Virgin Atlantic: Taking on the world with a dash of 'je ne sais quoi'

Principal authors: Jeremy Poole, RKCR/Y&R; Lee Moran, OMD International; Rebecca Bourdon, Gyro; Tyler Schultz, Hall & Partners Contributing authors: Tosin Osho, BrandScience; Emily James, RKCR/Y&R

Author's summary:

Mass consolidation in the industry left Virgin Atlantic facing a new breed of global competitor.

With a historical reliance on the UK to drive growth, it was crucial that both ends of Virgin Atlantic's route network were working equally hard to deliver incremental revenue.

'Your airline's either got it or it hasn't' is the first ever global campaign for a Virgin brand. Not only has it outperformed previous VA campaigns in the UK, including Still Red Hot, but delivered significant growth across the rest of the world.

The global return on marketing investment is estimated at £15.66 per £1 spent.

A global minnow

Virgin Atlantic is an airline industry anomaly.

With 38 aircraft servicing 30 routes, all out of London, Atlantic is the only major long haul airline in the World that isn't a national flag carrier.

But in airline terms Atlantic is anything but big. At London Heathrow, VA's main global hub, the business holds only 3% of the total take off/landing slots and supplies 5% of total seat capacity. Albeit these slots are very valuable this is well behind British Airways with 42%1 of slots and 39% of seats (see fig 1).

Virgin Atlantic is also the only Heathrow based airline that is neither part of a larger group2 nor even of an alliance.

Fig 1: London Heathrow Capacity by carrier Seats – August 2011

Institute of Practitioners in Advertising Gold, IPA Effectiveness Awards, 2012

www.ipa.co.uk

Big is beautiful

The last decade has been a turbulent one for the airline industry.

With escalating fuel costs, taxes rocketing, increasing security costs, coupled with stalling global economies it's easy to see why it's not a great time to be running an airline.

Upwards of 50 airlines have gone under since 2001 and all the major US airlines have filed for Chapter 11 bankruptcy protection. British Airways made a loss of £401m in 2008-9 and £531m in 2009-10 – successively BA's biggest losses since privatisation in 1987.

To counter the storm, airline industry wisdom is to seek success in size.

In the last few years regulators have approved a succession of mega tie-ups. Air France & KLM merged in 2004. British Airways & Iberia merged to become the International Airlines Group in 2010. They've subsequently added bmi to their stable and then tied up with American Airlines to create a dominating force across the Atlantic.

In the US Delta merged with Northwest. Then in 2010 United and Continental trumped Delta/Northwest to create the world's largest carrier by passenger traffic.

All benefit from a series of structural advantages acknowledged by industry experts.

'The linking of networks has produced increased traffic volumes and revenues…all of which have helped the allied airlines improve their efficiency and reduce costs.'

Source: Airline choices for the future – Iatrou & Oretti

But the most notable benefit of size is the strength of your feeder network – crucial in maximising 'bums on seats'.

Virgin Atlantic under significant threat

The effect of this industry consolidation leaves Virgin Atlantic highly vulnerable.

Consider a flight from London Heathrow to New York JFK. Atlantic's catchment area covers around 30m people, whereas BA's European network feeds in some 711m potential passengers. Add in Iberia, bmi and American Airline's networks and the scale of the threat is clear.

Not only is VA dwarfed by this new breed of global giant, it also has an disproportionate reliance on the UK for passengers and revenue

In 2009 68% of Virgin Atlantic revenue was delivered by the UK, with just 32% coming from the markets at the other end of VA's routes. The UK also accounted for the majority of growth with 81% of incremental revenue being delivered by the UK versus just 19% by the rest of the world (RoW).

Fig 2: Contribution of UK and RoW to incremental revenue growth

To stand a chance against the new breed of consolidated global giants it was imperative that both ends of VA's route network were working hard to deliver passengers and revenue. In other words, the UK had to keep growing, but the RoW had to grow even faster and increase its contribution to incremental revenue.

The role of the brand and communications

As a UK based business it's no surprise that Virgin Atlantic is a stronger brand at home than abroad. But the dominance of the UK in strength and stature is considerable as can be seen in Fig 3.

