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Virgin Atlantic will make loss this year
Decline in business traffic means Virgin Atlantic, and other longhaul airlines, will make loss this year
guardian.co.uk, Tuesday 26 May 2009 19.33 BST


Virgin Atlantic will slip into a loss this year after warning that no longhaul airline will make a profit in 2009 because of a decline in business traffic – the main source of profit for transatlantic carriers.

"No network airline is going to make a profit this year because they are all facing their toughest-ever market. There is not enough confidence out there, in the business market especially, and airlines are having to cut their prices to record lows," said a Virgin Atlantic spokesman.

Last week, British Airways announced a record pre-tax loss of £401m, with the slump in business traffic exacerbating losses caused by high fuel costs and the weak pound.

Virgin Atlantic announced a pre-tax profit of £68.4m in the year to February 28, up from £34.8m in the same period last year, but analysts cautioned that the figures were pushed into the black by a £68m gain in operating income from the airline's dollar-denominated cash balances.

The airline, which is privately-owned by Sir Richard's Virgin group and Singapore Airlines, did not publish full profit and loss accounts today.

Analysts said Virgin Atlantic's prediction of a loss this year reflects its similarities with BA, although the smaller airline is more exposed to the less depressed leisure market.

Virgin Atlantic, whose destinations include New York, Barbados and Sydney, carried 5.8 million passengers last year compared with 33 million at BA.

"These results show that the operating performance is not dissimilar to BA's," said Andrew Lobbenberg, analyst at Royal Bank of Scotland.

"Virgin Atlantic must be suffering because it trades in the same markets as BA. But it has less exposure to the financial services sector and is stronger in longhaul leisure, which is holding up better than the overall market."

Virgin Atlantic's results were flattered in comparison with BA's because its year-end, in February, allowed the airline to avoid putting March in its figures.

A dire March contributed to BA's £401m loss, with more than three-quarters of that deficit being booked in the three months since January.

Premium passengers are a vital revenue source for longhaul airlines such as Virgin Atlantic. BA relies on the front of the cabin for more than 50% of its revenues – more than close rivals Lufthansa and Air France.

Premium air travel across the industry fell by 19% in March, according to the International Air Transport Association, with revenues from front-of-the-cabin customers falling by between 35% and 40% since the start of the year.

The north Atlantic route, which accounts for a quarter of all turnover generated by premium tickets worldwide, declined by 16.8% in March.

However, Europe's two largest low-cost carriers, Ryanair and easyJet, are expected to post profits in the next financial year.

The airline market is currently dire and the IATA has predicted that global passenger traffic will fall 5.7% this year, with revenues falling by 12% as airlines hold down fares to compete for a smaller customer base.

Despite cost-cutting measures including a 6% reduction in capacity, the industry is expected to record a loss of $4.7bn (£3bn) this year.

However, the plummeting oil price will at least ensure that the airlines' deficit is less severe than the $8.5bn loss they posted last yearview-source:Virgin Atlantic will make loss this year | Business | guardian.co.uk