‘I’ve no idea what happens in this game since I’m always killed by the kick boxer in the first room,’ Robert told me. ‘All I know is that these guys tell me that The 7th Guest is going to be big. They say it’s way ahead of anything else on the market.’
As the world of virtual reality and CD-ROMs expanded and kids fought their way out of haunted houses on their computer screens, I found myself in an equally weird world in which I had to fight off a growing number of attacks that arrived from every side without warning.
‘Perhaps it was just a bad day but one of Virgin’s passengers was clearly not impressed with the service in upper class last week. An entry in the visitors’ book read: “No wonder your boss travels round the world in a balloon.”’
This was a small piece entitled ‘VERDICT ON VIRGIN’ among the sheaf of press cuttings I looked through one Monday morning in June 1991. The journalist was Frank Kane, who wrote extensively about aviation and in particular British Airways; the newspaper was the Sunday Telegraph, of which Lord King was a nonexecutive director. I picked up the phone and called Syd Pennington, the managing director at Virgin Atlantic:
‘Did you see that piece in the Sunday Telegraph? Please can you send me the pages of the visitors’ book for the last fortnight?’
It sounded all wrong to me. We had so few passenger complaints that I felt sure that the crew would have alerted me to this one. I found the entry in the visitors’ book. It read exactly as Frank Kane had quoted it, but he’d missed out the punch line: ‘But seriously, I had a great time.’
All the other quotes in the book about that flight were highly complimentary. I don’t mind bad press as long as it is accurate, but this clearly was not. I traced the passenger, Cathy Holland, and phoned her up to check that she’d had a good flight. She assured me that she’d had a wonderful flight and that – as she’d made clear – it was just a joke. Then I wrote to the Sunday Telegraph and pointed out that Frank Kane had failed to quote her comment in its entirety. I knew that many elderly Sunday Telegraph readers would be sceptical about flying Virgin anyway, but this snippet would put them off even more. What was a casual mean joke to a journalist meant many thousands of lost pounds to Virgin Atlantic – and to my bankers. Worse still, Carol Thatcher then read the piece out on television on the David Frost show. I wrote to her pointing out that the journalist had misled her, but the damage was done. Six million viewers did not know that this comment was taken out of context.
I called up Frank Kane to complain and he was apologetic.
‘Oops, I’m sorry about that misquote,’ he said. ‘I looked over a neighbour’s shoulder and that’s all I could see.’
‘That’s all right,’ I said.
‘There was another comment in the book,’ Kane went on. ‘It said, “I couldn’t get a seat on the BA flight because they were giving tickets away today. I’m glad. I shall fly Virgin from now on.”’
On 7 July Virgin started flying in and out of Heathrow. As Hugh Welburn had predicted, our sales on the three routes we offered, JFK, Tokyo and Los Angeles, rapidly increased by 15 per cent. On 14 July, British Airways’ internal magazine, BA News, published an article entitled ‘VIRGIN OUT TO SNATCH MORE SLOTS’, and once again said how unfair it was that a lower-priced competitor should be allowed to compete with them.
Then, on 16 July, Lord King stood up at the British Airways Annual General Meeting and announced that British Airways would stop making its annual donations to the Conservative Party. Lord King had failed to spot that this gave away the fact that they thought that donating money to the Conservatives in the past had helped them secure various privileges. Some critics pointed out that these same donations, which totalled £180,000 since BA had been privatised in 1987, had helped secure a sympathetic hearing whenever British Airways needed to speak to the Department of Transport. If an airline in Nigeria gave money and free air tickets to the ruling party in return for being granted a monopoly, it would be scorned in the West as being blatantly corrupt. ‘It’s impossible to do business in Africa!’ people would retort. ‘Look at the Nigerians: they’re so damned corrupt!’ The round of applause that British Airways won for this announcement at its Annual General Meeting on 16 July struck me as amusing.
