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Virgin Atlantic’s Turnaround

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Virgin Atlantic’s Turnaround

Virgin Atlantic’s Turnaround
May 27
09:10 2015

LONDON — Virgin Atlantic announced in March that it had turned in a £14.4 million ($21.7 million) profit before tax and exceptionals, its first after several years of losses.

It put its improved figures down to a two-year recovery plan and said that it was embarking on a four-year growth strategy – of which a major plank is its transatlantic joint venture (JV) with Delta Air Lines.

The US major bought Singapore Airlines’ 49% stake in UK-based Virgin Atlantic in 2013 and significant levels of co-operation are now apparent.  Apart from a host of codeshared routes, Virgin gave up one of its two daily Los Angeles – London Heathrow frequencies to Delta, receiving one of Delta’s Heathrow-Atlanta services in return.

The swap gave Delta a lucrative additional slot at Heathrow and let it increase competition with British Airways, American and United, while Virgin got access to Delta’s vast domestic network through Atlanta, notes Saj Ahmad, chief analyst at UK-based Strategic Aero Research. In 2012, the Wall Street Journal reported that Delta and Virgin Atlantic would have 36% of the New York-London Heathrow market share; meanwhile, American and British Airways have 51% while United just has 13% of the market share.

Ahmad believes that the Delta link will be of major importance to Virgin. Although the airline has traded since its inception on being the sparkier, underdog alternative to British Airways, offering superior passenger service and a sense of fun, he says there has been a feeling in recent years that it has been resting on its laurels. Other carriers – notably the Persian Gulf giants – have caught up or surpassed it in terms of passenger service.

It has also endured an unsuccessful attempt to bolster its passenger numbers at Heathrow through the creation of Little Red, a domestic feeder service from UK regional airports using Airbus A320s leased from Aer Lingus.

Instead of using the flights as connections onto Virgin Atlantic’s long-haul services, however, passengers instead simply used them as additional point-to-point services to the capital in competition to other UK carriers. Following lackluster passenger figures since its inception in spring 2013, Virgin Atlantic announced last fall that Little Red will close this year.

Ahmad also notes that Virgin Atlantic has previously been shackled by unsuitable equipment, notably its fleet of fuel-thirsty Airbus A340s.

The latter problem is now rapidly being addressed, as replacement Boeing 787-9s reach the fleet, notes Virgin Atlantic’s senior vice-president, network and alliances, Joe Thompson.

“The last of our 10 A340-300s left the fleet just a week or so ago and the 787 is a huge part of our future,” he says. Five have now arrived from an order for 17, plus three options.

“We’re seeing great benefits in terms of fuel-burn, obviously, but also in maintenance costs. And customer feedback is fantastic.” All the 787s are due to be on-strength by the end of 2018, accounting for almost half of a fleet of around 40 wide-bodied aircraft.

The company’s fleet of 13 A340-600s, meanwhile, is about to start leaving service, a process due to be completed by the end of 2018.

Next on the replacement list are the company’s 12 Boeing 747-400s, which are operated in two sub-fleets – one based at Heathrow , which are due to retire from early next year and the other operating from London Gatwick, Manchester and Glasgow in a high-density configuration on mainly leisure routes such as Orlando and Las Vegas.

Now relatively elderly, this second sub-fleet was the subject of a £50 million refit in 2012 that installed new cabins and IFE systems to see them through until around 2019 when the leases of several expire.

“That’s the next big fleet decision for us to take, but we have some time to make that decision,” says Thompson. Both Boeing and Airbus are in the frame to replace the 747-400s, with 777s, 787s or A350s. Virgin has said in the past that it may look at a new order for the larger 787-10.

One decision still to be made is the fate of six Airbus A380s that have been on order for some years but deferred. CEO Craig Kreeger is lukewarm about the type but, for now, they remain on order, with delivery not due until 2019.

Thompson accepts that in terms of passenger experience, other airlines are catching up: “There’s no doubt in shaking up the market in the way Virgin Atlantic has done, it prompted others to raise their game. That copying is very flattering, but it forces us to stay on our game. There’s no doubt there are some carriers out there with very deep pockets and very modern fleets and in terms of aircraft interiors, Gulf carriers are good examples of investing there.”

To counter-attack, Virgin Atlantic aims to spend more than £300 million on improving the ‘customer experience’ out to 2018.

One thing that competitors cannot emulate, he claims, is “that intangible Virgin-ness. That’s what brings back our customers.” Much of that is down to the cabin crews – something on which Virgin advertising has played heavily over the years.

Fears were raised in some quarters that Delta’s involvement would see the British carrier’s character swamped by its much larger US partner, but Thompson believes this will not occur.

“The fact that Delta is a minority shareholder in Virgin means that they understand that a differentiated service offering is important. They absolutely recognize the value of a differentiated experience and brand.”

The two carriers, he adds, are highly complementary. Their respective ticket sales are, understandably, heavily skewed towards their home markets and whereas Virgin is a point-to-point carrier, it now has the ability to hook into Delta’s domestic network.

“It’s quite difficult to assign a specific benefit to it but…it’s clear the joint venture enables us to compete more effectively for traffic,” he says. “I’m sure we’ll continue to make adjustments to our JV as we learn what it’s really capable of doing.”

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Alan Dron

Alan Dron

Old-school scribe who now is fortunate enough to earn a fair percentage of his income by writing about aviation. Still laments the passing of Concorde and has been known to take a day trip to the Middle East to interview an airline executive.

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