Fig 3: 2008 status of the Virgin Atlantic brand in the UK versus the rest of the world

The success of the brand in the UK can, in part, be attributed to the communications that have helped it grow from a maverick upstart in 1984 to the UK's second largest airline as it is today.

Two IPA papers have documented the story of Virgin Atlantic's communications, with a 15 year historical case in 2008 and the Still Red Hot campaign in 2010.

Both papers demonstrated that building an understanding of 'Virginness' led to an increase in brand commitment, the measure that most closely correlates with revenue growth. This model is summarised below.

Fig 4: Communication Model

The key to fuelling demand at both ends of the VA route network would lie in taking what we'd learnt over many years in the UK and applying it to a global communications campaign that would be relevant in every market.

This would not only increase demand at the other end of each route but align the brand globally to maximise synergy for our audience (who since they were flying, were always exposed to the brand in more than one market).

Until this point, communications outside the UK had been largely tactical with different positionings and values being expressed around the globe.

Figure 5: Example Virgin Atlantic communications outside the UK 2007-9

The creative challenge

With a legacy of highly effective communications in the UK, it was critical that the move to a global approach didn't compromise its impact

at home.

So the wit, style, audacity and irreverent humour (essentially what made Virgin Virgin) would need to stay. But to make it globally relevant we needed a unifying truth. Something that could act as a hook for communications and work in all markets, where more often than not British Airways was no longer our primary competitor.

The answer to this challenge lay in the very reason Branson decided to launch an airline in the first place.

"I was fed up with identical seats, identical food, identical service and extortionate fares. I decided to create an airline that I wanted to fly myself."

Sir Richard Branson

Virgin Atlantic was built from a passion for a better flying experience – a belief that flying should be a pleasure, not a chore. And that passion is still evident in every touch-point today. The flying experience is second to none and the way the brand behaves is fun, glamorous,sexy and brings back a little of the golden age of flying.

Fig 6: Virgin Atlantic imagery

In contrast, national flag carriers the world over fly out of duty. Although, mercifully, service levels have improved significantly since 1984, the role of the flag flying brand remains the same – to represent the nation – and with that comes a certain formality, seriousness and (often) stuffiness.

Fig 7: Flag carrier airline imagery

And the contrast of the Virgin experience versus the local flag carrier is evident time and time again in research all over the world.

"There's just no comparison. Virgin is in a different league from Continental" Business Traveller, USA 2009

"Virgin have something extra – I don't quite know what – but it's the whole package" Leisure Traveller, China 2009

So unlike flag carriers that fly out duty, Virgin Atlantic flies for the love of it. This was a truth that was relevant in every market; an opportunity we could exploit globally.

We summed it up as Virgin Atlantic. Born to fly.

The creative idea

Our idea was to create advertising no other airline in the world would dare to and in doing so dramatise the totally different flying experience VA offers.

Featuring the strap-line 'Your airline's either got it or it hasn't,' the TV takes the viewer on a metaphorical flight with Virgin Atlantic (fig 8).

Press, poster and digital support for the Upper Class and Economy cabins captured the unique values of Virgin showing the glamour, fun and comfort of the flying experience (fig 9 & 10).

And the idea was fully integrated across all touch points, from Flying Club communications, to credit card mailers, to trade advertising and point of sale (fig 11).

Fig 8: TV & Cinema execution Title: 'Your airline's either got it or it hasn't '

Fig 9: Upper class press, poster and digital creative work

Fig 10: Economy press, digital and outdoor creative work

Fig 11: Integration across brand touch points

Media strategy

Virgin Atlantic's media spend on a global basis was dwarfed by the global giants it was competing against. The total global budget for the first year FY10/11 was £15.2m.

Approximately half was allocated to the UK in reflection of its dominance in revenue generation. Although still a significant spend, this meant the UK budget was £2m lower than in the previous year with the Still Red Hot campaign.

The remaining £8m was allocated across the rest of the world. Given Virgin Atlantic's relatively low share of voice in each market, we had to be clever with how we spent it.

