Virgin Atlantic Hungry For Further Airline Acquisitions

Virgin Atlantic have submitted a proposal to take over the long haul arm of Thomas Cook’s airline business. They are up against Lufthansa and potentially Indigo Partners too, although IAG have ruled out any bid for the airline.

Virgin Atlantic
Virgin Atlantic have expressed an interest in Thomas Cook’s airline business. Photo: Transport Pixels via Flickr

British upstart carrier, Virgin Atlantic, are in the running to take over Thomas Cook’s struggling airline. Specifically, Virgin Atlantic have lodged a proposal to Thomas Cook’s bankers for the long haul arm of the business.

This part of the Thomas Cook airline serves destinations including Cancun, Las Vegas and Orlando from the UK. It accounts for approximately 20% of the seats sold by the travel company, working out of London’s Gatwick Airport, as well as Manchester and Glasgow.

The interest of Virgin Atlantic in Thomas Cook comes just months after it jointly took over the UK regional carrier Flybe. They have also recently express an interest in Caribbean carrier LIAT.

Who wants to buy Thomas Cook?

There are a number of potential investors showing an interest in Thomas Cook’s airline. The well-known travel agent, in business since 1841, decided to sell of their aviation arm following a tough year with massive losses. The travel agent, one of the oldest companies in Britain, now has less than £350m in equity, and are apparently in need of further borrowing to stay in business long term.

Sky News reports that Thomas Cook had received a number of proposals for their aviation business, some of which were for the entire operation (which includes Condor in Germany), and others which, like Virgin’s offer, were  for just a part of the business.

Thomas Cook’s airline business includes Condor in Germany. Photo: Condor

Also in the running for the sale are Lufthansa, who are primarily looking to purchase Condor, but with options to buy out the rest of the operations too.

Indigo Partners, a private equity firm who already back a number of airlines including the highly successful Wizz, are also reported to be in the race.

Notably absent from the competition, however, are British Airways owner IAG. Typically the first in the queue, particularly when it comes to buying UK based airlines, IAG have been clear on their stance around Thomas Cook. Speaking to Euronews, CEO Willie Walsh said,

“In relation to Thomas Cook… we’re not putting in any bid,”

This puts Virgin in a strong position to secure their deal for the long haul part of Thomas Cook. However, only time will tell if they do manage to snag yet another airline purchase in 2019.

The Flybe acquisition

If the Thomas Cook deal comes off, it will be the second major purchase made by Virgin Atlantic this year. Back in January, a consortium of partners called Connect Airways, which included Virgin Atlantic and Stobart, took over failing airline Flybe in dramatic style. Bypassing shareholders, they made a surprise purchase of the airline, saving 2,400 jobs and tripling their fleet size overnight.

Virgin’s acquisition of Flybe was a strategic move. Photo: Wikimedia

Spectators can’t help but draw comparisons between the Flybe purchase and Virgin’s disastrous regional airline venture that was ‘Little Red’. Designed as a feeder airline to Virgin’s hub airports, the project failed spectacularly, closing down just over two years after their first flight.

Speaking to TTG Media, CEO of Virgin Atlantic, Shai Weiss, is upbeat about the past, saying:

“Launching, operating and shutting Little Red does not mean the idea wasn’t right. People ask what the difference will be with Flybe. My cheeky answer is 8.5 million passengers. Flybe is an established network, with load factors of 80% and slots at Heathrow. It’s something we contemplated with BMI, tried with Little Red, and I believe will ultimately be very successful with Flybe.”

The loss of the BMI deal almost certainly still stings at Virgin. As the second largest carrier at Heathrow, both Virgin and British Airways’ owner IAG were keen to snap up the regional carrier when it came up for sale. In the end, IAG won out, increasing their Heathrow landing slots from 45% to 53%, and prompting Sir Richard Branson to say the deal ‘screws the traveling public’.

It seems that this time IAG are unwilling to go head to head with Virgin over Thomas Cook’s airline, leaving the door wide open for their rival to secure a successful deal.

What about LIAT?

Just a couple of weeks ago, Virgin Atlantic bosses were said to be in talks over bailing out the struggling carrier LIAT. Richard Branson is said to have proposed a $7m investment in the Caribbean carrier, to save it from being shut down.

Could Branson’s millions save LIAT? Photo: Wikimedia

LIAT are currently owned mainly by the governments of Barbados, Antigua and Barbuda, St. Vincent and the Grenadines and Dominica. Other Caribbean governments, private shareholders and employees also own minor shares.

The prime minister of Trinidad and Tobago has recently warned that the carrier could cease to fly within weeks, after ‘uneconomic routes’ and ‘heavily subsidized loads’ left them struggling to turn a profit. Virgin’s bid for the airline could see the airline, which is said to be a ‘lifeline’ to the islands, saved from collapse.

Why are Virgin doing so much buying?

The hunger of Virgin Atlantic to buy, buy, buy might come as no surprise when you look at the bigger picture. A major change in leadership in January saw Israeli born Shai Weiss taking the reins from Craig Kreeger. When you dig into the background of Virgin Atlantic’s new CEO, things start to make sense.

Shai Weiss
Shai Weiss took over as Virgin CEO on January 1st. Photo: Virgin

Weiss emerged from Columbia Business School with an MBA in finance and went on to work with Morgan Stanley in their mergers and acquisitions group. He was instrumental in the merger between Virgin Media, Virgin Mobile and NTL:Telewest back in 2004, which was when he first met Richard Branson.

Working alongside Branson for many years on a variety of projects, he moved into the aviation industry in 2014, appointed as VA’s chief financial officer. He went on to become chief commercial officer in 2017, before taking the helm in January this year.

Since taking the lead, lots has happened at Virgin. New routes to Sao Paulo and Tel Aviv have launched, and from next summer they’ll be adding New York and Boston Logan from Gatwick too. They revealed the new cabin of their forthcoming A350 a few weeks ago and are expecting delivery of the first around the middle of this year. They are looking to expand their joint venture with Delta later this year too.

Virgin A350
Virgin have eight A350s on order. Photo: Virgin Atlantic

But Weiss says that all this is just the start. Speaking to TTG Media, he said: “What we’re seeing is the tip of the iceberg in terms of the decisions we’ve made,”

Looking at Weiss’s credentials and background in mergers and finance, it’s clear why there’s so much going on at Virgin right now. It’s exciting times for the airline, and for all their passengers too. We can’t wait to see what Weiss has in store next!