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While Virgin is thinning out management and taking other steps to buoy margins, it’s unlikely to be able to offset the combined impact of higher dollar costs for fuel and aircraft, Britons opting for shorter breaks, and a decline in fares amid increased competition, Chief Executive Officer Craig Kreeger said.
“If you combine the competitive environment, which is reasonably intense, with a relatively weak pound, we do anticipate on our current projections that 2017 will not be profitable,” Kreeger said in an interview. The pound has slumped 15 percent against the dollar since the June 23 referendum.
Virgin, founded by British billionaire Richard Branson and 49 percent owned by U.S. partner Delta Air Lines, posted a third straight annual profit in 2016, with adjusted pretax earnings increasing 2 percent to 23 million pounds ($29 million). It had aimed to post a record figure next year, beating the 99 million pounds reported in 1999. Kreeger didn’t comment on that goal.
Overall capacity on trans-Atlantic routes increased 6 percent last year, contributing to a 4.3 percent drop in Virgin’s unit revenue, a measure of fares. The 500,000-pound increase in earnings was attributable mainly to a 75 percent jump in profit at its package holidays unit to 19.1 million pounds, driven by bookings made before the Brexit vote, Kreeger said.
While the vacation division may come under pressure, it’s likely to remain “strong,” the CEO said. Fully paid-for-holidays have seen an increase in demand following the poll as Britons seek cheaper breaks and maximum control over costs, regardless of future currency swings.
Kreeger said Virgin aims to compete with the likes of Norwegian Air Shuttle ASA, which has begun low-cost long-haul flights in recent years, by focusing on quality. “If we can get close to their pricing, and that can be successful for us from a cost standpoint, why wouldn’t customers choose a Virgin Atlantic experience?”
Virgin is promoting flights to the U.K. in markets such as the U.S., South Africa and Hong Kong, where the weaker pound has made holidaying in Britain more affordable and bookings generate more revenue when translated into sterling.
The airline is also benefiting from informal feeder traffic from EasyJet Plc after moving to the north terminal at London’s Gatwick airport. Virgin is pursuing more code-share deals to add to six it has with carriers including Jet Airways India Ltd., Air China Ltd. and former investor Singapore Airlines Ltd., with Kreeger saying it would like a partner “pretty much every place we fly.”
©2017 Bloomberg L.P.