or controls that protect us against fuel price spikes in the future. Surcharges are certainly a source of tension with customers so the move to something simpler now makes sense. The reality is that there has been an abundance of all-in rates in the market for some time.
The deepening alliance between Virgin Atlantic and Virgin Australia is exciting. What does it mean for freight forwarders in both your combined markets? We have an excellent working relationship with Virgin Australia that dates back to the start of 2009. Under the terms of our agreement, we sell all of Virgin Australia’s long-haul international capacity connecting Sydney and Brisbane with Los Angeles. It works for both parties. For Virgin Australia, it generates a healthy financial contribution from cargo without the need for, and cost of, an in-house operation and they trust us to deliver the highest levels of customer service. In 2014, the amount of cargo we attracted for the Virgin Australia network rose by just over 20 per cent year-on-year. We saw growth throughout the year and 2014 ended with the highest December tonnages we have seen in four years. For Virgin Atlantic, it ensures we can connect customers in Australia and around the world with the rest of our network over the US west coast and means we have valuable transpacific capacity both ways. It also gives us a presence in Australia, which has always been a very important market for us from both a financial and emotional point of view because we have a strong connection with customers there and we remain passionate about working with them. We have just appointed Neil Vernon as Virgin Atlantic Cargo’s vice president Sales International and Australia is one of the first markets he is going to visit in his new role. Both we and Virgin Australia are actively looking for ways to further develop our relationship.
Global economic problems continue with China, Russia and elsewhere on the globe. What markets most impact Virgin Atlantic Cargo’s growth? China is certainly a factor. We are still filling our aircraft but the market is suffering a little at the moment and yields are suppressed, though this may only be a short-term situation. Otherwise, we are fairly well protected. Our primary market has always been the US and our service levels and reliability mean we compete well on the routes we serve. We don’t flood the market with capacity and we have a good spread of medium-high demand routes. Our latest route to Atlanta has started positively with very encouraging load factors and in June we open our tenth US route to Detroit. Whatever is happening in the world, the priority for us is to stay close to our customers. Our approach is based on talking to our customers to understand what it is that works for them and to then ensure we offer the service levels and pricing that makes Virgin Atlantic the right choice for their business.
What other new destinations might prove attractive this year? As I said, Atlanta is still a relatively new route for us and it will soon be joined by Detroit. Otherwise this year is about increasing frequencies of some existing routes. This will include extra services to Atlanta, New York JFK, Los Angeles, San Francisco and Las Vegas. Detroit gives us another gateway in the US Midwest and we expect it to generate a lot of on-forwarding business for our trucking services to other points nearby.
Fuel price reductions must be a boon for freight operations. Is Virgin locked into hedging contracts or can we soon expect a sharp reduction in surcharges? Yes, we have a comprehensive hedging portfolio that will take a little time to unwind and feed back into pricing levels.
High value shipments and pharma have been growth areas for carriers. Is Virgin Atlantic developing any special or unique freight services? Air cargo is obviously a premium mode of transport in terms of its speed and reliability, so quite a high percentage of what we already carry is of relatively high value. Pharma business contributes a growing share of our revenues and we expect this to increase thanks to the reliability of our cool chain service. We have always taken a simple approach to our services because our customers are influenced only by what we promise, how we deliver and the value we provide. The hands-on nature of the way we work and our service levels lend themselves well to time- and temperature-sensitive cargo or any shipments that demand a premium service. We certainly want to grow our share of the high value market this year and our customers should be confident that whatever we offer will come with the guarantee of a high class service they can rely on.
You pulled out of Mumbai in India at the end of January, despite the country being tipped to deliver solid growth going forward. What was the rationale? India has been a very important market for Virgin Atlantic for nearly 15 years but the passenger and cargo yields ex Mumbai are very different to the level from Delhi and we could not see any signs that this was going to improve. We never like to pull off a route because we work hard to build relationships with customers and appreciate the support they give us but the harsh reality is that we have an expensive aircraft asset that we have to make the most of, because airlines have to make money. Our customers in India appreciate the commercial realities of business and they understand that we are still very committed to India with our daily Delhi flights.