The media strategy around the world was one of key city domination according the route network.

Highly targeted television in our two key markets (UK & US) plus cinema in Australia ensured we maintained/built a strong emotional relationship communicating 'Your airlines either got it or it hasn't'.

Print media was selected according to quality rather than quantity opportunities, using unusual formats and media firsts where possible e.g. the first advertiser to wrap the business section of the Times; partnering with The Daily in the US – the first iPad publication.

Online worked alongside ATL to directly drive sales at key booking moments. And we leveraged Virgin Atlantic's entrepreneurial spirit to capitalise on tactical opportunities wherever possible, creating cut through and a sense of scale: wrapping a London taxi in Ghana, creating giant shopping mall banners in India, even wrapping our own office building in Barbados.

The campaign first broke in March 2010 and ran in 13 markets (fig 12).

Fig 12: VAA FY10 / 11 global media laydown

Fig 13: Media led amplification

Demonstrating the impact of global communications

In this section we will demonstrate how the campaign worked:

● First in the UK – comparing the performance of 'Your airline's either…' with the previous UK campaign 'Still Red Hot' (heralded by Branson as the best Virgin campaign ever made and itself the subject of an award winning IPA paper in 2010)

● Second across the RoW – where we compare performance against a global norm constructed by Hall & Partners based on 23 airline brands around the world (there is no pre measure to compare against)

We will use the communications model referenced earlier in the paper to show how the campaign delivered at each stage.

VAA Communication Model

UK campaign performance

As we can see in fig 14 despite an overall decrease in media spend of around £2mn, 'Your airline's either got it or it hasn't' more than held the brand position in the UK, across key elements of our communications model it actually strengthened our position.

Fig 14: Stronger UK Tracking Result s than St ill Red Hot

Rest of World campaign performance

In overseas markets the advertising worked as intended.

VAA Communication Model

Cut through for 'Your airline's either got it or it hasn't' was above norm in all markets for business and leisure passengers (fig 15).

Fig 15: Advertising recognition was above norm

The creative approach universally stood out as different from other communications (fig 16).

Fig 16: The campaign stood out as different

The launch sparked an increased in brand buzz all over the world. This is illustrated by the tangible increase in online brand sentiment, with positive sentiment increasing by 56.3% between August and October 2010.

Largely spread virally through Twitter, Facebook and on YouTube (fig 21), the TV was a key driver of conversation about the brand, driving a 62.3% increase in general brand mentions.

Fig 17: Facebook Word Cloud

VAA Communication Model

The campaign built identification with Virginness around the world – across all markets the takeout of the communication was aligned, with the flying experience and brand attitude coming through strongly.

Fig 18: Verbatim comments about the advertising

The idea successfully conveyed how great the flying experience would be (fig 19).

Fig 19: The campaign communicated a great flying experience

The campaign appeared to improve brand understanding (fig 20) and affinity (fig 21) across the board (but particularly in newer markets) with recognisers showing significantly higher understanding than non-recognisers

Fig 20 : Those who saw the campaign felt they understood the VAA brand better

Fig 21: And felt more affinity for the brand

And local flag carriers were left seeming relatively staid and old fashioned as the campaign further reinforced Virgin's innovative and forward thinking positioning (fig 22).

Fig 22: The campaign reinforced VAA's innovative & forward thinking positioning

Similarly Virgin was seen as worth paying more for than the flag carrier in almost all markets (fig 23).

Fig 23: It helped secure willingness to pay more

VAA Communication Model

Consumers found the communication highly persuasive with above norm scores on 'makes me interested to fly Virgin' in all markets (fig 24).

Fig 24: Persuasion was above the norm

But most importantly the campaign shifted brand commitment, the single measure most closely correlated with sales, in all markets.

Fig 25: VAA brand commitment

In summary, we have seen how the advertising worked as intended against our model.

We'll now illustrate the business results.

Global business results

In FY10/11 (Mar 10 – Feb 11), their first year of going global, Virgin Atlantic announced record results.

