Virgin Atlantic Airways SWOT: 40th birthday proves its resilience (2024)

VIRGIN ATLANTIC'S STRENGTHS

1. Virgin Atlantic has a significant holding of Heathrow slots

Virgin Atlantic is the second biggest airline at London Heathrow, one of the most slot-constrained airports in the world, based in Europe's biggest city for aviation.

The airline has 4.8% of slots at Heathrow in northern summer 2024, according to data from the slot coordinator ACL - up from 3.5% in summer 2019. Combining Virgin Atlantic's slots with those of its 49% shareholder and joint venture partner Delta amounts to 6.2%.

However, Virgin Atlantic's holding is a long way behind British Airways' 50.8% holding.

2. The Virgin brand is well regarded

Virgin Atlantic enjoys the positive perceptions associated with the Virgin brand, a name that extends well beyond aviation.

Sir Richard Branson's Virgin Group Holdings is the controlling shareholder, with a stake of 51%, from whom the airline licenses the brand name.

Representing attributes such as value for money, service quality, fun and individuality, Virgin Atlantic has won many awards over the years for its brand and its advertising campaigns.

3. It has a strong North Atlantic network

Virgin Atlantic is the second largest operator on routes between the UK and the US, with 19.1% of seats, behind British Airways, on 33.1% (source: CAPA - Centre for Aviation/OAG, week of 17-Jun-2024).

On the most important North Atlantic route - that between London Heathrow and New York JFK - Virgin Atlantic has 33.4% of seats, almost level with British Airways' 34.2%.

According to OAG data for the week of 17-Jun-2024, 81.9% of Virgin Atlantic's seats are on the North Atlantic (73.8% on North American routes and 8.1% to the Caribbean).

Virgin Atlantic Airways: regions ranked by share of network seats, week of 17-Jun-2024

Source: CAPA - Centre for Aviation, OAG.

4. Virgin Atlantic's partnership with Delta is a strong advantage

Since Jan-2014 - a little more than a decade ago today - Virgin Atlantic's North Atlantic routes have been part of a joint venture with its 49% shareholder, Delta Air Lines.

Together with Delta's 7.0% share of UK-US seats, the combined share in the JV is 26.8% in the week of 17-Jun-2024, which is up from 25.4% in the equivalent week of 2019.

This is still smaller than the British Airways/American Airlines JV, which has 50.5% of UK-US seats and has grown from 49.0% five years ago in 2019.

Nevertheless, Virgin Atlantic's JV with Delta allows it to participate in what is approaching a duopoly. The two JVs control 77.3% of UK-US seats between them, up from 74.4% five years ago.

On the lucrative London Heathrow to New York JFK route the two JVs are even closer to a duopoly, with 94.8% of the market. Virgin Atlantic/Delta has 41.7% of seats, British Airways/American Airlines has 53.1%, and JetBlue Airways (which entered in Aug-2021) has 5.2%.

Beyond the JV, the backing of Delta as a shareholder is also a strength for Virgin Atlantic.

5. Virgin Atlantic's relationship with Air France-KLM and SkyTeam has provided further strength

In 2020 Virgin Atlantic's relationship with Delta led it into the wider North Atlantic joint venture comprising its US partner, Air France, and KLM, and then into SkyTeam in 2023.

The JV of Virgin Atlantic/Delta/Air France/KLM within SkyTeam has 23.6% of Europe-North America seats in the week of 17-Jun-2024.

This places it second among the immunised JVs on the North Atlantic JVs, ahead of the oneworld JV's 22.4%, but behind the Star alliance JV's 28.1% share.

Codeshare agreements between Virgin Atlantic, Air France and KLM help to bring some short/medium haul feed into the Virgin Atlantic network.

Immunised JVs within the main branded global alliances: seat share Europe to North America, week of 17-Jun-2024

Source: CAPA - Centre for Aviation, OAG.

6. The airline has a relatively young fleet

According to the CAPA - Centre for Aviation Fleet Database, Virgin Atlantic's fleet has an average age of 7.3 years at 18-Jun-2204.

That average age compares favourably with the two regions at either end of most of its routes: 3.6 years in Europe and 17.9 years in North America.

This follows a fleet upgrade programme, accelerated by the COVID-19 pandemic, which resulted in the exit of all its four-engined widebodies (Boeing 747s and Airbus A340s).

