Ansett, by contrast, was a different situation. For the right price, perhaps there was a deal to be done. We ran the numbers at our Brisbane office, but they still didn’t seem to add up. Getting rid of Virgin Blue would only reduce Ansett’s losses by about A$200,000 a day, which we thought was probably one-fifth of what they were losing. This turned out to be a very low estimate.
“There must be a bigger move coming,” concluded Brett.
Indeed there was. The call came toward the start of September as I was about to leave the office. I sat back down as I heard who was on the other end of the line: the CEO of Singapore Airlines, Dr. C. K. Cheong.
As Dr. Cheong chatted away, it all began to make sense. Singapore was already a partner of Virgin’s since paying £600 million for a 49 percent stake in Virgin Atlantic in 1999. Ironically, we reinvested some of that money to start Virgin Blue—we even offered Singapore the option of becoming partners in our Australian airline for $10 million, but they declined. However, Virgin Atlantic wasn’t the only airline that Singapore had a stake in: they also owned 20 percent of Ansett, and needed to protect their investment.
Cheong’s proposal was straightforward. They wanted to buy Virgin Blue outright—and for a lot more than $10 million.
“Richard, you and I have been friends for many years,” Dr. Cheong told me. “Which is why we are formally offering a very generous $A250 million for Virgin Blue.”
It was a bigger offer than I could ever have imagined. But it was also one that came with a deadline. And also with a warning.
“You have twenty-four hours to make up your minds.” Dr. Cheong made it clear they wanted us out of the way, and backed it up with hard cash—and a threat for good measure. “If you refuse, I promise the Singapore government will unleash huge investment into Ansett, and destroy Virgin Blue within six months.”
I thought it all over on a sleepless flight to Australia. As evening fell on 3 September, my mind was racing. I got back to the Potts Point Holiday Inn in Sydney, where all the Virgin Blue cabin crew were staying, around 10 p.m. Brett and his management team—Rob Sherrard, Amanda Bolger and David Huttner—were waiting for me at a table in the corner.
I joined them for a beer to discuss what we should do. Brett was quite emotional, surrounded by his staff, and argued that we shouldn’t throw all of this away for what, admittedly, was an awful lot of money. The team estimated Virgin Blue was worth double what Ansett were offering. And if we did take the money, Brett wasn’t going to hang around.
“I couldn’t stay on if we did the deal,” he told me. “I wouldn’t be able to look the team in the eye; they would know we had sold them out.”
Brett and his team weren’t the only ones trying to convince me not to sell. At one point in the discussions, Derryn Hinch, the well-known Australian broadcaster and now a senator, even turned up.
“What do you think Australians will think if I sell?” I asked him.
“They will think you’re a lying prick,” he told me in no uncertain terms. “Anything else you do in Australia for the next hundred years will bring back memories of your sellout.”
But this decision wasn’t as clear cut as Brett and Derryn made out. It wasn’t just Virgin Blue I had to consider: I had the whole Virgin Group to think about. I spent a long night pacing up and down my hotel room hashing out the options in my head. I was torn. The Virgin Group could certainly use the money to reinvest, and I couldn’t argue with the logic of cashing out a quarter of a billion Australian dollars, twenty-five times what we had initially put in.
But I didn’t like being threatened—especially by Virgin Atlantic’s partner! Plus, something about the offer didn’t quite add up. Why were Ansett’s parent company Singapore Airlines so keen to give Virgin Blue, a relatively small player, so much money to go away? Were they really going to use the might of the Singapore government to put us out of business? If so, resisting would be akin to starting a bleeding competition with a blood bank—we’d never win. But the sheer size of their offer smacked of desperation. Could Ansett be in greater trouble than we realized? Maybe even on the verge of bankruptcy? For them to offer us A$250 million made me think we might just have all the cards in our hand.
Early the following morning I flew to Melbourne airport. We had informed the Australian media that I had a major announcement to make, and they were out in force to hear what I had to say. It wasn’t just the media, either. Rumors were by now flying around about a possible deal, and lots of our staff were standing at the back of the Domestic Express Terminal. There were a lot of nerves in that room and, as I stood up on a podium, I could feel the room go silent—it was one of those cut-the-atmosphere-with-a-knife moments. I caught the eye of a couple of cabin crew leaning on the wall at the back of the crowd. They looked terrible: as tired as I was from the lack of sleep the night before.
“I’ve got some good news and some bad news,” I said, lifting up a big check as I spoke. “I’ve had a fantastic time in Australia. The good news is we have done well with Virgin Blue. We’ve made twenty-five times our investment in a year. I have this check for A$250 million for the airline . . . The bad news is it is a sad day for Australia and for competition. I’m back off to England. It’s sad that we are selling today, but it’s an offer we can’t refuse.” As the cameras zoomed in on the amount, I could see a Bloomberg reporter speaking loudly into her mobile phone: “He’s selling, he’s selling, get the story up!” Within moments, the story was live on ABC’s website as well as out on the wires. At the back of the room, some of the ladies from Virgin Blue were crying their eyes out. I decided it was time to put them out of their misery.
