A year later, Rob Shreeve joined Virgin Books as managing director, with Robert as chairman. Together they relaunched the business as Virgin Publishing, concentrating on our core strengths of music and entertainment. Within a few years the company had become a highly successful publisher of books on entertainment, and probably the world’s leading publisher of books on popular music.
In February 1984 a young American lawyer called Randolph Fields asked me whether I was interested in operating an airline. Randolph was looking for investors to finance a new airline that would use the Gatwick to New York route, which had become vacant following the collapse of Sir Freddie Laker’s airline in 1982. He sent me a proposal which I took up to read at Mill End. It was obvious that he had contacted lots of other investors before me – a record-label owner is hardly going to be his first call – so as I skimmed through the proposal I kept saying to myself, ‘Don’t get tempted; don’t even think about it.’
In the same way that I tend to make up my mind about people within thirty seconds of meeting them, I also make up my mind about whether a business proposal excites me within about thirty seconds of looking at it. I rely far more on gut instinct than researching huge amounts of statistics. This might be because, due to my dyslexia, I distrust numbers, which I feel can be twisted to prove anything. The idea of operating a Virgin airline grabbed my imagination, but I had to work out in my own mind what the potential risks were.
Throughout that weekend I mulled over the proposal. Randolph’s idea was to offer an all-business-class airline, but this didn’t appeal. I worried about what would happen on the days when businessmen don’t fly: Christmas, Easter, Bank holidays, the entire Thanksgiving week. I thought that we would have to have holiday-makers to fill the plane in those weeks. If we were going to be different from other airlines, with their first, business and economy classes, perhaps we could offer just two classes: business and economy? I wondered what the implications of that would be. We’d get both businessmen and tourists – who would we miss? I wrote out a list of things I wanted to understand about how the aircraft leasing would work. If I could lease the plane for one year and then have the chance to return the plane, we would have a clear escape route if it all failed. It would be embarrassing, but we would limit the amount of money we lost. By the end of the weekend I had made up my mind: if we could limit everything to one year – the employment contracts, the leasing of the aircraft, the exchange exposure, and anything else that starting up a New York route involved – then I wanted to have a shot at it.
The only airline that was offering cheap fares across the Atlantic in 1984 was People Express. I picked up the phone and tried to call them. Their number was engaged. It was impossible to get through on their reservations line all morning. I reasoned that either People Express was very poorly managed, in which case they would be an easy target for new competition, or that they were so much in demand that there was room for new competition. It was that continual engaged tone on my telephone throughout Saturday more than anything else which triggered my belief that we could set up and run an airline.
I called up Simon on Sunday evening.
‘What do you think about starting an airline?’ I jauntily asked him. ‘I’ve got a proposal here –’
‘For God’s sake!’ he cut across me. ‘You’re crazy. Come off it.’
‘I’m serious.’
‘You’re not,’ he said. ‘You’re mad.’
‘OK,’ I said. ‘I won’t go into it now. But I think we should have lunch.’
On Monday morning I called up international directory inquiries and asked for the number for Boeing. Boeing is based in Seattle, and due to the time difference I couldn’t speak to them until late that afternoon. They were rather bemused to hear an Englishman asking what kinds of deals were available on a jumbo. I spent all afternoon and all evening on the phone to Boeing, and eventually I spoke to someone who could help me. They told me that Boeing did lease aircraft, and that they had a second-hand jumbo that they would seriously consider taking back after a year if things didn’t work out. With this extremely basic, not to say sketchy, information I prepared to face Simon and Ken.
The lunch the next day was not a success. After I told them about how impossible it had been to get through to People Express and that Boeing had planes to lease, they looked shocked. I think they realised I had done all the market research I felt I needed to do and had made up my mind. They were right: I had worked myself up into a state about it.
‘You’re a megalomaniac, Richard,’ Simon said. ‘We’ve been friends since we were teenagers, but if you do this I’m not sure that we can carry on working together. What I’m telling you is that you go ahead with this over my dead body.’
Ken was less outspoken, but he too thought that the idea of combining a record company with an airline was anathema.
