Bad news for the air industry, possibly good news for the environment, and a wake up call for anyone who thought cheap profligacy could go on forever. Virgin Airlines could be going down very soon.
It was more than three months ago, with the collapse of the luxury business airline Silverjet, that the rumble started. As fuel prices peaked in the early summer of 2008, it was clear that the first businesses to suffer would be those with minimal backing and low profit margins - unless passengers were prepared to pay proportionally more for their flights then the flights simply would not run. In August, the inevitable happened, and the first component of what will be known as the “budget house of cards” fell: Zoom, the Anglo-Canadian budget flyer went into administration, stranding thousands of passengers in various locations either side of the Atlantic.
Then things started to go very wrong. On Friday 12 September, XL Group, the third largest holiday firm in the UK went bankrupt, leaving 90,000 passengers with no return flights, and hundreds of thousands of bookings in jeopardy. Proving that this was no British disease, the New York Times, along with dozens of other news sources were reporting on 14 September that Alitalia, the de facto national airline of Italy were experiencing difficulties guaranteeing their fuel supply. The financial disaster was all but confirmed by the Observer on the same day, which reported:
"Italy’s flag-carrier airline broke the news after an apparently fruitless meeting between its bankruptcy commissioner and trade union leaders, which was aimed at saving the debt-laden airline from collapse."
And this is where it starts to get interesting.
In the same article, Virgin Group Chairman, Sir Richard Branson was quoted as saying:
"a new set of procedures should be brought in allowing a collapsed company’s fleet to continue to fly under the watch of the aviation regulator."
Although ostensibly related to the “rescue” of passengers from collapsed airlines, the sense in the industry is that no airline is safe from collapse, not even the relatively buoyant Virgin Atlantic. In fact, it turns out that the last posted annual profit of £60m ($107m) was less than 10% that of arch-rival British Airways, and only 15% of that posted by budget carrier Ryanair for the same period. Ryanair have recently been forced to withdraw their least efficient aircraft in order to weather the ongoing market conditions. Virgin Atlantic cannot afford any slip-ups, nor can they afford another rise in fuel costs. Branson knows this, and and has known this for some time, as evidenced by his aggresive stance towards the proposed link-up between BA and American Airlines.
In an article in the Daily Telegraph, just over a week ago, he stated:
"It is ironic that the UK’s Competition Commission last month called for the break-up of one monopoly, in the form of airport owner BAA, yet British Airways is trying to create another one, with American [Airlines]. It wants to gain permission to collude with American, something that would normally be illegal, and fix ticket prices and schedules on US and European routes…this proposed alliance would impact Virgin Atlantic’s ability to compete fairly on these routes".
There is more than a touch of unease in these words, but even I didn’t realise the significance of his recent behaviour until I spoke to an industry source. The individual who, not surprisingly didn’t want to be named, said: “This behaviour suggests something more than market positioning. This looks like a company on the brink of collapse.”
Whether Virgin Atlantic, and their sister companies Virgin America and Virgin Blue can ride out the storm depends on many factors, but at the moment things are not looking good for the former wunderkind of British industry. The “budget house of cards” won’t stop toppling for some time yet.
Then things started to go very wrong. On Friday 12 September, XL Group, the third largest holiday firm in the UK went bankrupt, leaving 90,000 passengers with no return flights, and hundreds of thousands of bookings in jeopardy. Proving that this was no British disease, the New York Times, along with dozens of other news sources were reporting on 14 September that Alitalia, the de facto national airline of Italy were experiencing difficulties guaranteeing their fuel supply. The financial disaster was all but confirmed by the Observer on the same day, which reported:
"Italy’s flag-carrier airline broke the news after an apparently fruitless meeting between its bankruptcy commissioner and trade union leaders, which was aimed at saving the debt-laden airline from collapse."
And this is where it starts to get interesting.
In the same article, Virgin Group Chairman, Sir Richard Branson was quoted as saying:
"a new set of procedures should be brought in allowing a collapsed company’s fleet to continue to fly under the watch of the aviation regulator."
Although ostensibly related to the “rescue” of passengers from collapsed airlines, the sense in the industry is that no airline is safe from collapse, not even the relatively buoyant Virgin Atlantic. In fact, it turns out that the last posted annual profit of £60m ($107m) was less than 10% that of arch-rival British Airways, and only 15% of that posted by budget carrier Ryanair for the same period. Ryanair have recently been forced to withdraw their least efficient aircraft in order to weather the ongoing market conditions. Virgin Atlantic cannot afford any slip-ups, nor can they afford another rise in fuel costs. Branson knows this, and and has known this for some time, as evidenced by his aggresive stance towards the proposed link-up between BA and American Airlines.
In an article in the Daily Telegraph, just over a week ago, he stated:
"It is ironic that the UK’s Competition Commission last month called for the break-up of one monopoly, in the form of airport owner BAA, yet British Airways is trying to create another one, with American [Airlines]. It wants to gain permission to collude with American, something that would normally be illegal, and fix ticket prices and schedules on US and European routes…this proposed alliance would impact Virgin Atlantic’s ability to compete fairly on these routes".
There is more than a touch of unease in these words, but even I didn’t realise the significance of his recent behaviour until I spoke to an industry source. The individual who, not surprisingly didn’t want to be named, said: “This behaviour suggests something more than market positioning. This looks like a company on the brink of collapse.”
Whether Virgin Atlantic, and their sister companies Virgin America and Virgin Blue can ride out the storm depends on many factors, but at the moment things are not looking good for the former wunderkind of British industry. The “budget house of cards” won’t stop toppling for some time yet.
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