Indeed, BA’s influence went further than merely giving money to the Conservative Party. During the summer I gave a presentation to a group of MPs about the lack of competition in British aviation. Afterward, I was having a drink with the MPs and found myself chatting to two of them about their holiday plans.
‘Have you seen your travel agent yet?’ one asked.
‘No, I’m just going to give them a call to get my free ticket.’
‘Who’s this travel agent?’ I asked.
‘British Airways, of course!’ they chorused.
When Lord King stopped British Airways’ donations to the Conservatives, I hoped that it would put British Airways as firmly out of favour as the previous donations had clearly kept them in favour. I also hoped that the government would start encouraging more competition. The day after BA’s AGM, Sir Michael Bishop, the chairman of British Midland, and I released a press statement which congratulated the British Government on freeing up Heathrow, and supported it against British Airways’ criticism.
Despite the excitement of starting our Heathrow operation in July 1991, it was clear that Virgin Atlantic would be unable to expand any further for a while. In the event, we couldn’t offer a new route for another three years, until we started flying to Hong Kong in 1994. This was due to one of the fiercest, most focused and vicious attacks ever launched by an airline against a smaller competitor.
25 ‘Sue the bastards’.
September–October 1991
WE WERE UP AT MILL END one weekend in September 1991 when it really looked as if my world was falling apart. After the high point of signing Janet Jackson and getting into Heathrow earlier in the year, everything was now going wrong. With the burden of funding the Janet Jackson deal, even Virgin Music was having difficulties. And the airline was stretched almost to breaking point by trying to operate out of both Gatwick and Heathrow. On top of that, the rumours about Virgin’s financial troubles were mounting. It was rather like being engulfed in a bush fire: although I kept stamping out flames, I was aware that more and more people were talking about my impending bankruptcy. I had taken so many telephone calls from journalists demanding to know whether our cheques were bouncing that I could barely think straight. I needed some fresh air and privacy, so I walked round the lake several times to try to work out what to do. I felt overwhelmed by the problems I faced.
Although we had signed Janet, I was growing increasingly worried about Simon’s commitment to Virgin Music. He had stopped going out to clubs to search for new talent and, as a result, Virgin had failed to break any significant new bands for a couple of years. In many ways, breaking a new band is the acid test of how dynamic a record company is. I knew that Simon was worried that the value of his shares in Virgin Music was at risk if something went wrong with Virgin Atlantic. But, equally, I was worried that his lack of commitment to Virgin Music would damage the value of my shareholding. His heart wasn’t in the business any more, and he seemed more interested in his own personal projects.
Virgin Atlantic was having an extremely hard time competing with British Airways. Our engineering teams were now driving three or four times a day between Heathrow and Gatwick to service each flight, and if a flight was delayed at one airport it had a knock-on effect in the other. Will had heard that Lord King was going around announcing proudly that the ‘battle of Fortress Heathrow has been won – Virgin’s about to collapse’.
On top of all this, BA was now blatantly poaching our passengers. We had two reports that BA had called up a Virgin Atlantic passenger at home and tried to persuade them to change their flight from Virgin to BA. Our staff had also seen BA staff approaching Virgin Atlantic passengers at the terminals and trying to persuade them to switch to BA.
I was caught
in the middle between Virgin Atlantic and Virgin Music. I was alone in being the only person with a foot in each camp. The only other thing that bound them together was Lloyds Bank, in that the loans which Lloyds had made to Virgin Atlantic were guaranteed by Virgin Music. This was the crux of Simon’s worry, but the airline would not have been able to function any other way.
Our troubles at Virgin Atlantic brought the question of the future of Virgin Music to a head. Throughout the summer, Simon, Trevor, Ken, Robert and I had tried to work out what to do. I had effectively put the idea of the possible sale of the record company to the back of my mind, but with the rumours about Virgin Atlantic mounting into a great wave I realised that something had to give.
‘Have you seen this?’ Will brought in the new issue of Fortune on Monday morning. It had a photograph of me lounging on the floating deck chair in Necker Island. I was holding a book entitled Mavericks in Paradise, and the caption was: ‘Richard Branson, founder of the Virgin Group, savours the billionaire’s life … in the British Virgin Islands naturally!’
