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Thursday, August 11, 2011

Virgin Atlantic Investing $162 Million for Modernization

Wall Street Journal:  Long-haul carrier Virgin Atlantic Wednesday said it had swung to a fiscal year profit, buoyed by business travel and cargo demand, and plans to invest millions in modernizing its cabins, for the first time since it introduced flat beds in 2003, in its latest bid to win customers.

Chief Executive Steve Ridgway said the airline would invest a total GBP100 million ($162 million) -- GBP75 million on new aircraft and the rest on updating interiors and installing in-flight technology to allow travellers to use the internet and blackberries. It will also improve its lounges, in particular New York, which remains one of its most lucrative routes.

For the year to February 28, Virgin Atlantic posted a pretax profit of GBP18.5 million, after a loss of GBP132 million a year ago. Annual revenues rose 13% to GBP2.7 billion, with cargo revenue alone jumping 39% to GBBP224 million. The unlisted company doesn't give figures for net profit until it posts its full results at the U.K.'s Companies House.

In the three months to May 1, revenue climbed 7.6% to GBP658 million.

Ridgway said: "Since the turn of the year, market conditions have become tougher with increased capacity, faltering consumer confidence and high fuel prices," adding that while business traffic remains strong, demand in economy class is more challenging.

The airline, 49% owned by Singapore Airlines Ltd. and 51% by Richard Branson's Virgin Group, has been attempting to boost demand by offering discounted deals, which mean yields this year aren't as strong as the year before, although premium upper class products were performing well.

The U.K.-based airline has also been pushing to increase traffic from both its home market and from the destinations to which it travels. Revenue on its route between London and Sydney, via Hong Kong, rose 13%, but there was a 22% increase in sales generated in Australia. Routes between Kenya and London increased 15%, which included a 25% growth in sales generated in Kenya.

On its main market between the U.K. and the U.S., revenue jumped 21%, but the greatest increase was on its Shanghai-route where it rose 41%, boosted by a 57% rise in leisure demand and 42% jump in business demand. Virgin's manager for China, Jim Bai, said, it was gaining recognition in the east China market and loyalty continues to grow, despite increased competition.

It didn't reveal numbers on its London-Tokyo route, which would normally carry a large proportion of business travelers, because of the disruptions to service it suffered in the aftermath of the earthquake.

Like peers, Virgin will benefit from the recent decline in oil prices, with Brent crude down 12% since July 7. However, a spokeswoman said Virgin has no immediate plans to lower fuel surcharges, and will wait to see whether the lower levels are maintained over a sustained period. "There's no exact science as to when (the fuel surcharge) may be lowered but the revenue team keeps a constant eye on this," she said.

Virgin Holidays, the airline's package holiday business, is also planning to double its retail presence to 120 stores. It has in-store franchises within Tesco PLC (TSCO.LN) and Debenhams PLC (DEB.LN), which Ridgway said were performing well.

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