On the face of it, yesterday was a good news day for Virgin Atlantic. As the airline celebrated its inaugural flight to Seattle, it also announced the third year of successive profits in its annual financial results. But at Brexit looms and the pound weakens, Virgin is predicting a less successful year in 2017.
For the year ending December 31st, 2016 Virgin Atlantic reported pre-tax profits of £23 million on revenue of £2.69 billion – that’s half a million pounds up from its 2015 results. It’s a modest profit but a huge improvement on the £102 million loss the airline made in 2012.
But as Virgin enters the second year of a £300 million, three-year, investment programme, Craig Kreeger, Virgin Atlantic’s chief executive, is feeling less optimistic about the year ahead. By 2018, Kreeger had predicted Virgin would match the airlines best ever profit of £99 million that it made in 1999. Those plans have now been put on ice.
“Our expectation for 2017 is to be loss making. We are busy working to try and make that not the case,” Kreeger said.
He continued: “What we are seeing is leisure demand down as it’s more expensive for Brits to go abroad. And our costs are up as both fuel and airplanes are paid for in dollars,”
Load Factor up 2% but Passenger Revenue Down
Virgin Atlantic saw its passenger load factor improve nearly 2% last year to 78.7% but revenue per passenger dropped 4.3% as excess capacity on key routes impacted fares.
As its partnership with Delta Air Lines – which owns 49% of Virgin – enters its third year, the benefits are starting to be seen. The two airlines have already moved into the same terminal at London Heathrow and Virgin has seen its route network aligned to complement Delta’s. Last year, 545,000 passengers connected between the two airlines – up 30% on the previous year.
A shining star in the Virgin Atlantic Group portfolio was Virgin Holidays. The business unit saw a 75% annual increase in profit to £19.1 million and an increase in passenger volumes by 4.9%.
“We’re delighted to have achieved another strong year of improved performance, while continuing to deliver better holiday experiences to even more customers,” commented Virgin Holidays Managing Director David Geer.
12 Airbus A350’s Ordered with a List Price of $4.4 Billion USD
With the help of Delta, the Crawley-based airline has embarked on a massive investment programme. Virgin has upgraded its booking and reservation systems and plans to have replaced its entire fleet within a decade. In 2016, the airline took delivery of four new Boeing 787-9 Dreamliner aircraft. It has also placed an order for 12 Airbus A350 aircraft.
But within Brexit looming, Virgin is preparing for a harder 2017. Commenting on the UK’s decision to quit the European Union, Chief Financial Officer Tom Mackay commented: “A decline in both bookings and the rate of the pound following the EU referendum materially impacted our revenues,”
“Looking forward, we anticipate the challenges which emerged in 2016 around currency fluctuations, rising fuel prices and lower passenger revenues to continue, but we are well positioned to manage this.”
An Expanding Route Network
As passenger numbers fall from the UK, Virgin aims to defend its profits by tapping into Delta’s network. Kreeger noted: “it’s pretty easy to turn on the tape and move more Americans in this direction.”
Virgin Atlantic will be launching a new seasonal route from London Heathrow to Barbados in December 2017. It also plans to strengthen its route offering from Manchester, with new services to San Francisco, Boston and New York starting this year.