Virgin Atlantic Reports Loss For 2018 — What Happened?

Filed Under: Virgin

While Virgin Atlantic’s biggest news of the week was the reveal of their new Upper Class product, that wasn’t the only major news to come from the airline this week.

Virgin Atlantic reports 2018 loss

Virgin Atlantic this week also revealed their operating results for 2018, and it’s not great news. Virgin Atlantic has announced a loss of 26 million GBP for 2018, which at least is an improvement over their 49 million GBP loss the year prior.

There are some significant areas of improvement in 2018 compared to 2017, with revenue rising nearly 6%, passenger numbers rising nearly 5%, and revenue per customer rising nearly 2%.

Virgin Atlantic expects to report another loss in 2019, and in 2020 expects to break even.

Why did Virgin Atlantic lose money?

Virgin Atlantic blames two main factors for their 2018 losses:

  • The weakness of the GBP compared to the USD, given that they pay for fuel in USD
  • The issues that have existed with Boeing 787-9 engines, which have caused much of their fleet to be grounded

How does this compare to British Airways?

It’s interesting to contrast Virgin Atlantic’s performance to that of British Airways. British Airways reported a profit of nearly two billion GBP in 2018, while their parent company IAG reported a profit of over 3.2 billion GBP.

While British Airways is significantly bigger than Virgin Atlantic, that’s still a huge difference in terms of performance, given that British Airways faced the same issue with the weakness of the GBP, and even had some 787s grounded as well.

Virgin Atlantic is working on turning around their performance. This partly includes optimizing their route network, though the airline is conservative, but plans to launch flights to Tel Aviv and Sao Paulo.

On top of that, later this year Virgin Atlantic will begin taking delivery of the A350-1000. This is significantly more fuel efficient than their fleet of A340s and 747s, both of which are gas guzzlers. The airline also plans on retiring their 747s starting in 2021.

Bottom line

Heathrow slots are among the most valuable things an airline can have access to in aviation, and Virgin Atlantic has a lot of them. London is one of the most important business markets in the world, and Virgin Atlantic gets huge value from their slots there.

However, in spite of their access to Heathrow and their joint venture with Delta, Virgin Atlantic just can’t seem to turn around their situation. It’s especially apparent right now, as British Airways announces massive profits, while Virgin Atlantic doesn’t.

It will be interesting to see if the retirement of 747s and introduction of A350s helps turns things around a bit, or if the airline needs something a bit more radical.

With the uncertainty, both surrounding Brexit and the global economy, I don’t think breaking even within two years is anywhere close to a sure bet.

Comments
  1. I’ve traveled with them 2 LHR-JFK returns this year. In January and March.
    Thats 4 segments.
    I really love them, their lounges are one of the bests out there, they fly the A340-600 (every avgeek’s favourite airbus), and there are small touches, which make them special, like they always announce the number of passengers on board, when boarding is finished.
    So:
    1st flight: LHR-JFK, A330-200, 222 passengers on board (out of 267) = 83% loadfactor. Its not that bad on a TATL flight on a mid-week January day.
    2nd flight: JFK-LHR, A330-200, 91 passengers (267 seats). Thats 34%… I thought it won’t get any worse than this.
    3rd flight: LHR-JFK, A340-600, 68 passengers (308 seats). Yes, thats 22%… And it was a friday in March.
    4th flight: JFK-LHR, A330-200. I don’t remember the number of pax onboard, but it was almost 100% full. It made me wonder, how could that happen. The answer: it was just days after the 737MAX groundings, and all passengers of a norwegian’s flight were rebooked to VS.

  2. Can’t even make money cherry picking longhaul routes in one of the most profitable markets in the world. They are a joke of an airline.

  3. This is unfortunate. I’m no expert but perhaps fuel hedging had something to do with it too (I recall CX having a loss a few years ago due to fuel hedging.)
    As for comparing VS with BA, doesn’t BA pay its mixed fleet crew significantly lower than VS crew (who all fly longhaul)?