‘I can’t see the connection,’ he said. ‘And, if you’re looking for losses to offset against our profits, we could always invest in new bands.’
‘All right, then,’ I said. ‘We won’t combine it. We’ll keep the two companies separate. We can arrange the financing so that Virgin Music is scarcely at risk. I’ve spoken to Boeing, and they can offer a lease whereby they take the plane back after a year if it doesn’t work. The most Virgin would lose would be £2 million.’
Simon and Ken remained resolutely opposed.
‘Come on,’ I ploughed on. ‘Virgin can afford to make this step. The risk is less than a third of this year’s profits. Money from Culture Club is pouring in. And it’ll be fun.’
Simon and Ken both winced when I said ‘fun’, which is a particularly loaded word for me – it’s one of my prime business criteria. Since I had made up my mind, I knew I had to convince them. I carried on arguing that we would only have one plane, that we could just dip our toe into the water, and that if the water was too hot we could cut our losses. I explained that the beauty of starting up from scratch rather than buying an existing airline was that we could easily retreat if it didn’t work. In my mind it was that simple. Simon was most worried that I was risking the value of his shareholding in the Virgin Group, and I think Ken thought I had gone way over the top.
In the same way that the argument over The Human League had been a turning point in Simon’s and my relationship with Nik, the argument that lunchtime was a turning point in my relationship with Simon. Over the years I had unnerved him several times, but this time he felt that I was prepared to bet the company and all our accumulated wealth on a scheme that he thought was totally harebrained. Simon’s interest and love for life comes from the arts, from music, books, his collection of paintings and beautiful cars. My interest in life comes from setting myself huge, apparently unachievable, challenges and trying to rise above them. From a purely commercial perspective, Simon was absolutely right; but from the viewpoint of wanting to live life to the full, I felt I had to attempt it. From that lunchtime onward a tension sprang up in our relationship which has never fully dissolved.
Randolph was proposing to call the airline British Atlantic, but if I was going to be involved I wanted to bring ‘Virgin’ into the title. We agreed to differ on that until the airline was a little closer to reality. There was a lot to learn, so I asked Sir Freddie Laker, a man I’ve always admired, whether he could help me. Sir Freddie came to have lunch on Duende and explained the mechanics of an airline. He quickly confirmed my suspicions about the limitations of starting an airline that was exclusively business class.
‘And you don’t want to be all no-frills economy service either,’ he pointed out. ‘That was my mistake. You’ll be vulnerable to the simple cost-cutting attack which put me out of business.’
We began a discussion on the philosophy of the business-class service at that lunch. We talked about offering a first-class service at business-class fares, and building in all kinds of extra services for the cost. Two of the best ideas that came out of our lunch were to offer a limousine pick-up as part of the service and of
fer a free economy ticket to anyone who flew business.
Freddie also warned me to expect some fierce competition from British Airways.
‘Do all you can to stop BA,’ he said. ‘Complain as loudly as possible, use the Civil Aviation Authority to stop them, and don’t hesitate to take them to court. They’re utterly ruthless. My mistake was that I never complained loudly enough. They destroyed my financing and it’s too late for me now. I sued them and won millions of dollars, but I lost my airline. If you ever get into trouble, sue them before it’s too late. Another thing, Richard, is the stress. I’m not kidding, but you should have regular medical checkups. It is very stressful.’
Freddie told me that he was just recovering from cancer of the pancreas.
‘You need to go to a doctor and ask him to stick his finger up your bum. He’ll be able to tell you what’s what,’ Freddie said.
I was inspired to see that, despite all his problems, Freddie was still so ebullient. He was unbowed by the experience, and he saw me as his successor, picking up the flag where he had left off. I asked Freddie whether he would object if I called Virgin Atlantic’s first aircraft Spirit of Sir Freddie, but he laughed it off:
‘Not the first one,’ he said. ‘My name’s a liability now and you’d send out the wrong signals. But I’d be honoured when you’ve got a larger fleet.’
