Airlines: Virgin Atlantic CEO Steve Ridgway

If you haven't booked a flight recently, you aren't missing much. According to a recent J.D. Power & Associates survey, customer satisfaction with the North American airline industry has hit a three-year low. That's not surprising, considering that a reduced number of flights has led to more crowded planes, skyrocketing fuel prices have boosted fares and the airlines' staff cutbacks have hurt customer service.

But while America's carriers are curtailing amenities, tightening frequent-flier mile programs and reducing routes, international passengers are enjoying better amenities and more destination options. What makes them so lucky? NEWSWEEK's Arlyn Tobias Gajilan spoke to Virgin Atlantic CEO Steve Ridgway about why international airlines are doing better than domestic carriers, whether increased fares are inevitable and whether biofuels can save the industry. Excerpts:

A weak economy and soaring fuel prices have forced America's legacy airlines to reduce flights, cut back on amenities and charge for checked baggage. Meanwhile, international carriers like Virgin have added routes and increased creature comforts. What do you know that U.S. airlines don't?
Steve Ridgway:
We've done a lot of growing in the last four years, but we saw the writing on the wall and foresaw the other side of the economic cycle. We decided about two years ago to defer our aircraft orders, and we were also aggressive when it came to hedging our fuel costs; that's provided us a cushion but hasn't made us immune to the problems out there. The rising price of oil was not something we could foresee, and it's certainly sent everyone reeling. Also, as a long-haul carrier based out of London, we've been able to set our sights abroad and position ourselves to take advantage of growing international markets. It's important, we think, to invest heavily in our product time and time again, during the good times and the bad. We are riding high at the moment and are continuing to build our cash reserves.

Are you planning to use that cash to add more international routes? Or are you looking to expand by acquiring smaller airlines?
Potentially to do both. Europe's big carriers are in a strong position. It's the lesser carriers operating around them that are facing uncertainty. America's airlines are going through a consolidation period, and there will likely be a similar process in Europe. You will definitely see a big change in the names and the numbers of airlines flying.

When you talk about expanding, it doesn't sound like you're necessarily talking about more flights to the U.S. or in Europe. Where are you headed?
We made a conscious decision after 9/11 to diversify. At that time, 75 percent of our business was crossing the Atlantic. We've changed that and are focusing on getting 50 percent of our business into new markets that include Africa, where we're trying to offer a better level of service. We're in South Africa, [we] started flying to Kenya last year and are also in Lagos. We've also found that our level of service is in demand in Dubai and the [Arab] Emirates. And with the growth of India, we've begun daily direct service to Delhi and Mumbai.

Virgin helped pioneer the über-luxury class of service and amenities. Other airlines, like Emirates, Singapore and others, have followed up with private cabins, etc. What's Virgin doing to keep up?
We've always positioned ourselves differently. The real first-class market is extremely rarified. What we do is offer upper class at business-class fares. Our flatbed seats are still winning awards, and we've extended the experience outside of our cabins to our clubhouses, like the one at Heathrow's Terminal 5. There we've got a dedicated security facility that's 40 feet from the gate, and we can escort you through in under 10 minutes.

That's great for folks who can afford it. But for the rest of us, are higher fares for all airlines simply unavoidable?
We're all going to have to re-price. The world needs a viable air travel industry; global trade demands it. In terms of fares and fuel prices, none of us are at a place we could have recognized clearly two years ago. We clearly need more fuel-efficient aircraft, but fuel surcharges are going to go up. Consider this: Taxes and fuel surcharges on a ticket from London to Los Angeles amount to about £300. But that only recovers 30 to 40 percent of our actual fuel costs.

Speaking of more efficient aircraft, in February, Virgin experimented with a jet powered by biofuels. The test generated good publicity, but is such a plane really practical? Do you really have plans to convert your fleet?
It's not a question of conversion. You don't have to change a plane's engine to run on biofuels, that's the great thing about it. Of course, we don't want to displace food crops, so now we're looking at biofuels created from algae. … We did it to prove and send a message that it's possible to do, that we don't need to rely entirely on fossil fuels and that we can all do more. Meanwhile, we're also working with Rolls Royce and General Electric to make our fleet sleeker, lighter and more efficient.

Let's switch gears a bit … About 10 years ago, Richard Branson told NEWSWEEK that Virgin's new planes would offer double beds and that he'd name those private cabins The Mile High Club. What ever happened to that?
We've offered double beds on our 747s for two and half years. We chose not use that name, but our passengers may call it what they like.