Seats filled per plane were up year on year (fig 26). And VA's lead on the market was further enhanced.

Fig 26: Seats filled per plane increased VAA passenger load factor vs market average

Virgin Atlantic share of passengers flown has grown across all routes.

Fig 27: VAA share of passengers flown across VAA routes

Moreover they were spending more. Average price paid per ticket grew strongly after a number of years of decline (fig 28).

Fig 28: VAA average yield FY 2008 – FY 2011

The effect of increased loads and yields on the business was growth in passenger revenues of over £200m year on year (fig 29).

Fig 29: VAA passenger revenue FY 2010 – FY 2011

Importantly the strategy of growing the importance of overseas markets was working – revenue grew 8.7% in the UK and nearly 20% in rest of the world (fig 30).

Fig 30 : VAA passenger revenue growth by UK and RoW

And for the first time ever overseas markets contributed the majority of passenger revenue growth – £108.8mn in incremental revenue overseas versus £89.5mn from the UK (fig 31).

Fig 31: Contribution of UK and RoW to incremental passenger revenue

This is particularly impressive considering the UK revenue base was twice the size of overseas in FY2010.

Consequently VA's overall revenue reliance on the UK reduced from 68% pre global campaign to 62.7% in FY11.

And the latest results for Q1 FY11/12 indicate Virgin Atlantic's rise in passenger revenues continues, up 7.6% year on year.

Commenting on the results, Virgin Atlantic CEO, Steve Ridgway said the carrier had "demonstrated the resilience of our business by weathering the toughest economic period for aviation".

While the campaign clearly can't claim all the credit for these results we do believe the communications had a key role to play.

Isolating the communications effect

In the UK, VA's lead market, we are fortunate enough to have econometric modelling to isolate the effect of communications from other factors that may have contributed to the record business performance coinciding with the campaign.

However in other markets we have to draw on a range of evidence to quantify the influence of wider factors and isolate the communications impact. To illustrate this we will take each potentially influencing factor and quantify its effect.

1. Was the enhanced performance down to general growth in the market?

International passenger traffic into and out of London Heathrow (Virgin Atlantic's main international hub) has been largely flat since 2007 with 2011 seeing a slight increase on passenger numbers – growth of 2.2%.

Fig 32: LHR International Passenger Traffic Inbound & outbound

If this were the reason for Virgin Atlantic's growth in passengers and revenue, then VA's share of the market would remain more or less stable. But fig 33 shows how Virgin's share of the market grew significantly coinciding with the campaign.

Based on this evidence we believe it's fair to discount market fluctuations from VA's performance.

Fig 33: VAA market share pre-post campaign

2. Might VA's growth come from competitor airlines collapsing?

There have been no major airline collapses since the campaign launched in 2010 and nothing on VA's routes.

3. Did industrial action surrounding British Airways benefit Virgin Atlantic

Although Virgin Atlantic competes with carriers all over the world, its primary competitor is still British Airways because both airlines are based out of Heathrow. In fact over 90% of VA's routes are also flown by BA.

BA's industrial dispute led to union Unite balloting cabin crew for strike action 4 times between December 2009 and March 2011 and 22 days of strikes in Spring 2010.

'Your airline's either got it or it hasn't' launched in April 2010 and this paper covers the period to December 2011. So clearly any BA losses during the latter part of that period of industrial action could have ended up as Virgin Atlantic's gains.

We've been able to use econometrics to quantify what impact the dispute had on VA's business.

It can be seen in fig 34 that the total benefit to VA of BA's industrial dispute was almost £32m. This is been discounted from the ROI of the campaign later in the paper.

Outside the UK, the commercial benefit to Virgin Atlantic was negligible. Negative publicity, the main factor driving switching in bookings in the UK, was almost non-existent around the world. And anecdotal evidence suggests, if anything, BA passengers in other markets avoiding the strikes switched to local flag carriers.

Fig 34: Modelled Increase in VAA Booked Revenue FY 11

4. Was there a reduction in price that could explain increased passenger numbers?

No, in fact quite the contrary. During the campaign period yields went up 19%. This shows that average prices were increased rather than lowered once the campaign launched.

