Richard Branson's Flight Plan

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They're proud because even though this is a symbolic achievement, it's something no other airline in the world had done. The biggest carriers--American, Lufthansa, British Airways and Singapore Airlines--have all poured resources into expanding direct flights to Asia, but they are held back by their origins as so-called flag carriers, dedicated to travel to and from their home countries. Airline alliances like SkyTeam, Oneworld and Star Alliance link them, but without fully integrated marketing and sales it's difficult to build a cohesive global network, says Henry Joyner, senior vice president of planning for American.

So airlines are trying to patch together closer alliances through investment or gain strength through mergers. Lufthansa recently bought a 19% stake in JetBlue, hoping to take advantage of JetBlue's strong presence in New York City to expand its reach with U.S. passengers. On April 14, Delta and Northwest agreed to a $3 billion merger, and a Continental-United union could be next. "Foreign carriers are merging to grow larger and financially stronger, and U.S. carriers have to match that to remain competitive," says Giovanni Bisignani, head of the International Air Transport Association.

Virgin's airlines operate more like a loose regional federation, connected by the Virgin brand (an extension of Branson's lighthearted persona in a red-and-purple color scheme) but otherwise owned and operated independently. Each has its own business model--different services for different customers in a different set of cities--but they can work together as needed. Virgin Atlantic, V Australia and Virgin America, for example, plan to share a first-class lounge at LAX and thus reduce overhead. Virgin America, V Australia and Virgin Blue can decide on a whim to allow some of their flight attendants to trade cities for a year or compare notes--as their CEOs did during lunch with Branson in Los Angeles--on in-flight-ordering software or customer feedback on the latest Embraer jets. Coordinated online booking among the airlines is the next logical step. The lesson? When your brand transcends borders, building a global network can be as easy as talking across the patio table.

The Art of Calculated Risk

Branson likes to cultivate an image of himself as a risk taker. He was right in character at the press conference announcing V Australia, staged inside one of the departure terminals at LAX, to the slight confusion of people walking toward security. As Brett Godfrey, Virgin Blue's CEO, unveils the airline's introductory fare--$1,000 round trip between Sydney and Los Angeles--Branson, in jeans and a rumpled polo shirt, interrupts. "That's not good enough," he declares. "What kind of plane are we flying? 777s? Then let's make it $777 for the first thousand tickets!" People cheer, as if Branson has just spontaneously handed out $223 in dollar bills, but his lines are part of a well-choreographed bit of corporate theater--never mind that the first thousand tickets had just been sold.

The precisely calculated risk he is taking on those fares, 15% less than competitors, is the only kind Branson, 57, has ever really taken. His autobiography reads like an adventurer's litany of near misses and narrow escapes from hot-air balloon crashes, storms at sea and unruly lovers. But Branson the accountant is unmistakable. He is methodical about risk and rigorously applies that principle to the diciest of industries, airlines. That's why, for example, Virgin America does not plan to have more than 100 planes--limiting itself in the first five years to the 30 largest U.S. cities, those that attract both business and leisure travelers, particularly the young creative types who identify with the Virgin brand. Don't expect Virgin on the Pittsburgh-Indianapolis run. "They will be very sad," Branson says of the passed-by places. "That will be part of the discipline of our company. Our model will not work for every city."

That same discipline has kept him from investing in an all-business-class airline (not enough weekend traffic) or one for the Indian domestic market (too much competition, too many restrictive ownership rules). And it allows him to do things that, on the surface, appear extraordinarily risky. His pledge to devote all the profits from his transportation businesses to fighting global warming, for example, is actually just a decision to channel some of Virgin Group's money, up to $3 billion over a decade, into a wide range of environmental companies, some of them as prosaic as a start-up that aims to reduce fuel costs through safer driving.

He starts small and usually shares the risk. When he wins, he wins big. Branson's initial $10 million investment in Virgin Blue, for example, earned him a payoff of an estimated $500 million when the company went public, although the stock has since declined. When he fails, he always has an exit strategy. "If it doesn't work, we'll bow out gracefully," he says of Virgin America, where his total investment is $72 million. He put $25 million into Virgin Nigeria, but problems with the Nigerian government contributed to $82 million in losses last year, considerably reducing the profits of Virgin Atlantic, which owns a 49% share. Branson says he may reduce his stake in that business, but he won't cut services at Virgin Atlantic to compensate, and the rest of the airlines are insulated from the loss. When you're investing in airlines, it helps to have a parachute.

The "portfolio" approach to airlines is not unique. "I've always thought of the network as being a lot like an investment portfolio," says American's Joyner. "You have the opportunity to move your assets around--in this case it's airplanes--and allocate them in different ways." American, for example, flies 37% of its seat-miles outside the U.S., up from 27% five years ago. But while Branson and his private investment partners can wait for long-term returns, publicly held U.S. airlines are under constant short-term pressure to deliver results.

The Ultimate Hedge

No matter how innovative Virgin's Airlines are, no matter how loudly Branson trumpets biofuel, every plane in the sky runs on the same stuff. The price of jet fuel has risen 69% in the past year, and Virgin's executives, like their rivals, lie under its sword. "Other than the recession and $110-a-barrel oil, I see nothing but opportunity," CEO Cush deadpans. He can't cost-cut his way out; the limits of that strategy are obvious. The big carriers have taken $15 billion in costs out since 2001 but are paying $17 billion more for fuel.