Virgin Atlantic CEO Corneel Koster on Fuel, AI, and ATC Meltdowns

0:00Jay Shabat: Hello and welcome to a special episode of the Airline Weekly Lounge, coming to you from the Skiff Global Forum in New York City. I'm your host Gordon Smith and I'm joined for a special conversation with Corneel Koster, the CEO of Virgin Atlantic.

0:29Great to be here with you. Good morning, Gordon. Always good to be in New York.

0:32Jay Shabat: Yeah, sort of a home from home, perhaps, given the schedule you've got there. I was going to say welcome to New York, but you hear it relatively often? Yeah, for us, New York is important, right? We fly six times a day to New York generally, 10 times a day together with Delta. So JFK, Heathrow, big part of our market, and we're always excited to be here. Delighted to have you with us. We're about to be on stage in just a few minutes. This is a sort of a pre-conversation for our airline weekly listeners. It's the warm-up act, but you're headlining as well. So you're the headliner on the warm-up act today.

1:02Jay Shabat: It's fair to say that Virgin Atlantic punches above its weight in terms of scale. You've got the personality. You've got the brand recognition, which many consumers, not just on both sides of the Atlantic, but more globally will be familiar with. You took over as CEO of the airline earlier this year, but you're not new to the airline. I want to know what changes when you sit in the CEO chair for the first time. Do you see things a little differently? Right. So I've been in aviation 30 years, worked for four airlines, but this is home. I always wanted this job. It's an amazing airline. As you say, it's different.

1:37Our people are different. They have a unique impact on our experience and they do it with a lot of flair and a lot of personality. This is so home. I love this airline. I love the people. A real honor to take over on the 1st of January. So are things different? On the one hand, I think the jobs over the years have prepared me for it. On the other hand, of course, it's different. It feels different. The buck stops with you. You hear that a lot, but it's true, right? And you get into depth and into breadth of the business even more. You have a lot more stakeholders to manage. Oh, yes. You used to have just one boss So now you have many, many.

2:08And yeah, and everything you say seems to hold a certain weight. Internally and externally. And that's interesting because, you know, I'm from origin. I'm quite direct. So I make sure that I phrase things very appropriately that, you know, if I ask a question, people are sort of guessing what answer does he want? And so, yeah, I don't take myself too seriously. I take the role very seriously. At the same time, I love it. And so, yeah, it's a challenging period in aviation. But at the same time, we have fun in Virgin Atlantic and we're making lots of progress for our customers.

2:39Jay Shabat: You mentioned it's been a challenging year. We had Hamad Al-Khata, the new CEO of Qatar Airways, join us on stage yesterday as we're recording here on the 24th of September. He had been in post for 81 days before the Iran war started. You had even less. You had 59 days in post. And I'm sure you came into the role with expectations around what your first year might look like working with the team. This is clearly not the year that the airline industry had hoped for in terms of fuel prices, in terms of operational challenges. Talk us through your latest assessment of the airline business. Well, first of all, I mean, having been in this industry, you know that unexpected things can crop up, right?

3:13So you are ready for that. We used to say we have a big macro event every seven years or so. Now it starts to feel like every seven months. I'm not sure. There's a lot going on. And so we actually got into the year with a lot of positivity. We started a performance improvement plan to improve our operating results called Virgin Style Above and Beyond. And we started improving our results. And then this happened. And it is challenging. And I'll come back to that. But as I still sit here today, we're still ahead of our plan, of our budget for this year. We are still improving our operating margin year on year.

3:44But it's been a hard slug. And it will get harder going forward. Why? So, look, our fuel budget all in, jet fuel, was about$96 a barrel. Currently, we're hovering around$200. It's even gone over$200 and then back down again. It isn't just the price of crude only being above$100. It's also the refinery premium, or sometimes called the jet crack, that used to be$20 plus and is now$100. So our fuel costs just doubled. And you know how big fuel is as a percentage of an airline cost base.

