Bankruptcy of Richard Branson’s Company.. Causes & Implications

Islam Al-Najjar

Richard Branson, the founder of Virgin Global Group, is one of the world’s most famous entrepreneurs; His company was founded in 1970 and subsequently expanded to include many different industries, such as aviation, hotels, entertainment, and telecommunications. However, Virgin Atlantic, which follows the Virgin Group, has faced several challenges over the past years and became bankrupt in 2020.

One of the major factors that led to the bankruptcy of Virgin Atlantic was the break out of the COVID-19 pandemic. The pandemic significantly affected the travel and tourism industry. It led to the reduction of travel demand and revenue for companies active in the mentioned sectors. Government closures and travel restrictions worldwide, due to the pandemic, prevented Virgin Atlantic from fully operating its flights. This led to a dramatic decline in its revenues.

In addition, Virgin Atlantic was facing financial pressures before the pandemic broke out. it sustained losses over several years. Since the company was investing heavily in new expansions, it was incurring significant debt and was under increasing financial pressure. As the pressure was building up due to the pandemic, the company was unable to meet its financial obligations.

It is worth to note that Virgin Atlantic has been facing very strong competition in the international aviation market. Recently, Gulf and Chinese airlines have expanded exponentially, providing services similar to those offered by Virgin Atlantic, and at lower prices. This led to the sharp decline of Virgin Atlantic’s revenue and profits and increased its financial pressures.

Moreover, Virgin Atlantic was relying heavily on the “Alliance of Stars”, which consists of companies such as British Airways, Scandinavian Airlines and American Airlines. As the financial pressures that Alliance of Stars was facing worsened, it was unable to meet its financial obligations, which led to its bankruptcy, and Virgin Atlantic was significantly affected.

In general, Virgin Atlantic’s bankruptcy was due to: the COVID-19 pandemic, the financial pressures the company was facing earlier, strong competition in the international aviation market, and the negative impact of the bankruptcy of the Star Alliance. However, Richard Branson and Virgin Global Group continue to operate in other industries such as space, satellites, shipping, and media.

How did Richard Branson’s company go bankrupt?

There are many key factors that have significantly led to Richard Branson’s bankruptcy:

  • Incurring Massive Debt

Virgin had incurred a lot of debts- a problem facing many companies. It should be noted that the company borrowed large amounts of money to finance its mega-projects, such as the Space Transport Development Project. Due to its debt accumulation, the company failed to meet its financial obligations.

  • Global Economic Crisis

Most of us are aware that many companies were hit hard by huge financial losses due to the global economic crisis that began in 2008, and Virgin was among them. As a result, these companies witnessed a sharp decline in spending on travel, entertainment, and telecommunications.

  • Not Making Worthwhile Investments

Virgin Group did not make sound investments over recent years. Virgin America was one of the companies which suffered significant losses and decided to sell its stake in 2016 at a price lower than the price at which it bought the stake.

  • Intense Competition

Many airline, entertainment, and telecommunications companies suffer from intense competition, including Virgin Group, which has faced competition from major companies such as Apple, Amazon, Google and others. Due to the competition, the company was unable to weather the storm and maintain its place in the market.

  • Business Violations

Virgin Group has been sharply criticized for some business violations, such as environmental violations, infringements of workers’ rights, discrimination, etc., which have caused a loss of consumer confidence in the company and negatively impacted its reputation.

In a nutshell, Virgin Global Group is experiencing significant financial difficulties- a problem facing many companies in different fields. It is difficult to determine one main reason that led to its bankruptcy. However, the factors that have crippled the company over recent years include heavy debt, the global economic crisis, not making worthwhile investments, strong competition, and business violations.

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