Analysis
So what’s gone wrong in just a few weeks after so brazenly boasting how efficient it was in contrast to rival British Airways?
The simple answer is that Virgin is waking up to the realities of the marketplace and without any major airline alliance that wants this subsidised carrier amongst their ranks, the battle which Branson’s baby faces is more than just an uphill one.
For over six months, rival British Airways has seen plummeting premium passenger figures, particularly in Asia where Virgin is slashing flights to Hong Kong by 50%. While Virgin has moved to take out system capacity for its winter schedule, however, by not doing so for this summer means it still has airplanes to fly relying on low yield fares as oil prices continue to climb. Compounding Virgin’s cost base woes is the highly inefficient A340-300/-600 fleet, which guzzle as much fuel as oil prices rise – no wonder that Qatar Airways’ CEO Akbar Al-Baker said he wanted to “throw them away”. Virgin’s recent A330 order is evidence of that move, albeit several years too late.
Throw in the worse-than-expected forward bookings at Virgin and quickly you see that its reliance on premium customers is far greater than that of British Airways, particularly with its smaller network that has less room to offset big declines in demand for that class of travel. It already got rid of the manicure services to cut costs – a gimmick 10 years ago Virgin would have never considered abandoning.
British Airways by no means is not fairing any better, however its forward bookings have remained fairly stable and premium demand on its key North Atlantic routes have stabilised. Of course, the ongoing talks at British Airways and unions could undermine its business model but that’s another discussion altogether.
Singapore Airlines’ parent Temasek struggling to even give away the 49% holding it has in Virgin Atlantic - the Singaporean carrier has oft stated desire to fly to North America from a European hub and it may as well consider buying out the other half, keep the brand and operate those routes via proxy.
That of course is the long term outlook. But if people look at how British Airways is coping and start to get “nervy”, then the real clatter of worry is in the veil of
PR gambling being removed to display the ineptness with which Virgin Atlantic is run. There’s a reason why the Star, SkyTeam and Oneworld alliances do not entertain this “look at me!” airline – it simply has nothing on offer for them.
Little wonder then that BMI and Lufthansa are equally keeping themselves at arms length from Virgins ailing overtures.
While all of this goes on, the Virgin
PR machine will do little to console the staff it has to cull for its mismanaged operations.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.