Virgin Atlantic posts profit, but can it last?

Posted by admin on May 29, 2009
photo courtesy Virgin Atlantic

Only a few days after arch rival British Airways posted a record loss, Virgin Atlantic Airlines announced some surprising news this week: it made a profit for the 2009 fiscal year. Even more surprisingly, pre-tax profits doubled from £34.8 million to £68.4 million ($109.3 million). And to rub it in even more to British Airways, Virgin claims that the increase in profits came from an increase in premium passengers, a demographic that BA is particularly reliant upon. Because price-cutting, Virgin was able to keep load factors in its first and business class seats solid. “We are winning market share from our competitors during the toughest trading environment ever,” said CEO Steve Ridgway. “Our load factors remain resilient as travelers take advantage of these bargain fares, proving the value of vigorous competition.”

But Virgin’s reported recent financial success isn’t as simple as just an increase in passengers. Virgin Atlantic locked in its fuel prices two years ago, meaning that the airline didn’t have to deal with the steep rise in prices that occurred last year. And Virgin Atlantic, unlike most of its competitors, isn’t publicly listed, meaning that it doesn’t have to disclose detailed financial information. The Times’ Ian King notes that Virgin released the numbers two months earlier than they did last year, which “raises the suspicion that their release has been timed not only to embarrass the old enemy but also to emphasize the airline’s strength to the trade at a time when the battle for corporate clients is more ferocious than ever.”

While Virgin might be in a comparatively good spot right now, especially when viewed in light of British Airways’ abysmal financial performance, they might not be able to keep it up for much longer. The transatlantic price war that Virgin is taking part in has started to take a toll on profits, and the state of the industry as a whole isn’t solid (as Virgin’s CEO has admitted). Check back in a couple of months – I’m sure that we’ll see a much more subdued financial announcement from Virgin Atlantic then.

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