Virgin Atlantic is concerned that its carefully crafted brand image could suffer from the planned foray into low-frills, low-cost operations in Europe by chairman Richard Branson.
Virgin Europe, headed by ex-Continental Express boss Jonathan Ornstein, declared an interest in mid-February in buying 80 per cent of Brussels-based EuroBelgian Airlines. Branson has joined forces with US financier David Bonderman. San Francisco investment bank Hambrecht & Quist, specialists in US low-cost startup financing, are also looking for involvement.
The deal would include EBA's charter operation and the low-cost, low-frills scheduled EBA Express which serves five major European cities from Brussels. Although the European and Atlantic operations will operate independently the 'core concern is the brand positioning' of the new product, admits a Virgin Atlantic insider. The main worry is about how the cheap and cheerful image will sit with the quality reputation of Virgin's long-haul product.
Virgin's origins were in the low-cost transatlantic market and one branding specialist says it is not impossible to return to that image, as it does not necessarily exclude quality. 'Within the European market the Virgin name is synonymous with value. You can adjust the communication [of that] to suit your market,' says David Fraser, director at London consultants Fitch.
Equally, Fraser adds, Virgin's image has always been about challenging the establishment and a low-cost carrier forcing change in the traditionally high-priced European market is in keeping with that image.
EBA will have 14 B737s by June, giving Virgin Europe a ready-made fleet, although about half of those are dedicated to charter flights. Scheduled expansion out of Brussels will be slow, but the longer term plan is to establish several 'focus cities' in Europe, most probably at secondary airports, says a source. All operations will be point-to-point.
The memorandum of understanding signed with EBA expires at the end of April, leaving one month before the startup of Virgin Europe in June. Under the proposed deal the current owners of EBA, City Hotels (51 per cent) and Luxembourg holding company NEI (49 per cent), would retain a 20 per cent stake. Virgin Europe would have an option to buy half of that by 1999.
Victor Hasson, managing director of EBA says the company has a net asset value of BFr2 billion ($65.9 million), and made a net profit of around BFr200 million on turnover of BFr5.1 billion in 1995. He says the sale would secure the carrier's future against the next recession, but that a sale is not crucial. Two Continental Express executives have followed Ornstein to London - Jim Swigart heads finance and planning and Geoff Moss marketing, on a consultancy basis.
Sara Guild
Source: Airline Business