Virgin will have a major transatlantic focus in 2015 but you have talked before about the levels of excess capacity on these routes. How is this going to impact your cargo business and how can you succeed when other carriers are struggling? We know the market very well because it has been our biggest market for over 30 years. There’s no question that it is extremely competitive, but we are adding capacity on routes where we are already well established as a high quality carrier or in new markets like Atlanta and Detroit where we can see good cargo potential. Customers that choose to fly their cargo with Virgin across the Atlantic are very positive about these opportunities to use us more.
Delta acquired a 49 per cent stake in Virgin Atlantic and you now share a transatlantic joint venture. What does that mean in real terms for the cargo customers of both airlines? What are you already doing together and what might we see in the future? It means that in terms of frequencies and destinations, we will have a very substantial offering for our customers covering 245 departures a week to and from 19 destinations. Our big focus now is to get our systems talking to each other so we can book directly into each airline’s capacity. In support of this, we have already co-located our handling in a lot of stations to ensure a fast and seamless service for the customers of both airlines.
People often forget that Virgin is not a big airline in terms of its fleet and route network because you have arguably punched about your weight thanks to the Virgin brand and your high customer service – but how difficult is it to maintain this? Is a strong brand and great service enough when competing against today’s handful of big global carriers? We have a strong brand and a reputation for high class service and so sometimes we are perceived to be a bigger airline that we actually are. We have a good network of routes in and out of the UK and serve some important trade lanes but we do often stop and ask ourselves ‘why do customers need to use us?’ If you take the need to be price competitive as a given, I believe customers choose to fly their cargo with Virgin Atlantic because we look after our customers, we always try to be flexible to meet their requirements, we’re both proactive and approachable, and if something goes wrong at any point, we fix it quickly. Our load factors suggest we are getting the balance right. We also run a lean and efficient cargo operation and we have extremely effective capacity and revenue management processes that ensure we make the right decisions about the business we carry and deliver reliable service. Sometimes the bigger the competition is, the easier it is to compete against because they can’t always do what we can do. We work hard on our customer relationships and continue to target those customers we know place a higher value on service.
What are your biggest concerns for the air cargo industry in 2015? The security environment given the world we live in today.
INTERVIEW: Service pays off for Virgin Atlantic and deepening ties to Virgin Australia are expected to improve results
AirCargo archive stories issue 235
Wednesday, 04 March 2015
Continuing economic uncertainty in Europe, a slow down in China, plus security concerns and high fuel prices have proved challenging for the air freight sector in the past few years.
UK-based Virgin Atlantic has for the most part done better than many of its peers, posting record performances in two of the past five years. For the most part, it has used available capacity cleverly and has been able to exploit the changing pace of its various markets in the face of yield reductions.
Fortunately, Virgin Atlantic’s primary market - the US - has recovered, fuel prices have fallen dramatically and 2015 is looking very positive.
An announcement due later this month (March) is expected to elaborate on the deepening relationship between Virgin Atlantic’s and Virgin Australia’s air cargo operations and networks.
AirCargo Asia-Pacific recently spoke to John Lloyd, director of cargo for Virgin Atlantic on the changing markets and the direction Virgin Atlantic is headed in 2015.
Lloyd joined Virgin Atlantic Cargo in 1987 and has more than 30 years’ experience in the cargo industry. While recognising Virgin Atlantic Cargo will never be the biggest cargo carrier, he has instilled a passion for customer service in the organisation that has ensured it is consistently rated as one of the best cargo-carrying airlines in the world, winning 13 ‘Cargo Airline of the Year’ awards since 2002.
He joined Virgin Atlantic Cargo as Cargo Operations Officer based at Gatwick and has steadily progressed within the company from supervisory and management positions based at Heathrow and Gatwick, to general manager – Operations and general manager - Cargo before he was promoted to his current position of director of Cargo.