As Freddie left Duende he turned round and shouted back at me, ‘One last word of advice, Richard. When you’re bent over and the doctor’s got his finger up your bum, make sure that he hasn’t got both his hands on your shoulders!’
Roaring with laughter, he made his way along the towpath.
The first arrangement I made with Randolph was that we would have an equal partnership. I would invest the funds; he would run the airline. Randolph had already recruited two key people from Laker Airways: Roy Gardner, who had run the engineering side of Laker, and David Tait, who had run the American side of the operation.
‘What do you think of the name?’ I asked David Tait.
‘British Atlantic?’ He snorted. ‘Just what the world needs: another BA!’
Using David’s reaction, I managed to get Randolph to agree to change the name to Virgin Atlantic Airways, and then we formed our joint partnership.
‘What do you think of the new name?’ I asked David Tait.
‘Virgin Atlantic?’ He snorted. ‘Nobody will ever set foot inside a plane called “Virgin”. It’s ridiculous. Who’d fly an airline that’s not prepared to go the full distance?’
Within a couple of weeks it became clear that the arrangement between Randolph and me would not work. At our first meeting in front of the Civil Aviation Authority, who monitor the safety of airlines, Randolph went in to talk about his plans for the new airline. Colin Howes, my lawyer from Harbottle and Lewis, was there. After watching Randolph blustering for a few minutes, Colin slipped out of the hearing to call me and advise me to get across to Kingsway in Holborn:
‘It’s not going very well,’ Colin said. ‘I think that Randolph is digging a hole for himself.’
I came into the hearing and saw that Randolph was being fiercely cross-examined by British Caledonian, who were objecting to our licence application. Our airline was purely an idea, a paper airline, so it was easy for them to run rings round us, asking what we intended to do about safety drills, how we were going to maintain our plane, how we could guarantee our passengers’ safety. Randolph was an impatient man, and I could see that he was growing angry and confused in the face of this sustained questioning. Equally, the CAA were looking rather sceptical about Randolph’s ability to get an airline off the ground. When the CAA came on to the question of finances, the British Caledonian lawyer looked across the room at me and said:
‘You’ll have to have a lot of hits on Top of the Pops to keep the airline going.’
‘Actually,’ I pointed out tartly, ‘Virgin made profits of £11 million last year – more than twice those of your client, British Caledonian.’ I decided not to mention that we were having to pay out large sums of money to continue making 1984.
The CAA specified that the new airline would have to have working capital of £3 million and gave their permission for us to fly in theory. This was the official blessing. Of course, the CAA could withdraw their permission at any time if we failed to meet safety requirements. We would have to have another CAA test once we had leased the aircraft, but for now we had the go-ahead to establish the airline. We rented a warehouse near Gatwick Airport, where we based Roy Gardner and his engineering team, and started recruiting pilots and cabin staff. We rented office space in the Air Florida office on Woodstock Street, just off Oxford Street, where we piggybacked on their computer-reservations system and created a dummy file for the Virgin Atlantic flights. David Tait moved his family up from Miami back to their home in Toronto and started living at Virgin Music’s office in New York. A team of lawyers representing Boeing came over to London to start negotiating over the lease of the aircraft, and soon they were spending most of their days with me on the upper deck of Duende, while Joan and Holly lived on the lower floor.
The houseboat was becoming increasingly crowded with the addition of Holly, and the comings-and-goings to do with the airline. Joan and I decided to look for a home on land for the family, and settled on a large, comfortable house off Ladbroke Grove.
The first casualty of Virgin Atlantic Airways was my relationship with Randolph Fields. Two things became clear. The first was that, since Virgin Group was being asked to guarantee the entire finances of Virgin Atlantic, Coutts Bank would only countenance extending credit to us if we had control of Virgin Atlantic. They would not lend us money if we controlled only half the new airline. Since Randolph was not putting up any money, he saw the sense of this and reluctantly agreed that Virgin should have a controlling share of the airline.