This, coupled with the fact that 'willingness to pay more' went up in response to the campaign, would suggest that activity helped support a crucial price premium during challenging market conditions.

5. Were there any VA product innovations or enhancements that could explain the growth?

The last big investment Virgin Atlantic made in its aircraft fleet was with a Premium Economy cabin overhaul in 2005. Since then, and for the duration of this campaign, there were no changes to the inflight (or airport) experience.

Since 2005 BA have introduced a 6ft 6" flat bed in First class, completed the roll out of an upgraded Club World (business class) and rolled out video on demand in their economy cabin.

At the same time a number of competitors (Emirates, Qantas, Singapore Airlines etc) invested in the A380 super jumbo; benefitting from features such as onboard showers, private suites and a bar & lounge area.

So the fact that Virgin Atlantic stole share from these operators despite the relative erosion of the brand experience is all the more remarkable.

6. Might the growth have been a function of any other Virgin activity (across other categories) in any market?

Virgin Group has interests across many of the markets in question, beyond the presence of Virgin Atlantic. During the campaign period local markets would have undertaken marketing activity on a small and local scale across a variety of brands.

But to explain the uplift that was shown across all regions any activity from elsewhere in the Virgin Group would have to have been coordinated and of some scale.

Given 'Your airline's either got it or it hasn't' is the first global initiative in Virgin's history and investment across the rest of the portfolio remained stable we believe this cannot explain an uplift in Virgin Atlantic's performance.

Quantifying the effect of Virgin Atlantic's global communications

Revenue contribution is an appropriate measure of effectiveness for the airline industry because of the high level of fixed costs in the market (estimated at more than 90%). This precedent has been set by the British Airways paper in 2004 and Virgin Atlantic 2008 & 2010 effectiveness papers.

Virgin Atlantic has used Econometric Modelling in the UK for some years now, so we can be confident of the return of the campaign at home. But we don't have the benefit of Econometrics in other markets, so need to use the data available to us to estimate the global return of the campaign.

In pursuit of thoroughness, we have calculated the global return on investment using two methodologies.

1. Using Econometric Modelling conducted in the UK and extrapolating the effect across other markets

2. A form of regression analysis to determine what the financial implications would have been had we not moved to a global communications model

We believe the first methodology delivers the most conservative estimate of the revenue return on investment at £10.76 for every £1 invested.

Based on the evidence presented in this section, it is the second methodology which we feel provides a more likely return at £15.66 for every £1 invested.

We will go on to explain both methodologies.

Methodology 1: Econometric modelling extrapolated

'Still Red Hot' was heralded by Sir Richard Branson as the best Virgin ad ever made, it achieved the highest overall payback of any VA campaign in the UK since we began modelling and was itself the subject of a winning IPA paper in 2010.

Yet, the model estimates that the new global idea was significantly more efficient per pound spent, with a total RROI of £12.42 for every £1 spent in the UK.

Fig 35: UK Comparative Return on Investment per £ spent

N.B. the econometrics strips out other variables – economic recovery, the BA strike etc to make this a like for like comparison. Although there was a difference in media budget; FY09 £10mn vs FY10 £8.4mn the model doesn't indicate any diminishing returns in FY09.

Putting this is context if they had enjoyed the same TV budget, 'Your airline's either got it or it hasn't' would deliver £20,602,238 more revenue in the UK for the business than the previous, highly successful campaign, Still Red Hot.

However, based on the actual investment in the 'Your airline's either got it…' campaign, communications was responsible for delivering 10.4% of total UK revenue, equivalent to £116.4mn.

Two factors have led us to conclude that the campaign would deliver at least the same proportion of revenue across other markets:

a) performance on key tracking measures was even more pronounced in markets outside the UK

Fig 36: Perfomance on key advertising metrics

b) the rest of the world contributed higher revenue growth than the UK

Fig 37: VAA passenger revenue growth by UK and RoW

So if you apply the UK's 10.4% figure to the total revenue generated in the rest of the world (£664mn) it estimates the total revenue generated by the campaign outside the UK at £69mn.

