Founder of upstart airline says his diverse company has room to grow in U.S.
Tuesday, December 09, 2003
For the Star-Ledger
LONDON Richard Branson, the beknighted upstart billionaire who made his name with Virgin Records and Virgin Atlantic Airways, has been expanding his empire in the United States. New Jersey is home to several of his latest ventures.
While Branson is famous for the hype and glitz surrounding his best-known brands, his holdings in New Jersey have a comparatively low profile. Virgin Mobile USA, for instance, is based in a former IBM building at a glassy office park just off Route 78 in Warren Township.
The next addition to the Virgin Hotel group is due to open by 2006 at Natirar, a vast estate in Peapack that was the home of Morocco's King Hassan II
. With room rates of $450 to $500 a night, it will be far more reasonable than Branson's luxury vacation properties in the British Virgin Islands and South Africa.
A 52-year-old high school dropout, Branson is now one of the richest people in the world. Forbes magazine estimated his net worth at $1.7 billion this year.
Speaking by telephone from his London home office overlooking his private gardens and Holland Park, Branson discussed his plans for his holdings in the United States and the Garden State. The interview made clear that Branson thinks in terms of Big Ideas; on details, he referred questions to his underlings around the globe.
How do you see the Virgin empire growing in America, and specifically New Jersey?
New Jersey is where it all began with our very first plane 20 years ago, with one 747 from Newark to London. It was before Continental went into Newark. We were one of the first airlines there. Our relationship has grown since then.
We've developed the brand in quite a number of areas: retailing, Virgin Atlantic and now Virgin USA, a new domestic airline. We're well-poised to continue that development in America as we look at other areas. We've got this beautiful new health spa in a rather salubrious area of your state, and with that we'd like to create something special.
Our philosophy is to look at areas where people are not giving good value for their money and not treated well, and go in and tackle some of those areas. That's what we're doing with mobile. I'm sure we'll look at other areas, such as banking and credit cards.
What could your brand give customers in the financial arena?
Virgin Money has 1.5 million customers in the United Kingdom and Australia, specializing in pensions and life insurance, investment savings accounts and a low-cost credit card. We do everything over the Internet to hold down costs.
America is highly competitive. It's pretty difficult to offer the consumer a better deal for their money. We haven't yet identified a product that would be worth going into America.
What are the chances that the domestic low-cost airline will be based in Newark?
We're certainly talking to New Jersey authorities about that as a possibility. You are on the short list. We've had a good experience with our other companies in New Jersey. What are you looking for in a host state? A place where we can find good people, which I think we can in New Jersey. We want reasonable unemployment, so we can hire people. And we're looking for a reasonable tax situation.
What aspects do you plan to borrow from JetBlue and Southwest? What will be different from those two airlines?
We want to be the most fully frilled airline in America, but we want to keep our costs low. It would be a short-haul version of Virgin Atlantic. We want to be the best airline flying in America in terms of the quality that we offer.
Why did you base Virgin Wireless in Warren instead of, say, San Francisco?
New Jersey offers the convenience time-wise with the rest of the world, the proximity to New York, and the fact that it's easy only six hours away from London. Often, businesses grow in clusters. We'll have people at one business and we'll want to move them to another in the same area.
Do you think it matters that your Warren headquarters does not convey "hipness" like your Leicester Square location in London?
It's more American, more high-powered, slightly less casual and laid-back, but they're delivering, and that's what matters. I don't think (the location) matters in that the public doesn't visit the site. Quite often buildings reflect chief executives. I'm not sure who I'm insulting here. Dan (Schulman, the CEO of Virgin Wireless USA), is a professional executive who's run major American companies.
I think that the most important thing is the product that's coming out of New Jersey is extremely hip. We are advertising on MTV and VH1, and the way they're in touch with their public is excellent, and it's working. In Britain, we've sort of grown up out of the 60s and long hair, and somehow maybe it hasn't quite caught on in America, but I'm sure in time it will.
Virgin Mobile USA recently signed on its millionth subscriber. How do you explain the appetite for another wireless carrier?
What we saw about America is a very undeveloped mobile phone industry. The pre-paid phones market penetration was only about 10 percent, while in the U.K. it was 70 percent. The American market had stupid restrictions, like you couldn't switch your plans and keep your number. You left your phones off because incoming calls you got charged for. You had expensive contracts you couldn't get out of. It was ripe for Virgin to go in, and it worked.
When do you think the company will match its quick growth with profitability?
As far as profitability, we're only a few months now from turning really good sales. Next year we'll start being EBITA positive and making good profits.
Will the New Jersey spa draw the same clientele as your signature resort at Necker Island, where customers pay $14,000 to $36,000 a night?
I don't think it's going to be anything like Necker Island. Necker Island is the most beautiful place on earth, so the cost is more. We'll be looking to make the spa good value. The view is spectacular. The environment around it is spectacular. The building needs some work to it to make it really nice. I think it can be made into one of the best spas in the world. "