I read with interest that I was worth $1.5 billion.
‘I hope Lloyds read this.’
‘They may read it,’ Will said. ‘But will they believe it?’
‘It’s in the papers,’ I laughed. ‘It must be true!’
‘WILL RICHARD BRANSON’S BALLOON BURST?’ was the headline on Wednesday 2 October. The entire page of the Guardian’s business section was devoted to discussing my debts. ‘Behind the Man with the Midas touch there is a picture of a highly indebted and not-very-profitable conglomerate,’ it read. The subheadline was: ‘THE MELODY LINGERS BUT WON’T MEET INVESTMENT NEEDS’. This article had come out of the blue. Normally when journalists do a profile, even for a hatchet job, they contact me to go over some of the ground. But this Guardian journalist had never made contact.
I started reading: ‘The latest available accounts for the Virgin companies show an alarming picture of faltering cash flows failing to meet the companies’ investment requirements.’ I looked through the article with a horrible feeling that this could inspire a host of other newspaper stories along similar lines. If it looked to informed financial journalists that Virgin was in such trouble, then the bankers would head straight back to their vaults, taking their money with them.
‘Virgin therefore remains highly exposed,’ the article concluded. ‘It remains tiny by comparison with its key competitors. Its main businesses are in highly volatile industries. The legacy of the buy-back, together with the ballooning growth of the empire, keep debts at stubbornly high levels. The Branson balloon appears to be pursuing a dangerous path to the stratosphere. It is an exciting journey, undertaken with no shortage of panache, but Mr Branson’s balloon journeys are unfortunate models for any business to follow.’
This article had caught us at our most vulnerable. All the accounts were shown in the worst possible light. To the world at large, or at any rate to the Guardian’s readers, it looked as if I was in the same boat as Alan Bond: Richard Branson was sinking fast.
The phone started ringing with other journalists asking for my reaction, and I went through the response which Will and I had drafted. We tried to emphasise how factually inaccurate the figures were, how the article ignored the intangible value of Virgin Music’s contracts, and how it put no value on Virgin Atlantic’s aircraft. I was due to fly to Japan that day and, with the flight leaving at 5p.m., I didn’t have much time to respond to the Guardian. I began scribbling a letter to the newspaper’s editor. I tried to shrug off the article:
There are many inaccuracies that could have been avoided in your article ‘WILL RICHARD BRANSON’S BALLOON BURST?’ if your journalist had had the courtesy of speaking with me before writing it. Since I’m off to Japan in a few minutes (amusingly in the context of this letter to be made a doctor of economics!) I’ll spare your readers a long list of them. However, to give you but one inaccuracy, our profits didn’t ‘plunge’ as a public company – they doubled!
I went on to argue that the net worth of all my companies after repayment of every debt was around £1 billion. Will came down to discuss the letter.
‘It’s got to be more than a letter on this one,’ Will said. ‘You’ve been attacked with a whole-page article. What I want to do is get them to give you a whole page to defend yourself.’
‘They’ll never do that.’
‘They might. It’ll cause a commotion and that’s good for the Guardian. It’s better than a letter tucked away on page 27 that nobody will read.’
Together, we wrote out a whole article rebutting the Guardian’s piece, but before I could finish it I had to leave for Tokyo. The moment I arrived there Will was back on the phone:
‘OK, we’ve got half a page,’ he said. ‘It’s better than nothing. I’m faxing you the draft. The Guardian thought we might sue them so I think they were relieved when we asked for the right to reply.’
I called up Trevor and asked what Lloyds thought of the piece.
‘Funnily enough, they’re quite relaxed about it,’ he told me.
When I telephoned Lloyds I found out why.
‘Yes, I did see the piece,’ John Hobley said, ‘but I don’t think many other people did. In any event, nobody I know takes the Guardian very seriously. If that piece had been in the Daily Telegraph or the FT it would have been a different matter.’