A far more difficult problem with Randolph came about in his relations with the new Virgin Atlantic staff. Perhaps if we had had a longer time than the four months we gave ourselves it would have been different. But we felt that, if we were to survive the first year, we had to launch in June in order to take advantage of the heavy summer traffic and build up reserves and cash flow to keep us going through the lean winter months. It was a virtually impossible timetable, and demanded that we work flat out. One moment we might be choosing the design of the air hostesses’ uniform or working out the menu; the next we were arguing over some legal clause in the 96-page document about the lease of the aircraft we were negotiating with Boeing.
I first got wind of serious trouble from David Tait, whom Randolph had employed in America and who was going to be crucial to our chances of succeeding.
‘I’ve resigned,’ he told me. ‘I’m sorry, but Randolph is impossible to work with.’
‘What’s the matter?’ I asked. I knew that, without David selling tickets in America, Virgin Atlantic would be stillborn.
‘I can’t tell you everything,’ David said. ‘It’s just impossible. I’m sorry, but I wish you all the best and hope that it’s a great success.’
I could tell that David was about to ring off, so I begged him to come over to London to see me. He had no money to buy a ticket, so I sent him one and he came two days later. When he arrived at Duende he found me holding Holly, who was feverish and screaming. Joan had gone off to buy more Calpol. We smiled at each other above the noise as I cuddled Holly.
‘You may think that’s loud,’ David said. ‘But I can tell you that Randolph can scream louder. I can’t work for him.’
David’s experience confirmed the growing realisation that we had to move Randolph to one side if we were going to get the airline started. David had taken a great gamble in joining Virgin Atlantic. He had moved his young family away from Miami back to Toronto, and was living by himself on the top floor of the Greenwich Village house that Ken Berry had bought. All he had was a desk, a telephone and a tiny bedroom, and he had to try to sell tickets to Americans for a start-up airline. Since he was unab
le to advertise Virgin Atlantic without an American licence (which was to come only the day before we took off), David had tried to alert New Yorkers by advertising in the sky above Manhattan. On a cloudless spring afternoon, a formation of five small planes had planned to squirt out white and red smoke printing WAIT FOR THE ENGLISH VIRGIN across the sky. Unfortunately, just as they were finishing, a single cloud blew over and obliterated the final letter, so New Yorkers craned their necks and wondered what the cryptic message WAIT FOR THE ENGLISH VIRGI meant.
David’s falling-out with Randolph had been over the ticketing system. Randolph wanted to avoid all travel agents, who charged 10 per cent of the fare for their services, and instead sell every ticket through a theatre booking agency called Ticketron. David had looked at Ticketron, who charged only $5 for issuing a ticket, but had refused to deal with them.
The staff from the Woodstock Street ticketing office had also complained about Randolph’s behaviour. They told me that he kept bursting into the room and asking everyone to leave it so that he could make telephone calls in private. I realised that Randolph was not the right person to run the new airline. I promised David Tait that, if he stayed, he would soon have no more trouble from Randolph.
‘He won’t be here much longer,’ I said. ‘You can deal with me directly.’
As we worked through April and May, more and more of the airline staff dealt with me directly. Randolph was cut out of the operation. He became increasingly difficult to cope with. Eventually my lawyers advised me to change the locks on the ticketing office to keep him out. As the inaugural flight fixed for June drew nearer, Randolph and I were on a war footing.
I still wonder how we packed everything into those last few days. The newly trained cabin crew came up to the Woodstock Street office to man the telephones, which were ringing off the hook. The lease with Boeing was finally wrapped up, including a complete maze of legal conditions, but basically allowing us to return the aircraft to them after a year and be reimbursed for at least the original cost. If the aircraft had risen in value then we would receive the increased price. After two months of negotiation I think Boeing were rather surprised at our tenacity: ‘It’s easier to sell a fleet of jumbos to an American airline than just one to Virgin,’ admitted their negotiator after we had finished. The continual negotiation of music recording contracts had stood me in good stead. As a side agreement to the lease contract, we had a currency agreement to protect us if the pound fell in value against the dollar (our exposure was in dollars).
Losing My Virginity: How I Survived, Had Fun, and Made a Fortune Doing Business My Way Page 18