“Oh, fuck it, I’m only joking!” I ripped the check into tiny pieces and threw it into the air. “I’m sorry for upsetting my staff who were not in on the joke. But we’re here to stay!”
At the back of the room, our staff cheered and I walked over to hug them. But for others in the room, the news was too late—the original story was already spreading throughout the world and they were on a damage limitation exercise to stop it spreading further.
The Bloomberg reporter, now ashen-faced, was shouting into her phone. “He’s not selling! Kill the story!”
I went over to her to try and apologize.
“I’ll lose my job because of that. You are so irresponsible; you made me put out a false report!”
I got down on the floor and kissed her feet, begging for forgiveness. It was a surreal end to a crazy couple of days.
—
Singapore Airlines, it transpired, had been bluffing. They had no cards in their hand, let alone the royal flush of the Singapore government that they had threatened. The very next day they turned down an offer to buy all of Ansett for one dollar, and withdrew all their support. After failing to buy Virgin Blue, they knew that continuing to bail out Ansett was throwing good money after bad. The following day, Qantas turned down the same offer. It seemed Ansett was losing far more than we ever imagined—around A$50 million per week—and Air New Zealand needed to ditch their share before they went down with it. The following week, Ansett declared bankruptcy.
Looking back, I think most people would have taken the money. Certainly, everyone at Virgin Group wanted to—it would have been an extraordinary return on investment. But emotionally—and I do most things on emotion—it would have felt like selling one’s own child. Staying at the Holiday Inn at Potts Point with all the cabin crew certainly influenced me. They were such a delightful, fun team. In the end, the idea of selling them out was just too strange. It felt fitting that the company which started over a few beers was saved by a conversation over a few more.
CHAPTER 4
Let’s Get Physical
I seem to have experienced more than my fair share of fires over the years. Our childhood home caught fire. Our then home in Holland Park caught fire. Our old cricket pavilion in Oxford was burned to the ground. Our trans-Pacific bal
loon burst into flames and, of course, the Great House on Necker was destroyed by a blaze in a tropical lightning storm. But one of the worst such incidents preceded the call I took in August 1999 from Frank Reed, one of the duo behind our new venture Virgin Active. We were about to open the first of our gyms after months and years of hard work and preparation. But then disaster struck.
“You won’t believe it,” Frank sounded distraught. “The club has burned down.”
Two years earlier I had met Frank along with his business partner Matthew Bucknall at my home in Holland Park. It was a summer’s day, and I was sitting in the sunshine, scribbling some notes for my first autobiography, Losing My Virginity, when they arrived. Matthew and Frank were casually dressed and relaxed in demeanor. But behind all that they clearly had ambition, too.
“We’re going to build you another billion-dollar business,” said Matthew.
I was obviously skeptical at first. This was a period when Virgin was investing in all sorts of sectors and companies. My house had become something of a revolving door of business pitches, with every fresh-faced young hopeful believing their business idea was bound to make them a fortune. I always applauded the optimism, but knew from experience that nine times out of ten the workable plan to make it happen didn’t exist.
“And here’s the plan of how we’re going to do it,” added Frank.
There was something about them that made me sit up and listen. Very quickly I realized Matthew and Frank had the know-how to back up their confidence. They presented to me their vision to create the world’s most loved health club brand. I had presumed their idea was limited to gyms in the UK, but they explained how they saw this brand expanding globally. This was my kind of thinking. I was keen for Virgin to continue growing our presence around the world, and it was great to see how important the brand’s values were to their strategy.
“We want to create the first global comprehensive consumer-led branded health and fitness facility,” Matthew explained, “readily accessible to a wide socio-demographic group at a price consumers are willing and able to pay.”
“Well, that’s a bit of a mouthful.” I laughed. “As a dyslexic, let me see if I’ve got this right. You want to create a great global Virgin health club chain that most people can afford?”
“Sorry, Richard. Yes!”
The pair talked for a further hour without interruption from me—a very rare feat. As they outlined their vision, I leaned back in my chair and put my scruffy pair of rubber-soled Timberlands on the table. Matthew and Frank must have been panicking at my lack of feedback as they pitched. They might even have thought I was being rude. In reality, I was taken by their vision and loved the idea of Virgin moving into fitness.
“Well, what do you think?” asked Matthew, glancing sideways at his business partner.
I leaned back in my chair, and let him wait a little longer, before I allowed a grin to spread across my face.
“I think it’s absolutely fuckin’ brilliant. I’d love to do it with you.” Their expressions relaxed, and I heard them sigh with relief.
—
Matthew and Frank got to work immediately. I asked them to spend the next year traveling the globe. I wanted them to visit all the leading health clubs worldwide, see what they were doing well, what they were doing poorly and how we could do it all far better.