Adding the UK and RoW revenues together, the total revenue generated by the campaign was £185mn. Based on a total spend (media & production) of £17.23mn this equates to a revenue ROI of £10.76 for every £1 spent.

Methodology 2: Base level sales analysis

The second methodology calculates the value to the business of the global brand model by identifying the base level of sales we might have expected by continuing with our historic approach of building the brand in the UK and using tactical campaigns overseas.

The market/capacity share quotient is an airline industry measure that strips out the underlying effect of increasing capacity (i.e. number of available seats) by dividing your market share by capacity share.

Like sales per point of distribution for FMCG brands it can be thought of as a long term comparative measure of how hard your brand is working for the business (because the quotient is based on share of passenger flown it strips out economic or market effects to give us a pure like for like measure of brand performance).

In theory all things being equal your market/capacity quotient should be 1 – indicative of taking your fair or expected share of the market according to availability.

Prior to the global campaign Virgin Atlantic's quotient ran at 1.346 (i.e. 34.6% more market share than share of capacity) – indicative of the power of the brand in the UK.

In the 21 months post launch of 'Your airline's either got it or it hasn't' (that we have data for) VA's quotient was 1.586. This means since going global Virgin Atlantic have taken 58.6% more market share than capacity over the routes they fly (fig 44).

So what we can see is by using one powerful, well executed globally consistent idea the Virgin Atlantic brand has worked 18% harder for the business (1.586 divided by 1.346).

Nothing else has changed – the only thing that could have influenced the in-market performance of the brand is communications.

Fig 38: VAA market / capacity share quotient (share of passengers flown divided by capacity share on VAA routes)

The market/capacity share quotient enables us to estimate what the commercial impact would have been had we continued with a local model of marketing.

We know that with the global campaign our total passenger revenues in FY 2011 were £1,783.3mn with our quotient running at 1.586 (or 58.6% more market share of passengers flown than our share of available capacity).

If we hadn't run the global campaign it's reasonable to expect our quotient would be the same as for the previous 38 months – 1.346. If we apply the difference in brand performance to our total revenue figures we get a projected total passenger revenue figure if we hadn't run the global campaign of £1,513.5mn (fig 39).

Fig 39: Overall global return on marketing investment

This gives us a calculation of the financial value the global brand campaign unlocked for the business of £269.8mn – a UK campaign revenue derived from econometrics of £116.4mn and an overseas campaign revenue of £153.4mn.

Based on the total spend (media and production) of £17.2mn this gives a revenue ROI of £15.66 for every £1 spent.

We believe this is a more realistic calculation of value to the business of the global brand campaign 'Your airline's either got it or it hasn't'.

What have we learnt in this paper?

This paper tells the story of how one of the UK's most loved brands adopted a global communications model to help combat the threat of a new breed of global competitor.

We took learning gathered over many years on how communications worked in the UK and applied it to other markets around the world, while at the same time finding a universal truth that made the campaign relevant to each local market.

'Your airline's either got it or it hasn't' worked as intended across all markets and even outperformed the acclaimed 'Still Red Hot' campaign in the UK, despite the lower budget.

We believe it's a case study in creating global communications that don't compromise on local relevance.

It's also an example of capitalising on the scale of production that a global budget affords, to help give the brand stature and stand out in markets where it's still relatively small.

And ultimately it's an illustration of how global communications can deliver business results to help drive a longer term strategy.

In the year after launch Virgin Atlantic achieved record results and made good progress on ensuring both ends of the route network were delivering growth

The global return on marketing investment is estimated at £15.66 per £1 spent.

As they say, your airline brand's either got it, or it hasn't.

Footnotes

1. The merger with bmi will give BA 51% of take-off and landing slots at London Heathrow. 2. 49% of Virgin Atlantic is owned by Singapore Airlines but this purely an investment. Other than allowing customers to spend frequent

flyer points on the other airline, there are no further alignments or benefits. 3. The economic benefits of Airline Alliances and Joint Ventures –source: IATA Economics Briefing

 

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