Its fleet now consists only of twin-engined widebodies (17 Boeing 787-9s, 12 Airbus A350-1000s, 10 Airbus A330-300s and five Airbus A330-900s).

7. Virgin Atlantic is resilient

In spite of struggling to achieve sustainable profits (see Weaknesses), Virgin Atlantic has proved to be resilient and durable.

For a small, privately owned niche airline, reaching 40 years of age is both rare and creditable.

VIRGIN ATLANTIC'S WEAKNESSES

1. Virgin Atlantic has a poor financial track record

Virgin Atlantic has not reported a positive net profit since 2016, and has recorded net losses in all but two of the past 10 years.

In 2023 its net loss of GBP225.5 million marked an improvement from even heavier losses in 2022 and 2021 - but it was still down on its 2019 net loss of GBP54.7 million.

The company announced a positive underlying EBIT result for 2023, but at only GBP54 million; this was just 1.7% of revenue.

2. Its unit cost is too high

Virgin Atlantic's track record of losses is evidence that its unit cost, or CASK (cost per available seat kilometre) is too high.

Its consistent reporting of operating losses, or small operating profits, means that its unit cost is too high by comparison with the unit revenue that it can generate.

3. Virgin's load factor is below industry average

Virgin Atlantic's 2023 passenger load factor was 77%; this was an improvement on 73% in 2022, but still short of its 2019 level of 81%.

Meanwhile, the global airline industry load factor was 82.3% in 2023, almost back to its 2019 level of 82.6%, according to the International Air Transport Association (IATA).

4. It is low/no growth and very small

Virgin Atlantic has not managed any significant growth in traffic for many years.

Its 2024 passenger count of 5.3 million was 21% higher than in 2022, but 10% lower than in 2019.

Moreover, although 2019 had been the second consecutive year of growth, its 5.9 million passenger total was the same as in 2015, and below the level of 2012.

It was carrying 5.7 million passengers - above its 2023 level - as long ago as 2008.

It has never been a large airline, but this failure to grow over a period of many years has made it smaller still by comparison with the rest of the industry, which typically grows (outside of pandemic years).

According to IATA, world airline scheduled passenger numbers grew by 50% between 2012 and 2023. Virgin Atlantic's traffic fell by 14% over the same period.

Its entire global network consist of only 28 routes in the week of 17-Jun-2024, two fewer than it had five years ago.

Virgin Atlantic: passenger numbers (million) and passenger load factor (percentage), 2012 to 2023

Source: CAPA - Centre for Aviation, Virgin Atlantic annual reports.

5. Away from the North Atlantic - Virgin Atlantic's network is small

As noted above, Virgin Atlantic's network is strongly biased towards the North Atlantic.

However, the flipside of this is that it has little presence in other regions.

Data from CAPA - Centre for Aviation/OAG for the week of 17-Jun-2024 show that 10.7% of its seats are to South Asia, 3.2% to Central/Western Africa, 2.5% to Southern Africa, and 1.8% to North East Asia.

It currently has no presence at all in Latin America outside the Caribbean (see also below under Opportunities).

VIRGIN ATLANTIC'S OPPORTUNITIES

1. It is striving to return to profit

Virgin Atlantic is now in the third year of a four-year strategic plan to achieve sustainable profitability. This was adopted in 2022 after the previous three-year plan, begun in 2019, was shredded by the COVID-19 crisis.

Although the latest plan did not anticipate subsequent geopolitical events and increases in inflation and interest rates, the airline is hoping for break-even at the net profit level in 2024, and says that it is on course for profitability in the time frame of the plan.

In 2023 it generated record revenue (in spite of passenger numbers still below 2019 levels) and EBITDA, but its net loss reflected the servicing of high levels of debt.

Achieving sustainable profitability will improve opportunities for the airline to attract investment to expand its network.

2. The completion of its fleet upgrade will give it 100% next generation aircraft

According to the CAPA - Centre for Aviation Fleet Database Virgin Atlantic has eight Airbus A330-900s and two Airbus A350-1000s on order.

By 2028 it will have replaced its A330-300s (now all around 12-13 years old, and much older than the rest of the fleet) and it have 100% next-generation aircraft.

This will not only improve its carbon emissions and cost efficiency, but also (with the A350s) open up further new route opportunities.

3. Virgin Atlantic plans to open its first route to South America

Virgin Atlantic planned to launch a service from London Heathrow to São Paulo Guarulhos in 2020 - but the COVID-19 pandemic intervened.

