Virgin Atlantic Studied Low-Cost Airline to Combat Norwegian

(Bloomberg) -- Virgin Atlantic Airways Ltd. looked seriously at establishing its own low-cost carrier before scrapping the plan amid concern that the move might dilute its brand.

The U.K. airline worked on the project for some months but ultimately opted to split its economy class into three price grades to better attract cost-conscious travelers, Chief Executive Officer Craig Kreeger said on Thursday.

Like other trans-Atlantic carriers, Virgin, founded by billionaire Richard Branson, has been grappling with the threat from an emerging low-cost, long-haul sector led by Norwegian Air Shuttle ASA. Setting up a standalone discount arm was evaluated as one solution, Kreeger said at the London Aviation Club.

“It would be untruthful to say that we didn't look at whether there was an opportunity for us to do something different,” said the CEO, who stands down at the end of this month. “But it never really felt in keeping with what we do, with our brand and our ethos after 34 years as a full-service carrier.”

After abandoning the plan, Crawley, England-based Virgin went on to announce the three-way split of its coach-class offering in March, including an “economy light” fare aimed at people prepared to take only hand baggage on long trips, and to have their seats allocated at check-in.

All passengers still get free food, drink and in-flight entertainment, something that's not the case with many discount operators.

Gatwick Rivalry

Norwegian Air has built London Gatwick, a Virgin hub, into a major base, while long-time rival British Airways has established a new discount unit, Level, and announced a no-frills option for its own on long-haul flights. BA parent IAG SA has also made takeover approaches for Norwegian.

Kreeger, who will be succeeded by commercial chief Shai Weiss, said Virgin Atlantic is still evaluating options for working more closely with smaller U.K. operator Flybe Group Plc that might involve a takeover bid.

“We are actively considering alternatives that could be up to and including potentially making an offer,” he said, echoing earlier Virgin comments.

The sale of a 31 percent stake in Virgin Atlantic to Air France-KLM Group should be completed in the first half of 2019, Kreeger said. Following that deal, Branson's ownership will be reduced to 20 percent, with Delta Air Lines Inc. holding 41 percent.

While the companies will cooperate on trans-Atlantic routes, Virgin doesn't plan to join the Skyteam group, he said, adding that such alliances generally create less value than bilateral agreements.

To contact the reporter on this story: Christopher Jasper in London at cjasper@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tom Lavell

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