4:14Jay Shabat: Anything between 20 % and 30%, even 40%. That's a big challenge. Of course. That's a big challenge. And, of course, airlines can't fully assort that, right? We want everyone to take on the world. We want travel to be affordable. But at the same time, the consumer is going to have to pay for some of that. So as we sit here today, our fuel prices here today are about our fuel cost. Our fuel cost overall, because we do hedge. We're a responsible airline. We manage risk carefully. So we have a very advanced hedging program. Our fuel cost is about 25 % up year on year. Our revenue is about 12 % up year on year on the passenger side.

4:46Our cargo revenue is rocking at 36 % up year on year. We're a big cargo airline, actually. Not many people know that. But UK exports were number one, certainly on the transatlantic.

4:56Jay Shabat: And just to clarify, this is in the belly of the plane as opposed to a dedicated cargo fleet. Yeah, we don't have any dedicated freighters. So it's in the belly of the plane. It's sort of your second core product. And you've got to optimize all the capacity on your aircraft to be successful. Sweating those assets. So cargo revenue up a lot, passenger revenue up. Demand actually holding up. Demand's healthy. So there are challenges, but there's also a lot to be thankful for. And we're progressing. We're sitting here in New York City. the heart of your most important market. Give us the temperature of the transatlantic market, because this has clearly been a challenging time globally in terms of the airline industry, but there has been some particular impacts around US demand, inbound and outbound, lots of chatter around what is actually going on in terms of the health of the transatlantic market.

5:41Jay Shabat: What's your latest assessment? Yeah, from our perspective, corporate travel is strong. And of course, they tend to travel in the more premium cabins. Premium leisure is very strong on the transatlantic. It seems to be an insatiable demand for treating yourself and flying in style and in even greater comfort than our economy cabin. Travel from the UK to the US is also still holding up healthily. We see about 7 % more passengers from the UK to the US at the moment. So if you worry about whether the US is still an attractive destination for the Brits, it certainly is. So overall, we see healthy demand.

6:17And what you will see going into winter is a bit more capacity discipline. Yeah, well, you see that every year. You see that every year. You probably will see that this year a little bit more because there's some flexibility about London hetero slots. So airlines may fly 5%, 6 % less in the darkest days of winters or on certain days when there isn't demand. And typically transatlantic, demand and supply is so close together that a little move can improve things. So demand holding up, capacity disciplined. And so even though it's a remarkably challenging sort of macro environment, environment. I think on the transatlantic and particularly also within the Atlantic, things are relatively healthy.

6:55You mentioned your premium demand there.

6:58Jay Shabat: There's some numbers just for our listeners here. Your new A330 NEOs, there will be 104 premium seats if you include your upper class and your premium economy, and only 128 in economy. Your refurbished 787s economy will fall from 192 seats to just 127. These are clearly strategic bets. You don't just retrofit an aircraft every year. What does that tell us about the health of the premium market in particular moving forward and how Virgin Atlantic is trying to attract that? There are important strategic bets, although I don't think it's a risky bet at all. We have invested billions in our fleet, right?

7:34Our average fleet age is seven and a half years at the moment. 86 % of our fleet is next generation, the most fuel-efficient aircraft that you can fly at the moment, which is really important for the planet, but also important for our bottom line and for our customers. It's a big bet, but we're actually currently quite underweighted. The US-UK is such a premium market, and especially where we sit here today. I mean, New York, London is still the most premium market in the world. We're actually underweight in our newer, slightly smaller aircraft. We used to have huge business class cabins in our 346 hundreds, for example.

8:08So we went a little bit underweight in the size of our premium cabins. We're now going to go more to where the rest of the market is. Our customers wanted demand for premium seats in Virgin Atlantic because of our product, but also because of our amazing people and how to make every journey memorable. Demand is really strong. So it's a bet. I don't think it's a risky bet at all. And it will actually help us, you know, satisfy demand for premium services, but also it will help us improve our bottom line.