  4. Gave them a shot to see if could leave BA last year
    Flew SFO to Lhr and hated it
    The cramped over crowded lounge at SFO with lousy offerings
    No seating
    On board rubbish dining and uncomfortable for 6”4 height
    The putrid smelling hot towel with added scent awful
    Rather Fly American
    They suck too but they suck less

  5. @e30st: I flew four sectors with VS last year, LHR-JFK and EWR-LHR in July, then LHR-JFK and back just before Christmas. All four flights were A330-300s and over 90% full. Absolutely fantastic airline (in my opinion), loved every second of the experience. Flying DME-LHR-JFK and back with BA/AA in February was worse in every way possible.

  6. I suspect it’s because BA has short haul planes that can turn around faster and more frequently (as has DL and IAG as a whole) this generates more revenue on one plane in one day than VS can on theirs.

    Combine with the 346 and 744 being old and inefficient, the 787 issues affecting a third of your fleet and Brexit generally…

  7. Could it also be from investments such as installing onboard Wifi fleet wide, paying for new 787s, buying A330-200s and refitting them… all things that cost a lot upfront but will profit from in the long term.

  8. @Jake

    No, in accounting, the cost would have been spread out.

    To over simplify, new planes means more income, if they still lose money that means they can’t fill their new planes to cover cost of buying it.

    In short summary, they’re getting better but still suck.

  9. Not making money now is a bad sign. As you mention once the economy tanks they are really going to be hurting.

    Probably not the best place to ask this but what ever happened to the new hires you made last year? At the time, while they weren’t going to be huge contributors it sounded like they would be steady writers on the blog but now it is a rare sighting to see either one. Maybe, at most, once a week?

  10. @Alex @e30st
    I forgot to add, 90% load doesn’t mean it’s profitable.

    Remember the glory days of A340-500, at it’s bottom, it’s said that TG/SQ would need an impossible load of more than 100% just to break even on the ULH routes.

  11. It may be “…interesting to contrast Virgin Atlantic’s performance to that of British Airways.. ” but it’s completely unfair. Whilst you concede BA is significantly bigger (276 planes vs 45, so 6 times bigger, or 4 times by FTE employees), BA has 28 787’s; only 10% of their fleet. Virgin on the other hand has 17 787s representing 38% of their fleet.
    The comparison is of the 2nd largest airline in the UK by fleet and pax using a mixed short and long haul model, who is part of the worlds 3rd largest parent group, with a purely long haul airline.

    Does BA pay for its fuel in USD? I don’t know but if not this probably helps them too.

    You said “…in spite of their access to Heathrow and their joint venture with Delta, Virgin Atlantic just can’t seem to turn around their situation” but they have had 2 years of profit and 2 years losses over recent years.

    Perhaps I’ve simplified it too much, but it seems a poor comparison.

  12. The main problem is Virgin markets itself as a hip/a bit out there brand but is more or less competing exclusively with BA customers who choose BA for the whole stiff upper lip posh Britishness.

    BA also has a massive short haul network with is a big money earner and as seen with WOWair exclusively long haul doesn’t work unless you have the scale of airlines like Cathay or Emirates.

    But with the purchase of Flybe and the rebranding of them into a short-haul arm of Virgin they could see a turnaround along with their newer more efficient aircraft coming in.

  13. Are you kidding, Lucky? To compare Virgin Atlantic’s relatively pitiful number of LHR slots to the monopoly of BA is an absurd red herring. Show even a slither of journalistic quality in this article, please.

    Ridiculous.

  14. @Eskimo
    Maybe not the 787s then but my point was spending money which makes them unprofitable in the short term but makes them profitable in the long term like the a330-200 refit; improving passenger comfort, design new seats for a350s etc… all costs money upfront but will se long term benefits.

  15. It is kind of non-fitting to compare them to british airways, since they have a different business model. While BA can fill their long-haul planes easily with connecting passengers from/to all over europe, VA basically completly relies on direct long-haul flights. This means they only operate in a segment of the market against BA (and others).

