Ideas man has global challenge

"I'm not an aviation junkie. A lot of the people in aviation are," says Baxby, the head of aviation for Richard Branson's Virgin Group. "I call them aluminium heads. They get sucked up in the product but at the end of the day you have to run it like a business."

Based at Virgin Group's headquarters in Geneva, the 37-year-old Queenslander has his work cut out for him as Branson's investments in the newly renamed Virgin Australia, Virgin America and AirAsia X are buffeted by high fuel prices and soft demand for travel due to natural disasters and weak Western economies.

"You have now got fuel ... and what I think globally is a two-speed economy," he says. "The premium customer is feeling pretty good about themselves right now because profits are flowing and they are deleveraging. But the leisure consumer is struggling, coupled with the fact that there is a lot of capacity around."

Top of his to-do list will be sorting out his British master's best-known aviation investment, Virgin Atlantic, which is under assault from mega-carriers in Europe.

It makes the challenges facing Virgin Australia pale in comparison.

Australia's second-largest airline faces a second-half loss of up to $150 million because of the high fuel prices and a decline in yields from leisure travellers on domestic flights.

Virgin Australia is pinning its hopes on reinventing itself as an upmarket competitor to Qantas. Snaring a bigger slice of the lucrative business travel market will be key to it lifting its cash flow and bottom line.

Dressed in styled jeans and a velvet jacket, the affable Baxby slips neatly into the Virgin culture which, despite its youthful perception, sees the "classic baby boomer demographic" as its target market.

He might have been one of Branson's closest lieutenants for the last seven years, but Baxby retains a low public profile. After short stints at Arthur Andersen and the advisory firm Rothschild, the Bond University graduate earned his stripes as a mid-ranking investment banker at Goldman Sachs JBWere before he even turned 30.

His nine years at Goldman included work on the sale of the federal government's second tranche of Telstra shares. He played mostly a support role on T2 to the doyens of Australian finance such as Terry Campbell. Investment bankers who know Baxby describe him as a "very, very smart young guy" who would "clearly have done well within Goldman or any area he would have worked in".

"He was definitely an up-and-coming star," says one.

So why did he turn his back on a lucrative career at Goldman Sachs?

"I loved the culture and what they were building but I'd done it for 10 years. It was really the crossover between agency and principle - do you want to be an adviser or an investor," he says at Virgin's offices in Circular Quay during a recent trip to Australia.

It was during a two-year secondment to the bank's London office that the avid cyclist met Branson. Goldman had a role advising the British entrepreneur on restructuring Virgin Group. When he returned to Australia in the early noughties their paths crossed again. Branson gave him a call to see whether Goldman could help out after the launch of Virgin Blue about a year earlier.

Baxby later took responsibility for the sale of a 50 per cent stake in the airline to Chris Corrigan's Patrick Corp and the public float in late 2003. Shortly afterwards, he left Goldman to set up an office for Virgin Group in Australia, looking after its interests in Virgin Blue, Virgin Money and Virgin Active.

"I felt like I had ticked a box at Goldman and at Virgin there was an opportunity and a chance to do something different," Baxby says. "Virgin didn't have a presence in south-east Asia so I thought, hang on a minute, I understand his philosophy and the brand."

He later spent 18 months in Shanghai looking at opportunities for Virgin in mobile phones, casinos, hotels, aviation and financial services. But as many foreign companies have found, China is not an easy country to break into.

"It took us a long time to work out even what we were going to do. My real lesson from China is that what we didn't capitalise on was the power of the individual brand of Richard. They just don't warm to faceless corporations - they warm to individuals," he says.

Baxby is keen to emphasise that Virgin Group's aviation investments are now heading in the same direction, whereas before "everyone was in slightly different customer demographics".

One of the criticisms here has been that Branson has exerted a disproportionate influence on the Australian airline for his 26 per cent stake. Baxby is one of two Virgin Group representatives on its board. The other is Josh Bayliss, a young Branson lieutenant who replaced Patrick McCall last month.

"We take the approach that 'you need to do whatever you do in your own market to make yourself relevant'," Baxby says. "We don't have a grand vision joined up where everything has to work at the group level."

Baxby is frequently asked whether Virgin Group will increase its stake in the Australian airline. But even if it wanted to raise its holding, it would be stymied by foreign ownership restrictions. Air New Zealand's emergence on Virgin Australia's register with a 15 per cent stake early this year pushes the cap to its limit.

A more likely scenario for Virgin Australia this year will be a push by Air New Zealand for a board seat.

Besides, Virgin Atlantic is clearly his immediate priority after hiring Deutsche Bank last year to consider options for the long-haul airline, including offloading Branson's 51 per cent stake.

But if it was a struggle to find an interested party six months ago,

it has become a much harder proposition since unrest in the Middle East and North Africa sent jet fuel prices soaring.

Virgin Atlantic's most valuable assets are its landing slots at London's Heathrow and Gatwick airports. Some insiders estimate a slot at Heathrow is worth as much as #20 million ($30.8 million).

Critics say one of Virgin Atlantic's biggest problems is that it is not part of an alliance. It is surrounded by mega-carriers such as Air France-KLM, Lufthansa and British Airways-Iberia. "They are now left out on their Pat Malone surrounded by mega-carriers where you have to have critical mass to survive," an insider says.

The difficult trading conditions have meant Branson will have to retain his stake, although Baxby says the options for Virgin Atlantic are still a "bit of an open page at the moment". The alternatives include buying more airport slots or shifting from Virgin Atlantic's "pure Heathrow" focus.

"We are just continuing to study it in the context of a pretty rapidly consolidating industry. We are just not standing still, and we are going to look for the longer term, most viable solution for that business," he says.

If observers have one criticism of Baxby, it is his lack of experience in a very specialised industry. But Baxby says he has no aspirations to become an airline chief executive, despite speculation last year that he had been shortlisted for the top job at Virgin Blue.

"I would regard myself as someone who is not a bad guy to bounce ideas off from a strategic and financial perspective, but I would not know the first thing

about engines and everything else," he says.

"I'm not an aviation guy and I don't want to run an airline - we will see where the next challenge takes us. Many in the industry are wedded to it. I just don't think it's healthy ... it's a job that is going to change and you need to change with it."

THE CV

BAXBY, DAVID

Education Bachelor of Commerce (Accounting), Bachelor of Laws (Honours), Bond University, Queensland

Occupation Head of aviation for Virgin Group and chief executive of Virgin Management Asia-Pacific.

CAREER

1994: Analyst at Arthur Anderson.

1995: Rothschilds.

1996: Investment banker at Goldman Sachs JBWere.

2004: Director of Virgin Blue, Virgin Atlantic, Virgin Holidays, Virgin America, Virgin Active Australia and AirAsiaX.