The newly mature Virgin Atlantic, 21 today, may have come of age but the industry’s troubles show little sign of checking out in the near term.
Fierce competition amid high capacity levels, the take off in online price-comparison services, the lingering effects of 9/11 and SARS and, above all, soaring oil prices continue to trouble the airline industry and do not lend themselves to a party mood.
“High oil prices are a challenge,” Steve Ridgeway, Virgin’s chief executive, tells Times Online. “We and the market will have to adjust. Air travel will have to develop technologically and commercially, but it is not going to go away. In regions such as the Caribbean, you have to remember, the economy simply would not exist without the jet engine.”
On the technological front, Virgin, which began life with one second-hand plane, is now due to take delivery of six airbus A380s, the so-called “superjumbo” that Mr Ridgeway claims is “set to change the way people fly and the face of travel”.
Advertisement
The airline has options on a further six of the aircraft, which it says will offer more economical and environmentally friendly flying while allowing greater passenger volumes at crowded airports such as Heathrow.
The company is also poised to expand into Africa via a $50 million investment in a 49 per cent stake in joint venture majority owned by Nigerian institutions. As world leaders prepare to meet next month at Gleneagles to discuss the continent’s future, Virgin claims it can play a part in developing a commercial infrastructure.
“Richard [Sir Richard Branson, Virgin’s chairman] has a good relationship with President Obasanjo, and his government has been brave enough to realise that private-sector expertise will benefit the country and oil the wheels of commerce there,” says Mr Ridgeway.
Mr Ridgeway hails the Nigerian venture as “extremely exciting”, but remains cautious over the industry’s wider prospects. Pointedly, he does not rule out another shakedown, with other players following the downward spiral that sent United Airlines into bankruptcy and Swissair out of existence.
“The thing is, we have always had it pretty tough,” he says. “We started as a small carrier with no history and no legacy as a state-owned airline, we regard the present situation as just another fight.”
Advertisement
The battle is being fought on several fronts. Virgin is adding new aircraft to its fleet while its hedging teams, who negotiate deals to fix the forward fuel prices ,are working to minimise the impact of record-high oil costs on the airline’s bottom line. Virgin also introduced fuel surcharges last year to offset the rising cost of crude, which added an estimated £60 million to the company’s £300 million annual fuel bill.
The measures look to be paying dividends. Last month Virgin revealed sharply improved results, posting pre-tax profits of £68 million, its highest profit since 1999 and up from £20.9 million for the 10 months to the end of February last year. Passenger numbers also rose by one million to 4.4 million over the year.
Virgin’s chairman, Sir Richard Branson, said he was proud of the performance in a “challenging year when many leading players in the airline industry continued to struggle to survive”.
The airline’s profitability compares well with that of budget airlines such as Easyjet, which recently warned that rising fuel costs would eat into full-year profits and that they had contributed to a 14 per cent rise in losses to £31.2 million for the six months to March.
The comparison between the long-haul specialist, Virgin, and the budget carrier, which specialises in short hops within Europe, is, Mr Ridgeway suggests, not as false as may first appear.
Advertisement
“We are in a different business, but we consider ourselves the original low-cost, long haul airline. From the outset we adopted some of the practices which have been taken up in recent years by the budget carriers, such as outsourcing. Today, you’ll find that some of the prices you’ll find on offer further back on our planes are pretty much unbeatable.”
The tables, however, are turning. In years past, Virgin has been the thorn in BA’s side. The younger airline made a point of competing with the ex-state owned company on its best routes. Returning the favour, BA is now snapping at Virgin’s heels on its Heathrow-Shanghai route.
In response, Mr Ridgeway points out that the London-Shanghai route, a totemic corridor now that China’s economic potential is clear, marked a “coming of age” point for his company.
“This was the first time we were able to take a major route before BA. We won because we were the better carrier and we remain distinct. We are never frightened by competition, it is a fact of business.”