Tim Jackson - Virgin King (Text Only)

Perhaps for this reason, the deal turned out to be satisfactory to both sides. Draper no longer felt so anxious about the precariousness of his financial position. Part of the agreement was that Branson, as before, would have the obligation to buy Draper’s shares in the event that he decided to sell them. But since Draper now owned almost a sixth of the whole Virgin group, it no longer made sense for the price at which Branson would buy him out to be based on profits. Instead, the two cousins agreed that the price would be set at ‘fair value’ – a phrase whose meaning would be determined by a firm of independent auditors, with an appeals process written into the agreement in case Branson and Draper could not agree on the auditors’ conclusions.

SIX

Dear Randolph

THE FOUNDER OF Virgin Atlantic Airways, the company that was to change Richard Branson’s life, was a barrister named Randolph Fields. Three years younger than Branson, he had been born in the United States to English parents, but moved to Britain at the age of nine. Like Branson, he had a chequered school career and showed early signs of entrepreneurial and negotiating flair. The two shared a taste for teenage politics, too: but by the time Branson was marching on the US embassy, Fields had already become more conventional. He took up the study of law at a London polytechnic, where he stood out from the majority of student activists. A newspaper later described him as having been a ‘political leper’. Fields sued for libel but was awarded only nominal damages.

While Branson was as energetic and unkempt as ever in his beard and woolly jumpers, Fields favoured sober double-breasted suits and was beginning to run to fat. And while Branson had acquired a dubious reputation with Her Majesty’s Customs and Excise, Fields had taken the bar examinations that entitled him to argue cases in both English and Californian courts. His growing practice in Los Angeles specialized in defending American insurance companies against asbestos claims. In less than two years, Fields had amassed savings of more than £200,000.

But life in California was dull, and the devil of adventure still gnawed at his soul. So Fields was in a receptive frame of mind when he heard on his kitchen radio during breakfast on 5 February 1982 that Sir Freddie Laker, the entrepreneur whose Skytrain service had brought the cost of flying across the Atlantic down to £49, had gone bust. Where the radio commentators saw only failure, Fields saw a business opportunity.

Four months later he was sitting in an armchair at the Gatwick Airport Hilton Hotel, where Sir Freddie had sat up until the early hours of the morning trying to save part of his business from the receivers. Facing Fields, a handful of men who had been Laker’s most senior employees listened with growing astonishment as he outlined a scheme for a new airline. It must have made an extraordinary scene: a handful of grizzled veterans, their cynicism of the airline business intensified by the Laker collapse that they had just witnessed, being lectured on the lessons of their own failure by a self-confident barrister of 29 whose experience of aircraft was limited to a few dozen flights back and forth across the Atlantic. Yet, miraculously, they were convinced. Within a few weeks, Fields had firm commitments from two valuable Laker managers: David Tait, who ran Sir Freddie’s US sales operation; and Roy Gardner, an engineer trained by the Royal Air Force and British Caledonian Airways, who had been the entrepreneur’s technical manager. Soon after that, Fields bought an off-the-shelf public company called Ritter PLC, and agreed with Tait and Gardner that the new airline would trade as British Atlantic Airways.

The young barrister had realized that Laker’s demise left a gap in the lucrative but highly regulated market for air travel between London and New York. His idea was to scoop up Laker’s licence, and to use it to fly a single jet between Heathrow and John F. Kennedy – either a McDonnell-Douglas DC-10 or a larger Boeing 747 – exclusively for business class travellers. He would offer the commercial customer a more comfortable, pampered passage than the existing airlines did. ‘At the time, business class consisted of putting a curtain across the front of the economy cabin, and giving out free drinks,’ Fields recalled. ‘It was a joke.’

In most other industries, anyone who wished to set up in business was free to do so. But the Civil Aviation Authority, set up in 1971 by Edward Heath’s Conservative government, saw itself as the guardian not of competition between carriers, but of safety standards – which might be put at risk if existing airlines were undercut by a newcomer. British civil servants had concluded that the best way to achieve this objective without ignoring the interests of the consumer altogether was for Britain to have two international airlines, British Airways and British Caledonian. The arrival of Laker had upset this careful planning, and it was therefore with little regret that some civil servants mourned his passing.

President Jimmy Carter’s decision to deregulate the American airline industry made this policy harder to sustain. He appointed to the Federal Aviation Authority an economics professor from Cornell University who thought the purpose of the free market was ‘to let people do crazy things’, and who saw a succession of airline start-ups and bankruptcies as proof that the market was working. For the CAA, by contrast, an airline collapse of the Laker kind was evidence of a policy failure – since an airline that failed either never should have been allowed to start or should have been closed down by the regulators before it ran into trouble. It was no surprise, therefore, that when Fields applied for a transatlantic licence the CAA delayed as long as it could, and then turned him down.

Not to be put off, Fields appealed against the Authority’s decision directly to the Secretary of State for Transport. In September 1983 the CAA was told to reconsider. The officials at its Kingsway headquarters began to realize that Fields would never leave them in peace until he was awarded a route. They would never risk a repeat of the Laker fiasco by allowing him to fly a scheduled service between the main London and New York airports. But he could, if he wished, have the route between Gatwick, London’s second airport, and Newark, New York’s third. To deliver this message informally, Ray Colegate, the Authority’s head of economic regulation, made an appointment to have lunch with Fields at an Italian restaurant in Covent Garden.

As soon as he got wind of the CAA’s intentions, Fields realized that his original plan for an all-business service would have to be torn up. A minority of business travellers might be persuaded to trek out to more distant airports if offered free transport and a better service on board. But British Atlantic, Fields’s new airline, could no longer rely on business traffic for its bread and butter. Instead, it must join the fight for budget travellers – and its first opponent would be People Express, the lowest-cost airline in the history of aviation.

Founded by a Wall Street analyst named Donald Burr, People Express was a firm whose name struck fear into the hearts of airline executives everywhere. It cut all the corners it could, except for those that might compromise passengers’ safety. Its staff were paid less than those in other airlines, and had no effective union to represent them. No advance reservations were allowed; passengers had to turn up at the airport and pay for their passage before boarding the aircraft. The ticket price covered only the cost of a seat and the right to visit the lavatory on board; food, drink and entertainment were extra. As a result, People Express could afford to undercut all the other airlines that plied the Atlantic crossing.