In his role, he and his team manage Virgin Atlantic’s cargo operations around the world. In addition, Virgin Atlantic Cargo offers a further 350 on-forwarding destinations world wide including those of its local partner Virgin Australia.
Last year was a year to forget for growth and yields in the air freight industry. How is 2015-16 shaping up for Virgin Atlantic? Every airline wants and needs to operate with the best possible margins and, in our case, optimise the contribution cargo makes to the airline overall. While there have been significant fluctuations in the air cargo market in the last few years, our business and share of the market have been quite resilient. Two of the past five years have been record years for our cargo business. In 2013, we maintained our revenues at GBP225.3 million very close to the previous three years and we carried 224,500 tonnes. Our figures for 2014 have yet to be reported but our tonnage was on a par with 2013 and we will be between one and two percent of that again, despite some capacity reduction. Overall, we held our position last year, achieved a slight increase in market share and had a load factor of 74 per cent, significantly above industry average. We are quite confident about the year ahead.
A couple of cargo carriers have moved to introduce surcharge-free pricing. The industry seems largely to support the move at least in principle. Any comment on the initiative and any plans to follow suit? We are discussing this right now. It would be easy to just make a snap decision but we want to get some feedback from our customers first about what works best for them. We fully support a clearer, simpler charging structure but we do need to consider processes or controls that protect us against fuel price spikes in the future. Surcharges are certainly a source of tension with customers so the move to something simpler now makes sense. The reality is that there has been an abundance of all-in rates in the market for some time.
The deepening alliance between Virgin Atlantic and Virgin Australia is exciting. What does it mean for freight forwarders in both your combined markets? We have an excellent working relationship with Virgin Australia that dates back to the start of 2009. Under the terms of our agreement, we sell all of Virgin Australia’s long-haul international capacity connecting Sydney and Brisbane with Los Angeles. It works for both parties. For Virgin Australia, it generates a healthy financial contribution from cargo without the need for, and cost of, an in-house operation and they trust us to deliver the highest levels of customer service. In 2014, the amount of cargo we attracted for the Virgin Australia network rose by just over 20 per cent year-on-year. We saw growth throughout the year and 2014 ended with the highest December tonnages we have seen in four years. For Virgin Atlantic, it ensures we can connect customers in Australia and around the world with the rest of our network over the US west coast and means we have valuable transpacific capacity both ways. It also gives us a presence in Australia, which has always been a very important market for us from both a financial and emotional point of view because we have a strong connection with customers there and we remain passionate about working with them. We have just appointed Neil Vernon as Virgin Atlantic Cargo’s vice president Sales International and Australia is one of the first markets he is going to visit in his new role. Both we and Virgin Australia are actively looking for ways to further develop our relationship.
Global economic problems continue with China, Russia and elsewhere on the globe. What markets most impact Virgin Atlantic Cargo’s growth? China is certainly a factor. We are still filling our aircraft but the market is suffering a little at the moment and yields are suppressed, though this may only be a short-term situation. Otherwise, we are fairly well protected. Our primary market has always been the US and our service levels and reliability mean we compete well on the routes we serve. We don’t flood the market with capacity and we have a good spread of medium-high demand routes. Our latest route to Atlanta has started positively with very encouraging load factors and in June we open our tenth US route to Detroit. Whatever is happening in the world, the priority for us is to stay close to our customers. Our approach is based on talking to our customers to understand what it is that works for them and to then ensure we offer the service levels and pricing that makes Virgin Atlantic the right choice for their business.
What other new destinations might prove attractive this year? As I said, Atlanta is still a relatively new route for us and it will soon be joined by Detroit. Otherwise this year is about increasing frequencies of some existing routes. This will include extra services to Atlanta, New York JFK, Los Angeles, San Francisco and Las Vegas. Detroit gives us another gateway in the US Midwest and we expect it to generate a lot of on-forwarding business for our trucking services to other points nearby.