“I will cover all the expense on the condition that when you return you create the very best health clubs in the world.”
“That’s very generous of you,” Matthew thanked me.
I waved that away. “Obviously, it helps that we own an airline!” I laughed.
The health club market was crowded, and I knew our entrance into it had to be done right.
Whenever I had been to health clubs in the UK, I always came away disappointed. The changing rooms were always cramped. The equipment was dated. And the prices were exorbitantly high. It felt like a chore working out, which is why I rarely did: I much preferred to exercise in the great outdoors. We needed to come up with a new business model to change that, which started by focusing on the customers.
It quickly became clear how Frank’s and Matthew’s skills complemented each other. Frank went to work on the design and branding. He came up with startlingly simple, beautiful design plans, which would give members clear sight lines throughout the clubs and bright, friendly atmospheres to work out in. Matthew, meanwhile, explored locations for the first Virgin Active health club. I presumed they would plump for London, but they came up with a prime location in the north of England—Preston. That surprised me: a low-key launch in Lancashire was a long way from “blowing up” the Coca-Cola sign in Times Square to launch Virgin Cola.
But Matthew and Frank knew what they were doing. Virgin Active wasn’t the right business for me to be jumping off buildings or flying balloons to announce our arrival; as they explained, gyms worked on steady word-of-mouth growth. If there’s one thing I’ve learned, it’s to trust people to make their own decisions, so I let them get on with it.
Mind you, it took me a while to get my head round Matthew’s explanation of their reasoning behind the plans for the next club locations.
“I’ve developed an ingenious demographic modeling system to pinpoint exact coordinates where it makes sense to invest in new health clubs,” he told me at one catch-up meeting.
“That sounds great, Matthew. What the hell does it mean?”
Everyone uses data to plot customer demographics now, but in 1999 he may as well have been talking Double Dutch to me.
“Did you ever play Battleships as a kid?” he asked.
“Of course.”
“Well, it’s like playing Battleships.”
Now I understood. Put simply, we used surveys to pinpoint the specific locations where gaps in the market existed with lots of potential customers living nearby.
Frank and Matthew were like the left- and right-hand side of the brain working in unison. Frank was so up and down that we got hold of a biorhythms device and jokingly pretended to track his mood swings. On the other side, Matthew was the steady hand on the tiller. When it came to the first Virgin Active stars of the year party, it made perfect sense for them to dress up as Batman and Robin. Frank got one over on Matthew by presenting him with his Robin costume just minutes before the event started. It happened to be several sizes too small for a man six foot three inches tall! I was just happy that somebody else had drawn the short straw out of the fancy dress box for once.
—
“I’ve made my money on the site, I believe in what you’re doing—this is my present to Preston.”
The location we secured for our first gym came with the blessing of its former owner. It was the last available property on a site with the first Warner Bros multiplex cinema and was initially intended to be a bingo hall. But then the owner heard our pitch and was sold on the purpose of Virgin Active. He told us his father had recently suffered a heart attack, and he fully supported our vision of getting Prestonians to live more active lifestyles.
We had originally scheduled to open our first club in February 1999, but, as is often the case, there were delays with building and design work. The press were openly questioning what we were doing, entering a crowded fitness market with one gym in what some London papers considered an unfashionable part of England.
In the original business plan, I had written: “It will be the attention to detail and the 100 different touches that will distinguish Virgin Active from the competition.” Does the music and atmosphere in the club inspire people to pedal a little faster? Is the pool the right temperature? Are the towels laid out for everyone? What we’d created achieved all of that, and then some. Firstly, the staff we’d hired had the Virgin spirit. You can never fake a genuine smile, and when I met them I could see their enthusiasm. And secondly, all of the pain points I hated about gyms had been addressed head on. The light, spacio
us, open-plan design allowed members to see exactly what they were getting when they walked through the door. And the showers were as good as, if not better than, those in people’s homes. Certainly, they were better than the one on my houseboat!
So, by August 1999 we were ready to open our first family-friendly, open-space health club—until disaster struck. Matthew explained how the fire had swept through the gym, doing tens of thousands of pounds’ worth of damage. Thankfully nobody was hurt. But it put our opening back months and months. On top of this, we had a full team to continue paying and no money coming in.
It’s easy to feel downhearted in such a situation. Instead, we sought out the benefits. While we began the rebuild, the staff threw themselves into engaging with the community, shouting our simple principles from the rooftops—literally in some cases. By the time we opened the club, we did so with 5,500 members. Just a few years earlier, LivingWell were charging £300 as an individual joining fee. By contrast, Virgin Active had no joining fee and no long-term contracts. There are no barriers to entry, no roadblocks to exit, no locked doors and no hidden extras. As we ripped the old models to shreds, we were loved by our customers and hated by the industry with a passion.
CHAPTER 5
How to Start a Train Company
Finding My Virginity: The New Autobiography Page 4