Skift Take

Virgil's loosely connected carriers in the UK, U.S., and Australia give the brand a global reach, but there's a clear operational weakness in this dispersion, which becomes clearer every time a carrier like Etihad builds another concrete alliance that cements its connections.

Virgin Atlantic Airways Ltd., best- known for long-haul flights to New York and the Caribbean, is poised to roll out a third domestic route in a bid to funnel more passengers from northern Britain to its London hub.

The service from Aberdeen in Scotland to Heathrow airport, commencing tomorrow, will take the number of daily trips at the “Little Red” domestic arm to 26, after the introduction last week of flights from Edinburgh and Manchester, northern England.

Richard Branson’s Virgin is adding its first all-U.K. routes in 28 years after losing passengers carried to its hub by ally BMI in 2012 when the Deutsche Lufthansa AG unit merged with British Airways. While the service will bear Virgin’s scarlet livery and use operating slots secured by the carrier, the planes will be operated by Ireland’s Aer Lingus Group Plc.

“In an ideal world they wouldn’t be doing short-haul,” said John Strickland, the director of JLS Consulting Ltd. in London. “The real aim for Virgin is feeder traffic, but in accounting terms these kind of routes tend to be loss-makers.”

Crawley, England-base Virgin, under new American chief Craig Kreeger, made its name serving a mix of trans-Atlantic business routes, holiday destinations such as Cancun in Mexico and global cities including Sydney, Hong Kong and Cape Town.

Mounting losses

Unlike larger carriers such as BA, Lufthansa and Air France-KLM Group, Virgin opted not to develop a network of short-haul services feeding passengers onto its intercontinental flights, relying instead on demand for travel originating or ending in London, topped up by the defunct partnership with BMI.

Virgin Atlantic had a loss of 80.2 million pounds ($123 million) in fiscal 2012 as it struggled with high fuel costs and increased competition from an antitrust-immune alliance of BA and American Airlines. That widened to 135 million pounds in the 12 months ended Feb. 28, the London-based Sunday Times newspaper reported March 10, citing an internal company memo.

Virgin has sought to restore earnings by freezing pay, delaying the addition of bigger planes and cutting unprofitable routes to destinations including Nairobi and Kingston, Jamaica.

While an alliance with Delta Air Lines Inc., agreed in December, should boost traffic from the U.S. by coordinating schedules and sharing flight codes, Virgin needs Little Red to tap the one-third of U.K. residents who live in northern England and Scotland, three or more hours from Heathrow by road or rail.

Gulf threat

The need to retain feeder flights has been heightened by the introduction of long-haul services from cities such as Manchester by Emirates, Etihad Airways PJSC and Qatar Airways Ltd., which offer hundreds of onward links via hubs in the Gulf.

The new business will utilize four Airbus SAS A320 narrow- body planes and crews, rented from Dublin-based Aer Lingus on a so-called wet lease basis. Virgin expects it to carry almost 1 million passengers in the first year of the operations.

The Manchester-Heathrow service began March 31 and that from Edinburgh on April 5, with round-trip tickets starting at about 107 pounds. Heathrow-bound departures will be timed to maximize onward connections, though early-morning flights should also appeal to business travelers, according to Virgin.

“Little Red will stop British Airways dominating routes and driving higher prices,” Branson, 62, said last month.

The billionaire entrepreneur owns 51 percent of Virgin Atlantic, with Delta paying $360 million for the 49 percent that had been held by Singapore Airlines Ltd. The airlines are working with regulators on both sides of the Atlantic and anticipate winning approval for their joint venture later this year, Ed Bastian, the U.S. company’s president, said March 21.

The introduction of Little Red also casts a spotlight Kreeger, who took over as chief executive officer on Feb. 1, replacing Steve Ridgway. Kreeger, 53, previously spent 27 years at AMR Corp., where he helped coordinate the American Airlines- British Airways joint venture.

Editors: Chris Jasper, Benedikt Kammel. To contact the reporter on this story: Kari Lundgren in London at [email protected]. To contact the editor responsible for this story: Benedikt Kammel at [email protected].


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Tags: low-cost carriers, virgin atlantic

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