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Virgin Atlantic CFO on navigating headwinds

Airline finance chief Tom Mackay reveals in Financial Director interview the value of experiences at Logica and Marks & Spencer, both FTSE-100 giants during his time at each.

Tom Mackay is no stranger to challenging roles. The CFO of Virgin Atlantic, one of the world’s best-known airline brands, built his career at IT  firm Logica and retailer Marks & Spencer, then both FTSE-100 giants.

But since his arrival in 2015 at the airline, that is 51% owned by Sir Richard Branson’s Virgin Group and the remainder by US carrier Delta Airlines, Mackay has been part of a management team dealing with a number of testing elements.

They include higher fuel prices, the weakness of sterling against the dollar, economic uncertainty and a shortage of Rolls-Royce Trent 1000 engines for Boeing 787s in the fleet.

In addition, Virgin Atlantic, like all its peers, has to address environmental challenges, with the ultimate prospect that climate change could make mass consumer flight a thing of the past.

The airline is showing signs of improvement. In its last accounts to December 2018, it saw the first year of positive revenue unit growth across the company since 2014.

Nevertheless, the group, comprising Virgin Atlantic, Virgin Holidays and cargo, reported a pre-tax loss of £26.1m before tax and exceptional items – although this was a significant improvement on a £49m loss in 2017.

Mackay says that being in a privately-owned group does offer some slack in the short term, but he insists: “Shareholders are still looking for a return, so you might get the slack in the short term, but you’ve got the same drive for long term delivery as I think any listed company has as well. Our investors are looking at the long-term opportunity,” he says.

Career launch

Mackay studied engineering at Durham University, where he says he “went through a process of trying to understand and analyse data, and deciphering it. In engineering there’s quite a lot of project management, as there are often long-term projects, so you get a feel of the different phases you might go through. Everything we do today is really a project, so you get that basic experience,” he says.

At Big Four accountancy firm Ernst & Young, he says he was given the chance to assess many different corporate models. “Seeing behind the scenes in different businesses is great early learning for your career,” he stresses.

Having decided to move into industry, Mackay joined IT and management consultancy Logica, which then became part of CGI Group in 2012. A position in international operations provided, “a first appreciation of how to work with different countries, cultures, we all have to be used to that these days, but it was my early grounding in that,” he says.

A series of roles followed, starting in reporting, becoming a financial controller and CFO of international operations, before becoming deputy CFO for the group’s mobile phone business. “It gave me my first step into appreciating cases where you have incomplete data, or where people have very different priorities from you and you have to challenge them on what is the most important priority for the success of the business you operate in,” he reveals.

At Marks & Spencer, where he was first head of international finance across 50 countries and then foods head of finance, Mackay says he noticed a dramatic change in approach. “The difference with M&S was the profile and the speed of retail, where each day’s sales is critical- especially in a time like now in the run-up to Christmas, where that daily trading, that daily drum beat is so much more critical than businesses with a longer term delivery cycle,” he reveals.

“You had to adapt to a lot more volume of data, a lot more data analytics skills, and deliver a lot quicker response when things weren’t trading as expected,” he reveals. “I learned the importance of pace in decision-making. And if you can act at pace you have the chance of being ahead of your competitor, and if you don’t they overtake you,” Mackay warns.

Another revelation from his time at Marks & Spencer was the importance of brand and sector knowledge. “In some ways it takes longer to get up to speed in retail compared to both IT and the airline, to get trust amongst your cohorts. How you gain that quickly was one of the bigger challenges, I found,” he says.

On the runway

When Virgin Atlantic’s then CFO Shai Weiss, now the airline’s CEO, approached him to join as senior vice president finance, Mackay says what appealed was an empowerment of staff to execute their roles effectively.

“It was very much realising I could get on and make the changes I believed were right and work with the other people across Virgin to make sure we did the right thing. It was recognition of the ability as a finance person to influence the whole business, and the whole business was very open to that approach.

“I could be in an operations meeting when we were talking about timing of flights, and I could challenge them financially on their decisions. Should they re-time a flight to New York, I could challenge them on the impact on its connection time, and I’d be entering a conversation where everyone was receptive to the challenge,” says Mackay, who was made CFO in 2017.

“You quickly realise you can add more to a business when you can have that debate at a healthy stage, straight in rather than having to be always pushing your way in as a finance person, if they want you in there,” he adds.

Evidence-based arguments using data? “You’ve got to be able to take the data you’ve got and you’ve got to present it in a meaningful way, to influence people you need to influence. For example, if you know how customer satisfaction scores convert into customers returning or customers booking on the airline, being able to use that data to help influence decisions is what is invaluable, and having a group of people who want that data is also really important,” says Mackay.

A key aspect of working in a group owned by two large, high profile shareholders is understanding how to capture the value of each. “It’s a matter of what I can learn from the Virgin Group brand on the customer experience, and on the flip side I’ve got Delta who I believe is the best in terms of aircraft operating and on time performance,” he says.

Thinking ahead

Mackay says the aspiration for Virgin Atlantic, which saw 2018 annual revenue increase 5.8% to £2.8bn on an annual 4.8% increase in passenger numbers to 5.4m, is to become Britain’s second flag carrier.

He says there is plenty of growth potential as it  currently only has 5% of the share of Heathrow compared to British Airways-owner IAG’s 50%, as the London airport is set to expand with a third runway. “One of the big things that I am pushing hard on at the moment is how we capitalise on that long-term benefit and make sure that we have the opportunity to be that second flag carrier at Heathrow,” says Mackay.

“If we can influence the population of the UK and consequently the government that they need to create competition at Heathrow, and give us the opportunity to seize that, it would be absolutely critical for our long-term success. That’s what I’m doing taking the lead on our business strategy,” he adds.

But given environmental concerns that may ultimately prevent a third runway being built at Heathrow, could Virgin Atlantic’s long term model be jeopardised?  “I am conscious that if Heathrow doesn’t grow in capacity, consumers are still going to want to travel, so it is likely that consumer growth will happen from other airports around the UK. But we definitely believe that Heathrow is the best option for the UK economy and the UK consumer,” he insists.

When it comes climate change, Mackay does not consider the likelihood of  consumer flights being severely curtailed, in order to manage levels of carbon emissions. Instead he stresses the benefits of Virgin Atlantic’s approach on three fronts.

Using more fuel-efficient aircraft-Virgin Atlantic has spent on $8bn on a fleet of Airbus A350s and A230s- Mackay says use 30% less fuel than previous models, is a step forward. He also says the airline is exploring the use of alternative fuels, but he insists such an approach is as yet not commercially viable, and is years away from viability. “No airline yet has the capability to produce alternative fuel, you will not find an airline doing it,” he says.

“So you then get to the third step which is can you offset the carbon you produce from flying with alternative activities on the ground, such as peat land, investing in solar energy and alternative activities. We already offer to the consumer today the opportunity to offset,” he says.

“We are already committed as an industry across the UK and countries including the US, China, India, to start offsetting as a first stage our growth in carbon emissions, from 2021. But the UK can’t do this alone, as this will incentivise other countries not to offset, because they will be able to offer a cheaper product. We need the global industry to do this,” he adds.


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