The Lowdown: A high-risk, high-flying Virgin Atlantic is ready to give BA a run for its money

The company's chief tells Clayton Hirst why he is bucking a becalmed sector with new products, new planes and new cabin crew

Steve Ridgway is sitting in the Rig, a mock-up of Virgin Atlantic's Upper Class cabin, located in one of the many buildings that the airline occupies at Gatwick airport. With around 50 flight attendants waiting outside the room to resume training on the nuances of how to serve breakfast and tuck passengers into bed, the smile on the face of the Virgin Atlantic chief executive is beginning to wane.

The photographer wants just one more shot of him reclining in a seat, and asks for a grin. "We're running late. Say something to make me smile," he replies.

"Think of Rod Eddington [British Airways' chief executive]," is the best suggestion.

"Ah, I'm thinking of all the customers he's losing to us," says Ridgway, his smile widening.

The airline industry may have gone through its worst-ever crisis - 11 September, the Iraq war, economic downturn, security scares and the Sars virus - but the rivalry between the two British carriers is as intense as ever. "I have a good personal relationship with Rod - he's a lovely guy. But on a commercial level we compete fiercely," says Ridgway.

He can't resist having another dig at BA: "We have got them sufficiently rattled with the launch of our new Upper Class product that they have had to go back to basics and start pushing their first-class product. We haven't seen them doing this for ages. We welcome it. We'll give them a run for their money."

In truth, the push on first- and business- class flights by BA, and, for that matter, Virgin Atlantic, is more to do with a belief that the industry is over the worst. "We are seeing the first signs of premium traffic picking up since September 2001," says Ridgway. "Barring a major event we've reached the bottom of the market. We have a long way to go - pricing is very competitive, yields are still tight - but generally we're encouraged.

With typical Virgin gusto, the company is placing a large bet on an improving market. While other airlines are sitting on their hands, Virgin Atlantic is in negotiations with Boeing and Airbus about an order for up to six new aeroplanes. With virtually no one else buying, Ridgway is able to drive a hard bargain. "It's a good time to be doing a deal," he says.

Virgin Atlantic is also planning to open a new route between London and Sydney in competition with BA and the Australian airline Qantas. "Customers will get a better deal. We are no shrinking violets when it comes to our reputation on service and products."

And to support Virgin Atlantic's expansion, Ridgway hopes to hire between 700 and 800 cabin crew this year. Contrast this with BA, which has launched a fresh £300m-a-year cost-cutting drive that is expected to lead to 4,000 people losing their jobs.

"We have a different culture, a different brand. We don't want to be a boring follower airline," says Ridgway. "It's high risk but it is much more of a stimulating place to be."

Ridgway - who joined Virgin Atlantic in 1990, moving up the ranks to become chief executive 11 years later - first met Sir Richard Branson in Miami when he was working on the Virgin Atlantic Challenger project. He developed and drove the powerboats and led the team to victory, winning a Blue Riband for the fastest North Atlantic crossing.

As well as their professional relationship, the two are good friends. Ridgway says: "We go on holiday together from time to time and we have fiercely competitive sailing races. I like speed, adrenaline stuff: fast cars, fast boats. I do a lot of sailing as well. The ocean is the place of freedom."

Ridgway will combine his love of fast cars and boats in June when he and Sir Richard drive an amphibious vehicle across the Channel to celebrate Virgin Atlantic's 20th birthday.

Tanned, sporting a Longines sports watch and with a Mercedes in the garage, the 52-year-old Ridgway has the rewards of running one of the most successful businesses in the Virgin empire. But things haven't always gone his way.

Last year Virgin Atlantic hit the headlines with news that it was in negotiations to acquire the smaller British airline BMI. Suddenly there was fevered speculation about UK aviation mergers: Virgin to buy BMI; BA to buy Virgin; Virgin to buy BA. All the scenarios were played out in the business press. But nothing happened as talks between Virgin and BMI collapsed in May.

"Maybe the timing just wasn't right. Maybe one day, with a fair wind, we'll do a deal, because a tie-up between the two companies makes a lot of sense," says Ridgway. "We would be putting together two complementary businesses. If we could pick it up again, it would be great."

He refuses to give any indication on when Virgin Atlantic might attempt to resume talks, but Ridgway and Sir Richard will have to do a lot of persuading to win over BMI's sceptical chairman, Sir Michael Bishop. Tim Bye, BMI's legal director and company secretary, says of a possible merger with Virgin: "That's the $64,000 question. All I can say is that talks are not going on at the moment. People outside the two companies say they can see the benefits and logic of us coming together. They are entitled to their views."

Whether or not a deal is done, Ridgway says further consolidation in the airline sector is inevitable: "This is the last great global industry that hasn't seen this take place. This is mainly because of the environment, the rules and regulations under which it operates, but it just has to happen."

Virgin Atlantic is 49 per cent owned by Singapore Airlines, and Sir Richard and his staff hold the rest of the shares. The entrepreneur is considering floating off other parts of his empire, such as Virgin Mobile, and Ridgway reveals that Virgin Atlantic could one day become a listed company. "It's broadly on our agenda. Our long-term strategy is to get the business into a form where it could be floated. It would be nice to go back to the shareholders in two or three years' time and say: 'Look, this is how the company is performing, this has been its recovery. Do you want to do that?'"

Virgin Atlantic posted a modest pre-tax profit of £15.7m in the year to April 2003, reversing a previous loss. The last set of results were affected by the beginning of the war in Iraq and the outbreak of Sars, while the full effects of these events will be felt in Virgin Atlantic's next set of results, due out late this year. "If we could get to a break-even situation, then that would be very respectable. I am broadly hopeful we can do better than that. I'm hoping that we will surprise ourselves," says Ridgway.

With BA having just reported pre-tax profits of £125m for the last quarter, the pressure is now on Virgin Atlantic to prove it can deliver on its promises.

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