8:33Jay Shabat: We'll get on to your people in a minute because I know it's a very important part of the business, but I just want to drill in a little bit more to this idea of premium because is there a paradox here when you've got more people flying premium, but premium relies on people feeling special. At the airport, at the gate, I'm sure you've been on airlines, not just your own, but around the world. Boarding group one, please. Boarding group two, please. And it feels like half of the gate stands up because almost everyone's premium these days. How do you ensure that when you've got these sort of numbers, 104 premium seats and just 128 economy seats, that those who are flying with you in premium and have paid that extra dollar and pound feel special?

9:07By carefully designing the entire customer journey around our customers and by allowing our people to understand our customer needs and to lean into them and of course technology can help there too and will and ai will help tremendously sort of crm on steroids understanding customer needs and anticipating them and getting ahead of them but also because our people just have that empathy of wanting to understand our customer needs where are they what do they want to do today how do i help them have a fantastic journey and that sort of that unique virgin love is what stands out whenever i talk to any of our customers Yes, they talk about our design and our flair and our seats and our new cabins, particularly on the Neos.

9:45But they always really, first of all, talk about our people. That's where we make a difference.

9:49Jay Shabat: You mentioned flair there. And that, I think, is a great word to describe sort of the Virgin Atlantic magic, call it what you will, without slipping into marketing terms. But Delta Airlines is a 49 % shareholder, a hugely successful airline. Arguably, America's most successful, depending on your metric for success. but culturally it's not exactly the maverick Virgin Challenger brand. It is a very traditional legacy brand. How do you ensure when you've got such a powerful shareholder that the relationship doesn't sand off the quirks and the Virgin magic? How do you balance that? Look, we're more than 10 years in the joint venture with Delta and in the shareholder ship, the 49 % ownership of Delta.

10:31And I would say if you look at us now, we're more Virgin than ever. So what does that mean? Yeah, what does it mean? That means that we really value the partnership. I would agree that they are incredibly successful, if not the most successful airline on the planet. And we have so much we can learn from them and so much we can do together and so much respect for them. At the same time, they bought into, of course, the airline and the slots and the aircraft and the movements and the market position. But I think they also really bought into the brand and how we are different. They recognize that there's value there.

11:01I think they recognize the value there. and I think they've just been, Sebastian and his team, it's been phenomenal in allowing Virgin be Virgin. We're sometimes also sandbox where we can try things and try them fast and share experiences. We learn a lot from Delta. I think they sometimes even learn from us. I want to be a bit modest about that, of course. It works both ways. It works both ways and it's just a fantastic partnership. And think about the feed also that it gives the Virgin Atlantic network on the US side, right? Which has historically been an issue

11:32Jay Shabat: in terms of... And your SkyTeam, I'm sure, is helping as well. Historically, we were rather isolated. So that feed and that customer connectivity and that commercial drive that Delta gives us in the US is incredibly valuable to the joint venture and to Virgin Atlantic. And at the same time, indeed, SkyTeam is really complementing that. SkyTeam didn't have a UK corner-based cornerstone airline. They didn't have a UK member. Now they do, solidly positioned at the heat as a hub. And that's helping all of us. Superb. Just a few final points, if I can, Cornille. You mentioned the humanity there. there.

12:02Jay Shabat: You previously said to Skift that AI should basically be doing the things that technology is good at and the humans should provide that sparkle. Where do you draw the line? Because it is a, for such a human centric brand of what you've already described, for an airline that prides itself in the people and the service it provides, AI can sometimes feel a little sterile, a little corporate. How would you balance that? Look, we are actively into AI the way probably most of your listeners are and, you know, airlines and travel companies, everybody at this conference. And we love to challenge ourselves.

12:32So AI can make us better and it can make us better fast. And we're excited by that. Whether that's cost efficiency, whether it's, you know, decomplexing some of our back office process, whether it's serving our customers. And we like to do that in Virgin Atlantic style. Like the AI concierge in our app has a Virgin Atlantic tone of voice. That's something that is important to us. So we're all about adopting AI and there's also engineering, having the tools and the parts and the people in the right place. very regulated part of the ecosystem, of course. And we work together with regulators and it always has to be safe.