Revised plans announced in 2023 to launch the route this northern summer 2024 were postponed last November, and the service is now slated for 2025.

Operated by Boeing 787-9 aircraft, the new service will be the airline's first route to South America (although it already operates to one other sub-region of Latin America, namely Caribbean).

Virgin Atlantic is hoping to tap into economic growth in Brazil and expects to benefit both from tourism and business demand. It expects the route will attract significant cargo demand, in addition to passenger traffic.

Capacity from the UK to South America is less seasonal and faster growing than the markets between the UK and Latin America's other regions of the Caribbean and Central America.

4. Virgin Atlantic is expanding in India

In 2019 Virgin Atlantic operated only one route to India - namely, a daily service from London Heathrow to Delhi.

South Asia was less than 3% of its seat capacity five years ago.

In Jun-2024 it operates three UK-India routes, having added daily services to Bengaluru and Mumbai to its Heathrow network.

It has also doubled its Delhi frequency to twice daily, and will add a second daily Mumbai flight in late Oct-2024.

South Asia is now 10.7% of its seat capacity (week of 17-Jun-2024).

Moreover, it has a codeshare with IndiGo offering 36 onward connections from key hubs. In addition, its partnership with Delta and strength on the North Atlantic should attract passengers between the US and India, connecting over London.

India is a very large market offering strong growth potential.

VIRGIN ATLANTIC'S THREATS

1. Heathrow capacity is nearing saturation

Virgin concentrated all its London capacity at Heathrow in the aftermath of the COVID-19 pandemic and has derived efficiency benefits from operating from a single airport serving the UK capital.

However, traffic at Heathrow is closing in on the maximum movements limit, and Virgin Atlantic CEO Shai Weiss has expressed doubts that the long awaited third runway will ever be built.

This threat could turn into an opportunity to return to London Gatwick in order to generate growth options at some point.

2. Virgin Atlantic lacks geographic diversification

As noted above, Virgin Atlantic's network remains very focused on the North Atlantic. Its relative lack of geographic diversification leaves it exposed to any significant downturn in demand and/or an overcapacity situation on the North Atlantic.

3. Macro events and fuel price changes are a risk

As for all airlines, Virgin Atlantic and the aviation industry's demand cycle is exposed to demand shocks that can arise from geopolitical events such as war, terrorism, epidemics and natural disasters.

It is also exposed to fuel price fluctuations and risks, such as accidents and other airline-specific events.

4. Virgin Atlantic may be exposed to any downturn in the aviation cycle

Again a generic airline industry threat, the airline industry remains highly cyclical, but thin margins mean that Virgin Atlantic is perhaps more exposed than some to a possible downswing in the cycle.

Virgin Atlantic's network is strongly biased towards leisure routes. As such, it is exposed to the fluctuations of consumer confidence and the economic cycle.

5. The green transition is an existential threat to all airlines

The transition to net zero carbon emissions, a global commitment by the world's airlines, is a necessary condition for aviation's continued long term existence.

The development of new propulsion technology will be needed to guarantee this, something that is largely out of the control of Virgin Atlantic or any airline.

The interim need to operate with sustainable aviation fuels is also largely out of any airline's control.

However, Virgin Atlantic's Nov-2023 flight between Heathrow and New York JFK, which was the first across the Atlantic on 100% SAF, demonstrates that the airline is at least trying to remain at the forefront of the green transition, where possible.

Conclusion: sustainable profitability will be the key to the next 40 years

In the year of its 40th birthday, Virgin Atlantic is pursuing some growth opportunities.

It has launched Manchester-Las Vegas and London Heathrow-Bengaluru services and increased frequencies to Dubai and Bridgetown.

It plans additional frequencies to New York, Boston, Mumbai and Male. It has also announced plans for London Heathrow services to Toronto and São Paulo in 2025.

The airline expects to operate 45 aircraft by the end of 2024, one more than in Jun-2024 and back to 2019 levels.

However, it expects to operate 16% more flights than in 2019. This demonstrates improved operational efficiency, although it remains small and low growth by global standards.

CEO Shai Weiss aims to make Virgin Atlantic "the most loved travel company", delivering "sustainable profitability".

Its brand successfully projects an image that is much bigger than the reality. This may help in moving towards the first of Mr Weiss' aims.

However, the priority for surviving the next 40 years must be the second aim.