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21 Mar 2018

BY Jennifer Morris & Jennifer Morris

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Virgin Atlantic’s Delta joint venture ‘helped airline through tough 2017’

Virgin Atlantic’s chief executive has admitted its joint venture with Delta Air Lines helped it weather the impact of the Brexit vote, as the airline reported a 2017 loss.

A350-1000 VIRGIN ATLANTIC
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“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.”

Virgin Atlantic Group made a pre-tax loss of £28.4 million, compared with a £23 million profit in 2016. The deficit came despite a £15.5 million contribution from Virgin Holidays.


Virgin Atlantic chief executive Craig Kreeger 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.”


Chief financial officer Tom Mackay said a 7% fall in sterling’s value had made it more expensive for UK holidaymakers to visit the US. He said 2018 would be “challenging” and declined to give guidance, adding that there was “uncertainty in the leisure sector”. “I don’t believe consumer confidence has significantly recovered,” he said.


The engine issue affects Rolls-Royce-powered Boeing 787s, which means fan blades have to be replaced more frequently than normal. Kreeger said this had uniquely impacted Virgin, grounding 10% of its fleet at any one time. He also said there had been a “significant” transatlantic capacity increase by rivals.


The carrier predicted it would make a 2017 loss 12 months ago as it struggled to cope with the pound’s falling value. In 2016, it recorded its best result in five years.


During 2017, the group carried 5.3 million passengers, 100,000 fewer than the previous year, and saw revenue of £2.66 billion, down from £2.69 billion. Load factors fell 0.4 percentage points to 78.3%. Virgin’s fleet size remained the same at 39 aircraft.


Kreeger said some of the issues it faced last year “will remain prevalent in 2018”, with inflation at a five-year high and weaker sterling. However he said changes to Virgin’s economy product – introducing three new fares for the class including a hand luggage-only option – plus growth in cargo business, would help.


This year will see Virgin complete delivery of 17 Boeing 787-9s and prepare for 12 Airbus A350-1000s, which will join from 2019, meaning it will fly only twin jets. Virgin will also launch a second daily service to Johannesburg next winter.


During an Airlines UK lecture last week Kreeger admitted that Virgin’s joint venture with Delta Air Lines, launched in 2012, had helped it weather the effects of the Brexit vote so far.


“There’s no better example of the power of that joint venture than the changing marketplace we found ourselves in on June 23, 2016 [the day of the referendum vote] when the pound began a relatively precipitous drop and it became much more expensive for Brits to go abroad, and cheaper for Americans and others to come this way,” said Kreeger.


Kreeger questioned how Virgin Atlantic would have done “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 (particularly leisure travel),” he said.


“Almost immediately we saw a 20% increase in US point-of-sale traffic coming this direction,” he said. “It’s hard to imagine how much of a difference that has made to our company.”

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