Branson's Virgin To Pilot New Cruises Venture
Updated: 1:16pm UK, Friday 28 February 2014
By Mark Kleinman, City Editor
Sir Richard Branson is drawing up plans for a secret assault on the international cruises sector which will involve raising hundreds of millions of pounds in funding from external investors.
Sky News can reveal that Virgin Group has appointed the US-based corporate advisory firm Allen & Co to oversee the development of a cruise operation that would eventually aim to compete with industry giants including Carnival Corporation.
Virgin has been working with Allen & Co on a range of potential opportunities across the wider leisure sector, including an investment in a four-star city centre concept called Virgin Hotels.
The development of Virgin Cruises, which is expected to be the name of the new venture, is at an early stage, people close to the project cautioned on Friday.
However, Virgin executives and their advisers have already held detailed talks with banks about raising an estimated $1bn (£598m) of debt to finance the acquisition of the company's first vessels.
They also want to raise in the region of $700m (£418m) of equity by selling stakes in Virgin Cruises to outside investors.
Sir Richard and Josh Bayliss, chief executive of Virgin Management, are understood to believe the global cruises sector possesses many of the same characteristics which have led Virgin to build a significant presence in sectors such as aviation, rail and mobile telecoms.
The cruise market is dominated by fewer than a handful of companies, such as the FTSE-100 group Carnival, Royal Caribbean and Norwegian. Between them, the three companies have a global market share of approximately 80%.
"Cruises is a classic Virgin market, dominated by two or three players and where the product needs to be refreshed," an insider said.
The industry is forecast by Cruise Market Watch, an industry research group, to grow from 21.5 million passengers this year to 22.2 million passengers carried worldwide in 2015.
Virgin Cruises is expected to be headquartered in the US, reflecting North America's status as the world's biggest cruise market, the source said.
Globally, the industry is likely to generate revenue of $37.1bn (£22.2bn) this year, a 2.3% increase on 2013.
The plans for the launch of Virgin Cruises emerge as Sir Richard targets a flotation of his domestic US airline, Virgin America.
The carrier, which recently undertook a debt restructuring covering roughly $300m (£179.8bn) of borrowing obligations, has hired investment banks to prepare the listing.
A successful flotation of Virgin America would echo the model used several times by Sir Richard to take some of his business ventures, such as Virgin Mobile, to the public markets.
He has also frequently sold stakes in his companies to outside investors, including the sale of shares in Virgin Money, his banking operation, to an entity in Abu Dhabi and Wilbur Ross, a prominent US investor.
Other plans involving Virgin companies this year include the opening of the first City Centre hotel in Chicago in the autumn, with other venues expected in US cities served by the group's airlines.
The plan to break into the cruises market comes weeks after the publication of a new biography of Sir Richard by the author Tom Bower.
Mr Bower claimed the company's maiden flight of its space tourism venture was facing further delays, while Virgin insists it is on track to take off this year.
A Virgin spokesman declined to comment.
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