13:05So there'll always be human in the loop and judgment in the loop, but we can be more efficient and faster for it. So we fully embrace AI, but we'll always keep that judgment in the loop and we'll always keep checking where in our sort of overall journey can we really play up those customer touch points, those people touch points. Because I think you're not going to remember an airline for its just advanced booking procedure or discovery procedure, whatever it is that the airline is achieving with AI, you're going to remember the encounters you had with people along the way. And very often our customers remember those encounters with our crew who are truly themselves, who truly care about our customers and who just have that, not just that virgin flair, but also just that real empathy to make every journey better.

13:51Jay Shabat: Just a penultimate point. We've had disruption air traffic control on both sides of the Atlantic. Indeed. We had some of our skifters coming to this conference and delegates who were caught up in the disruptions in and around the New York area. And then earlier, again, as we're recording here on the 24th of September, we had some serious disruption in the UK with air traffic control and that. Are airlines being asked to accept a level of failure from infrastructure partners and third parties that you would never, ever accept inside your business? I think you're spot on. I think I'd say that we're rather disappointed disappointed and that's probably a British understatement.

14:28Look, safety has to come first and that was appropriately guaranteed and achieved but resilience has to come at such a close second. We pay a lot for infrastructure. Infrastructure costs overall are heaping up on aviation and on airlines. Whether you look at airport costs or air traffic control costs or any infrastructure cost, we should expect better. So what needs to change? It's unacceptable that customers just have to suffer these types of disruptions. It displaced a lot of customers, it delayed a lot of customers. We were thankfully back up with full schedule the next day with the ATC outage in the UK.

15:04But it's not acceptable. And actually airlines tend to pick up the tab, which is not acceptable to me either. So we should work with governments, with regulators, with service providers to make sure that this system gets more resilient. because if you look back prior to the pandemic, I don't know what you think, but I think the system used to be more resilient than it is now. So, of course, demand has grown a lot since, but we all have work to do to ensure that our passengers, our customers get the best of the system safely in all cases, obviously.

15:33Jay Shabat: Understood. I want to finish by looking forward, if I can, this has clearly not been the year that the airline industry expected, albeit with the caveat that there are Black Swan events, it feels like almost every other year. When things do return to something closer to normal, What is the Corneal Costa vision for Virgin Atlantic? What was the vision that you had maybe planned at the very start of the year, which hasn't quite turned out? When things do settle down, what do you want to be known for? And what do you want Virgin Atlantic to stay true to? And maybe what needs to change under your leadership?

16:03So we'll stay true to our purpose that everyone can take on the world. No matter who you are, we'd love you to fly with Virgin Atlantic and have a really good time at that. we will lean into the premium demand and space even more. We'll be even more customer centric. We'll be even more that challenger brand. We were, you know, we exist for 43 years because Richard decided to challenge the status quo. I think we should lean into that challenger heritage. Our people love that. That gives us a lot of energy and there's a lot of challenges in the world and challenges we can put upon ourselves to just be even better and to maintain, always maintain that virgin flair, that love and the amazing people that we have, you know, nurture that, nurture that unique culture and let it fly and obviously step by step improve our operating results.

16:49Not unimportantly either, we're working on that.

16:51Jay Shabat: Positive note to end on Corneille in uncertain times. A very special thanks to Corneille for joining us here in New York. Thanks as always to our producers, Jean, Monica, Kelsey, Michael and Will. And a quick reminder, if you have any questions or comments for us for the podcast, go to podcasts at skiff.com. That's podcast with an S at the end. And please don't forget to follow or subscribe to the podcast, wherever you're listening or watching. and if you are enjoying the show, please rate us five stars or leave us a positive review so we can continue to spread the word about the Airline Weekly Lounge.

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