‘Now, what’s your decision on the loan?’ I tried to sound casual, as if I really didn’t mind one way or another.
‘The board have passed it,’ Hobley said. ‘We’ve got a mechanism which will give us precedence over your assets in the retail operation.’
I put the phone down, lay back on my hotel bed and shut my eyes. If that article had appeared almost anywhere else, the City’s reaction would have been very different. It is a frightening truth, but perception is everything with some of these bankers. Normally we have been able to use the perception of Virgin to our advantage. But for the first time the boot was on the other foot and we were fighting to restore confidence. If such an article had appeared in the Financial Times, the banks could well have pulled out their loans and brought the Virgin Group crashing down.
I was in Japan to receive an honorary doctorate. The university had asked me to fly out to meet the students and suggested I do a question and answer session rather than a formal speech. As I sat in front of a thousand students, the professor asked for questions. There was a deathly hush which lasted for nearly three minutes. To break the ice I said that the first person to ask me a question would get two upper-class tickets to London. Fifty hands shot up. For the next three hours I was kept very busy.
I was also looking at a possible site for a Virgin Megastore in Kyoto. Mike Inman and I took the train from Tokyo to Kyoto. This train was called the ‘Shinkansen’, popularly known as the ‘Bullet Train’. It was rather like being on board a plane: there were audios to listen to, steward service and even vending machines.
‘Why can’t trains be like this in the UK?’ I wondered. I jotted down some notes about trains in Britain and trains in Japan and then turned my attention to the Megastore site.
Back in London the next week, Will’s telephone rang on Friday evening. It was Toby Helm, the transport correspondent on the Sunday Telegraph. He asked Will whether Virgin would be interested in operating trains if the government privatised British Rail. Will came down to ask me.
‘Well, are we?’ I asked back.
The more we talked, the more sense it made. Railways had to be one of the answers to all the traffic problems. Every new motorway was immediately clogged up; driving from London to Manchester was a nightmare.
‘Tell him that we are,’ I suggested. ‘It can’t do any harm.’
The headline of the Sunday Telegraph read ‘VIRGIN TO GO INTO TRAINS’ and explained that Virgin wanted to operate the east-coast franchise and do a joint venture with British Rail. It became the story of the week – a useful distraction from our cash problems and an excellent counter to all
the negative publicity we had suffered. It showed us thinking about expanding rather than worrying about our finances. It was a crucial release of pressure for us, and for a while journalists stopped going on about our finances and imminent collapse, and started taking an interest in our bold plans for the future.
All kinds of people called us up on Monday, including Siemens and GEC, and among them was someone who introduced himself as Jim Steer from Steer Davies Gleave, transport consultants. Will immediately recognised that Jim knew what he was talking about.
‘You’ve got to follow this through,’ Jim told Will. ‘I suggest that you get together with Intercity and offer a joint service on the 125s.’
We registered three possible trading names, ‘Virgin Rail’, ‘Virgin Express’ and ‘Virgin Flyer’, and asked Jim to commission an artist’s impression of a Virgin train. We warned him that our budget was zero, but he went ahead anyway and then put us in touch with a venture-capital firm called Electra who he said might put up some seed money to investigate the idea. Will and I went along to Electra and met someone called Rowan Gormley who agreed to put up £20,000 to commission a feasibility study.
Armed with a small business plan and a mock-up of a Virgin train, Trevor, Will and I, together with Jim and Rowan Gormley, met Chris Green, the director of British Rail’s Intercity service; Roger Freeman from the Ministry of Transport; and John Welsby, the chief executive of British Rail. We talked about the possibility of Virgin running some railway services, but British Rail weren’t keen. John Welsby was against any kind of privatisation and he saw our proposal as the thin end of the wedge.
As he walked out of the meeting, he turned to one of his companions and made a comment which was picked up on the intercom and broadcast all over the office. He said, ‘I’ll be in my grave before that fucker gets his logo on my trains.’
Losing My Virginity Page 31