Does Richard Branson Want To Start Virgin America 2.0?

Arguably the guy who gained the most from Alaska’s takeover of Virgin America was Richard Branson, given that the deal was worth $2.6 billion, which was way beyond estimates of what the company is worth. However, Branson has also been one of the most vocal critics of the takeover, saying that he would have stopped it if he could, and also writing a rather somber “goodbye” letter to Virgin America employees.

Alaska-Virgin-America

Whether or not Branson really feels that way is anyone’s guess. You’d think that he’s laughing all the way to the bank, though I guess if you have as much money as he does, it’s not all about money anymore.

Anyway, as I wrote about several weeks ago, Richard Branson is in a dispute with Alaska over how long they’ll have to pay licensing fees to him for, at the rate of 0.7% of revenue. Essentially, Branson thinks that Alaska should be paying him licensing fees through 2040, when the current licensing deal runs out, regardless of whether or not they actually use the brand. Meanwhile Alaska says they only have to pay licensing fees for as long as they use the brand, and they plan to retire it in the next couple of years.

It seems like this dispute still hasn’t been settled, and now Branson is hinting at the possibility of starting a new airline in the US. Per an interview with Bloomberg:

Billionaire Richard Branson signaled he may jump back into the U.S. airline business after tussling with Alaska Air Group Inc. over how long the carrier must pay royalties on his Virgin America brand.

Alaska has to keep paying “unless we decide to start another airline. So, we’ll see what happens,” Branson said in an interview Thursday with Bloomberg TV. When asked if he would create a new carrier, he said, “watch this space.”

I’m not sure if Richard Branson would have wanted to start an airline if this licensing dispute weren’t working out the way it is. However, if there’s one thing I know about Branson it’s that he’s a very proud guy, and pride might be a motivator for him here if Alaska doesn’t pay him royalties for the next 20+ years (which I can’t imagine they will, and frankly his expectations seem a bit unreasonable).

Financially, Richard Branson got really lucky with Virgin America. Purely from an ROI standpoint, I don’t think they could have done better for shareholders than they did with Alaska’s takeover. However, that’s not to say he won’t try to start an airline again…

virgin-america-a320

What do you guys think — will Richard Branson start another US airline?

Comments

  1. God I’m so over this guy. He’s idolized by everyone for no god damn reason. Of course they shouldn’t pay royalties over a brand that isn’t even used.

  2. Given how well airline consolidation has gone for customer service, I’m fine with a billionaire’s vanity project introducing a little competition.

  3. I’m going to assume Alaska intend to retain ownership rights over the name regardless of whether they’re using it. Thus yes they should continue to pay royalties. The royalties are paying for the right to use the Virgin name, not whether or not they’re actually using it.

    I think he would be silly to start another airline. He’s been there, done that and succeeded. Why take the risk of failing, and what can he do differently that’s not already being done.

    The only possibility i can see would be some tie in with Virgin Cruises to operate somewhat of a charter airline to bundle fly/cruise tickets.

  4. @Damon, it was in the agreement. They bought it.

    I’m all for creating another Virgin America 2.0. Alaska is ruining perhaps the best airline brand, and Alaska, while having a -great- frequent flyer program, is not good to fly on, especially for longer routes.

  5. You’d think with all the lawyers and others involved, somebody would have thought to clearly state how long the royalties lasts in the legal documents. Some people aren’t as smart as you would expect.

    I guess we churn credit cards and Branson churns airlines.

  6. If Alaska is not paying him for the name Virgin, he should be able to use it. He should start Virgin America and have the same mood lighting and other things which made Virgin unique as Alaska is going to drop those. I can even think of a great slogan “You can be a virgin the second time too”. Ultimately what Virgin really should be doing is creating an alliance between the new Virgin USA, Virgin Australia and Virgin Atlantic and maybe a new Virgin India and a Virgin Africa. A global alliance like what Etihad has done with partly owned companies.

  7. I say go for it. Competition doesn’t hurt, and I’m sure he could come up with something outlandish. Thanks for your slogan Prabuddha, it made me chuckle.

  8. If he wants to start another airline then I’m all for it, but this is likely just a play to gain some leverage at the negotiating table. Branson is probably just trying to get Alaska to pay him some discounted accelerated buy-out of what he reasonably could have expected from Virgin America through 2040

  9. @Damo I don’t think this is a case of him just “demanding” royalties for no reason. According to the terms of the contract (which has been publicly discussed in detail) is that it provided for royalties regardless of what Alaska did with the Virgin name. I honestly don’t think he is simply and without any just reason saying Alaska should pay. In my opinion he is pretty upset over what is deemed as a breech of contract (whether enforceable or not).

  10. Yeah, sorry I have to disagree with this post. First, he definitely got some ROI, but not at the level suggested (indirectly)…he only had ownership over about 24% of the stock I believe (max allowed is 25% for foreign entity). Second, as others stated above, he licensed the name to Virgin America under clear terms – 2040. If they aren’t using the name and aren’t paying royalties, it voids the protection clause for the brand, meaning 2.0 can be started. Many lawyers have discussed this at depth, and most courts based on case law are likely to agree.

    Remember too – even though he could vote with his 25%, he abstained from the merger vote… this likely protects him if a court or other entity (say SEC) claims he tried to make things fail or more difficult thus allowing a loophole. His abstaining from the vote may actually protect him from such competitive issue claims.

    Regardless – we need new entrants given the mega mergers, unless a breakup is going to be forced, which at best may be 10-30 years off (AT&T was going on monopoly for what, 20-30 years on the first half of the 20th century before being broken apart?)

  11. I sure hope he does and sure hope its 1 million times better than Alaska, who screwed customers over by extinguishing Virgin America.

  12. Over the last couple of years Virgin America has successfully turned into another crap airline. #notcoolanymore #gorichard

  13. How much do you want to bet that he had sex with each of those gorgeous flight attendants? I don’t like the Virgin Atlantic flight attendants — the women are stereotypially pudgy British — but the Virgin America and Virgin Australia flight attendants are absolutely gorgeous.

  14. @Damon you maybe don’t realise, but virtually every ‘challenger’ brand out there takes some inspiration from Branson/Virgin (who took a lot of inspiration from the late Freddy Laker when it comes to the airline space) – so the competitive landscape in business across the globe is better because of Branson.

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