Virgin Atlantic’s record loss: Internal memo details failures and challenges
Virgin Atlantic logo is seen at check-in desks at Gatwick airport, in southern England. Alessia Pierdominico / Reuters
Virgin Atlantic is pinning its turnaround on its new CEO and a tie-up with Delta, but Branson’s strategy of multiple carriers rather than one global giant is looking weak in the world where lines like Etihad are setting new rules.
Virgin Atlantic is facing record annual losses, raising fears of job cuts at the airline founded by Sir Richard Branson.
An internal memo sent by the airline’s new chief executive, Craig Kreeger, warned that its financial performance is “well behind where we anticipated” and it is expected to post a loss of £135m, according to The Sunday Times .
Mr Kreeger has blamed the losses on ballooning fuel costs and increased competition on transatlantic services.
Kreeger has imposed an immediate pay freeze across the whole business and initiated a broad-based cost-cutting plan, according to the memo, which has been seen by The Sunday Times.
While the memo did not mention specific figures, sources close to the airline told the paper that the latest draft of the full-year results shows a deficit of £135m. The final figure may be slightly lower, however, owing to some exceptional one-off gains that have yet to be added to the accounts.
Kreeger said in the memo: “The 2012-13 financial year airline performance will be a significant loss … Two years of significant cash losses have depleted our resources and decreased our ability to invest.”
He also warned that the airline would “have to make some tough calls”.
“One of those decisions is to recognise and communicate the reality that we cannot afford any pay increases this year. It is not ideal that this is the first big decision I have to take.”
Kreeger told staff that the company plans to increase long-haul revenues by £50m. He also wants to cut costs, which could improve the struggling airline’s position by a further £40m.
“It results in about £90m improvement — significant but not enough to get us back to profitability,” he said.
Virgin Atlantic confirmed the details in the internal memo to The Sunday Times. The company said that the British airline industry has faced “continued challenges over the past year”.
It added that it was introducing newer, more fuel-efficient planes, and aimed to increase revenues through the introduction of new domestic flights and a transatlantic joint venture with Delta.
“These improvements will result in considerable financial savings,” it said. “The airline has also made the decision to suspend salary increases for this financial year.”
In January Virgin Atlantic announced that Craig Kreeger, senior vice-president for customers at American Airlines, would succeed Steve Ridgway as chief executive of Virgin Atlantic on February 1.
His insight into the workings of a competitor will be crucial to Virgin as it embarks upon its own transatlantic partnership with US giant Delta Air Lines, which last year agreed to pay $360m (£224m) for a 49pc stake in Virgin and form a new transatlantic partnership to rival BA’s tie-up with American.
Virgin’s deal with Delta, which is still waiting for regulatory approval, sparked speculation that the US giant could ditch the airline brand Sir Richard Branson created in 1984 – an accusation that was vigorously denied.
If approved, as expected, the deal will mark a new chapter in the fierce rivalry between BA and Virgin.
Mr Kreeger will also oversee the launch of Virgin’s first UK domestic flights, when it starts services between Heathrow and Manchester in March.