Fuel price reductions must be a boon for freight operations. Is Virgin locked into hedging contracts or can we soon expect a sharp reduction in surcharges? Yes, we have a comprehensive hedging portfolio that will take a little time to unwind and feed back into pricing levels.
High value shipments and pharma have been growth areas for carriers. Is Virgin Atlantic developing any special or unique freight services? Air cargo is obviously a premium mode of transport in terms of its speed and reliability, so quite a high percentage of what we already carry is of relatively high value. Pharma business contributes a growing share of our revenues and we expect this to increase thanks to the reliability of our cool chain service. We have always taken a simple approach to our services because our customers are influenced only by what we promise, how we deliver and the value we provide. The hands-on nature of the way we work and our service levels lend themselves well to time- and temperature-sensitive cargo or any shipments that demand a premium service. We certainly want to grow our share of the high value market this year and our customers should be confident that whatever we offer will come with the guarantee of a high class service they can rely on.
You pulled out of Mumbai in India at the end of January, despite the country being tipped to deliver solid growth going forward. What was the rationale? India has been a very important market for Virgin Atlantic for nearly 15 years but the passenger and cargo yields ex Mumbai are very different to the level from Delhi and we could not see any signs that this was going to improve. We never like to pull off a route because we work hard to build relationships with customers and appreciate the support they give us but the harsh reality is that we have an expensive aircraft asset that we have to make the most of, because airlines have to make money. Our customers in India appreciate the commercial realities of business and they understand that we are still very committed to India with our daily Delhi flights.
Virgin will have a major transatlantic focus in 2015 but you have talked before about the levels of excess capacity on these routes. How is this going to impact your cargo business and how can you succeed when other carriers are struggling? We know the market very well because it has been our biggest market for over 30 years. There’s no question that it is extremely competitive, but we are adding capacity on routes where we are already well established as a high quality carrier or in new markets like Atlanta and Detroit where we can see good cargo potential. Customers that choose to fly their cargo with Virgin across the Atlantic are very positive about these opportunities to use us more.
Delta acquired a 49 per cent stake in Virgin Atlantic and you now share a transatlantic joint venture. What does that mean in real terms for the cargo customers of both airlines? What are you already doing together and what might we see in the future? It means that in terms of frequencies and destinations, we will have a very substantial offering for our customers covering 245 departures a week to and from 19 destinations. Our big focus now is to get our systems talking to each other so we can book directly into each airline’s capacity. In support of this, we have already co-located our handling in a lot of stations to ensure a fast and seamless service for the customers of both airlines.
People often forget that Virgin is not a big airline in terms of its fleet and route network because you have arguably punched about your weight thanks to the Virgin brand and your high customer service – but how difficult is it to maintain this? Is a strong brand and great service enough when competing against today’s handful of big global carriers? We have a strong brand and a reputation for high class service and so sometimes we are perceived to be a bigger airline that we actually are. We have a good network of routes in and out of the UK and serve some important trade lanes but we do often stop and ask ourselves ‘why do customers need to use us?’ If you take the need to be price competitive as a given, I believe customers choose to fly their cargo with Virgin Atlantic because we look after our customers, we always try to be flexible to meet their requirements, we’re both proactive and approachable, and if something goes wrong at any point, we fix it quickly. Our load factors suggest we are getting the balance right. We also run a lean and efficient cargo operation and we have extremely effective capacity and revenue management processes that ensure we make the right decisions about the business we carry and deliver reliable service. Sometimes the bigger the competition is, the easier it is to compete against because they can’t always do what we can do. We work hard on our customer relationships and continue to target those customers we know place a higher value on service.
What are your biggest concerns for the air cargo industry in 2015? The security environment given the world we live in today.
AirCargo Asia-Pacific recently spoke to John Lloyd, director of cargo for Virgin Atlantic on the changing markets and the direction Virgin Atlantic is headed in 2015.
What other new destinations might prove attractive this year? 
