Thursday, 22 March 2018

Virgin Atlantic blames Brexit for loss and only survived because of Delta deal

The boss of struggling Virgin Atlantic blames Brexit for the carriers £28.4 million loss and its deal with Delta saved the compancy from bankruptcy.

In 2016 the Virgin Group scored a profit of £23 million, yet despite an ijection of capital from Virgin Holidays of £15.5 million the airline still managed to fall into the red to the tune of £28.4 million.

Craig Kreeger, Virgin Atlantic's Chief Executive Officer said: “There were three big external issues that we had to deal with in 2017: the full-year impact of a weak sterling relative to the dollar, an industry-wide engine supply issue and severe hurricane disruption in the Caribbean and US.”

The airline blames a 7% fall in the value of the pound following the Brexit vote as one of the main reasons for the loss. Tom Mackay said this year - 2018 would also be “challenging” for the company and declined to comment on the groups viability saying there is “uncertainty in the leisure sector”. Adding “I don’t believe consumer confidence has significantly recovered,” 

Enging maker Rolls-Royce was also in the airlines sights as causes of the airlines poor performance advising that a manufacturing issue with fan blades in the engines of the new Boeing 787s meant they needed to be replaces far more frequently than envisaged normal. Mr Kreeger believes this, despite being an industry wide situation, uniquely impacted Virgin. 

The group managed to convay 5.3 million passengers during 2017, approximately 100,000 less than 2016. It also saw revenues fall from £2.69 billion to £2.66 billion, while load factors were 78.3 percent, a fraction less than 2016.

Mr Kreeger admitted that Virgin’s joint venture with Delta Air Lines, was responsible for saving the airline after the effects of the Brexit vote.  “There’s no better example of the power of that joint venture than the changing marketplace we found ourselves in on June 23, 2016." he said.

"It became much more expensive for Brits to go abroad, and cheaper for Americans and others to come this way,”

“without Delta’s frequent fliers, corporate accounts, travel agency partners in the US... immediately switching our demand to come this direction.  - This offset the losses we saw in demand from Brits going that direction”  Adding “Almost immediately we saw a 20% increase in US point-of-sale traffic coming this direction,” Conculding “It’s hard to imagine how much of a difference that has made to our company.”

Virgin Atlantic also recently finally cancelled its order with Airbus for the super jumbo A380 aircraft which has been on the order books for a number of years. It has repeatedly pushed its delivery date back and unsucessfully tried to flog on the slots to other airlines. Althopugh this has come as no surprise to most people in the industry, Virgin Atlantic have a habbit of ordering brand new aircraft, taking advantage of the massive free publicity in doing so, yet delaying and defering delivery dates or onwardly selling manufacrturing slots to other carriers on the quiet.

The big question is how will Virgin cope in 2018,  Kreeger seems to be worried, beliving that most of the same issues it faced last year “will remain prevalent in 2018”, inflation high and the weaker pound. Yet the airline still expects to complete the delivery of 17 Boeing 787-9s as well as getting ready for the 12 Airbus A350-1000s, it ordered - with the A380 deposit money.  

Kreeger also believes that offering new fare types including the 'cabin bagage' only low-cost-carrier like fare will help the airline back into profitability.