Hot on the heels of my recent article, Virgin Airlines “On The Brink Of Collapse”, comes a very exciting email from Virgin Atlantic’s Director Of Communications. Paul Charles – pictured above, whose shirt I have no intention of commenting on for fear of legal action – sent the following to The Sietch:

This is highly libellous. I suggest you remove this posting before we are forced to take legal action. Virgin Atlantic is a successful and profitable airline, with £600m cash in the bank, on top of profits last year. We make smaller profits than BA because we are a smaller airline. We have 38 planes in our fleet, they have 230.We operate long-haul only and not short-haul. The author sadly seems to know little about the airline industry. Sir Richard Branson was talking about XL and the BA/AA monopoly in recent days, not our own operating position.

Paul Charles, Director of Communications, Virgin Atlantic.

This has to, of course, be taken in context, so it’s only fair that I reprint the article that Paul objected so strongly to:

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.

Paul, himself, found time to comment on the article, as follows:

It must be BA putting rumours around that Virgin Atlantic is on the brink of collapse! What a load of rubbish from our rival that loses more passenger bags than any other airline in Europe. Virgin Atlantic is in strong shape. In anticipation of the global downturn, we took action two years ago. We deferred aircraft deliveries, examined our cost base, ensured our fuel hedging was in the right place, and started building up cash. We have over £600m (over $1 billion) cash in the bank. We have a very strong management team that has been through downturns in the industry before. Virgin Atlantic is 25 years old next year – it’s in a strong position to ensure it remains one of the fittest airlines around.

Paul Charles
Director of Communications
Virgin Atlantic

My response must have been the one which caused the threatening email at the top of this article:

So why is RB sounding so edgy, Paul? He’s a clever man, and may even have seen “Black Monday” coming – with Lehman Brothers out, and Merrill Lynch fatally wounded, hedging fuel is becoming a very dodgy business. I don’t believe any business is safe, not least a business that relies on people having disposable income they are willing to spend on things that they don’t actually need.

Keith

P.S. I have nothing to do with BA, but I did spend 10 years working in the finance industry predicting events accurately.

I never did get a response to my question, but I did find an interesting article to back up my apparent ignorance, as I “know little about the airline industry”, on the BBC web site, which includes the following:

Analysts said other airlines that rely heavily on the UK market for business would face similar challenges.

“We view the deteriorating outlook as UK-led and consequently see ramifications for our Easyjet and British Airways forecasts,” NCB analyst Neil Glynn wrote in a note.

I was brought up to believe that if someone jumps down your throat when you make a statement, then perhaps that statement has touched a nerve and, by implication, is pretty close to the truth. You can make up your mind whether you think Virgin have jumped down mine…