  16. To be blunt, Virgin Atlantic is a disgusting airline, and I wouldn’t fly them if I was given the choice. British aviation is just unappealing and uncompetitive in general.

  17. VAA is a tragic company playing at being an airline. DL should just do the decent thing and close them down. They have made a profit only three times since 2007 and as the world economy turns a corner ambitions to break even are just that ambitions. The airline needs a radical overhaul and probably just to be quietly put to sleep.

  18. I’m surprised by all the hate against Virgin. They’re infinitely superior to BA in economy, premium and business (Virgin don’t operate First and Virgin Upper is equivalent to BA Club although much better). I usually fly Premium Economy, sometimes using miles to fly Business and Virgin would always be my first choice trans atlantic and I would pick them every time over any US carrier. Service is usually excellent, most of the crew clearly enjoy their job (the same cannot be said about BA). I expect BA’s profits (and reputation) will take a hit soon as they look to be on the brink of a very damaging and expensive strike – and good luck to their long suffering staff if they do vote for industrial action.

  19. BA still has bunch of 747s too. Yet they are highly profitable… let’s imagine how profitable they will be if they replace all the 747s with A350s and 777Xs.

  20. @Jake

    Like I said earlier, in “accounting” it doesn’t affect much since the cost of investment will be spread out many years. The upfront means very little in accounting, it’s how the structure of payment not how much the payment.

    To simply, if VS borrows money to refit the a330 and pays $10 interest every year then they need to make $10 extra to break even the refit cost.

    The reason I say their management sucks is after many of improvements they still are not making money. They refit to remain competitive but not a game changer.
    The $10 in refit doesn’t make 50 times return.

    Unlike your understanding, the long term benefits only kick in maybe after 10 years when they pay off the cost of refit which is time for another refit or buy a new plane. Which means the long term benefit almost NEVER kicks in.

    If the refit helps them get 20% extra load, (which I find unlikely) then they are doing it right.
    If they fill 100% of their planes and still lose money, then management sucks.

  21. I’m terribly sorry, but this is not really a comparison. BA are 4/5 times the size of VS by fleet size.
    The 787 issue effected both airlines vary differently. Almost 1/3 of VS’ fleet is the 787, whilst BA less than 10%. BA have the size and scale (which VS lacks) to be able to absorb the Trent 1000 issues far more greater than VS. The smaller you are, the bigger effect small things have on you.
    The way both airlines reacted was also very different. VS chose to lease 4 A332s at the very last minute, to keep their customers flying. The lease brought a lot of costs, certification of the ac, unplanned extra engineering hours, crew training, refurbishing the ac to fit within VS’ fleet, the list of costs goes on. All of this to keep their customers flying. They put the customer first, knowing that this will hurt their profit line much harder than just cancelling the flights, like BA did. True – BA did wet lease capacity, but this was minimal and would have been much cheaper. VS chose the more expensive, yet customer first option, BA chose the shareholders first option.

    I can write for another hour comparing the two carriers, highlighting how different they are and why comparing their results will not paint a clear picture of ‘who’s the commercially better airline’. It’s like comparing apples and bananas, they have things in common to be used as comparisons, but also have equally more things that differentiate them.

  22. I really don’t get where all the hate comes from. . . “To be blunt, Virgin Atlantic is a disgusting airline, and I wouldn’t fly them if I was given the choice.”

    Having flown a mixture or Upper, Premium and Economy with Virgin Atlantic twelve times (twenty four flights) in the last two years, I have never, not once had a bad flight. I had an issue where mine and my wife’s bag’s were misplaced or not loaded onto the flight, very annoying admittedly but not the end of the world as it was sorted within 2 days.

    I have always enjoyed the food and the service and love the little quirky touches and the fact the staff are always smiling.

    Travelled with BA to Mexico and yeah the flight / plane was alright but the food was exceptionally average, the staff didn’t give a proverbial not to mention the entertainment system’s screen was like a calculator! Such bad quality I couldn’t even make out the subtitles.

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