Virgin Atlantic braced for losses in 2017 as headwinds pick up
LONDON – British airline Virgin Atlantic Ltd warned on Tuesday that it expects to fall back into loss this year after three years of profits, as competition intensifies, fuel costs rise and a cheap pound takes its toll on the business.
Chief Executive Craig Kreeger put the impact on profits of Britain’s decision to leave the European Union at around 50 million pounds after the carrier reported a 2 percent increase in underlying pretax profit for 2016 to 23 million pounds ($29 million). It had originally expected a significant increase in profits for 2016.
Virgin Atlantic, which is owned by founder Richard Branson’s Virgin Group with 51 percent and US carrier Delta Air Lines on 49 percent, typically sells more of its tickets to customers in Britain than elsewhere and the fall in sterling following the Brexit vote affected both revenues and profits last year.
With the weak pound making it more expensive for Britons to travel abroad, Virgin Atlantic is now seeking to increase ticket sales to customers based in the United States, Hong Kong and China. After Delta bought its stake in Virgin from Singapore Airlines for $360 million in 2013 it put a new emphasis on transatlantic routes. “The UK has never been a better bargain,” Kreeger told Reuters.
“We are selling much more agressively to foreign points of sale. But even that feels like it won’t be enough,” he said.
Adding to pressure on established carriers is increased competition for transatlantic passengers. Virgin Atlantic said capacity as measured by the number of seats available industry-wide on transatlantic routes rose 6 percent, while its own capacity increased by around 2 percent in 2016.
Low-cost carriers such as Norwegian Air Shuttle, Canada’s Westjet and Iceland’s Wow Air are stepping up expansion on routes between North America and Europe, forcing the traditional carriers to take action.
British Airways and Iberia owner IAG this month unveiled plans for a new low-cost long-haul unit called Level that will fly out of Barcelona from June 2017, while Lufthansa (LHAG.DE) has been expanding its Eurowings brand and US carriers have introduced new fares that don’t include baggage or seat selection.
Virgin Atlantic is planning to reduce capacity on transatlantic routes by 1 percent this year but Kreeger said the airline had no plans to follow rivals with a low-cost long-haul brand.
“We have competed agressively on price. Our goal is to make sure we are as efficient an airline as we can be on the cost side,” he said.
Boosting its cash, Virgin Atlantic raised a further 32 million pounds in January via a further bond deal that uses its take-off and landing slots at Heathrow as collateral, taking the total value of the loan notes it has issued since 2015 against Heathrow slots to 252 million pounds.
Kreeger said Virgin Atlantic was not planning to make any decision on whether to order more planes this year but was retaining its options to acquire six A380s, Airbus’s biggest airliner, a long-deferred deal which many analysts expect will eventually be canceled. -Reuters