Virgin Atlantic 2016 financial results

Date released: 28 March 2017

Virgin Atlantic Ltd has released its annual financial results, and is reporting a third successive year of profit.

For the year ended 31st December 2016, the Virgin Atlantic Group is reporting a profit before tax and exceptional items¹ (PBTEI) of £23m². This represents a marginal improvement on the prior year (up £0.5m), despite the challenging macro-environment conditions of 2016, and is the Group’s fourth year of improving its PBTEI.

A major contributing factor was the strong performance of Virgin Holidays, which achieved a significant increase in profit before tax and exceptional items for the second year in succession.

Calendar year ending December 2016 Group performance at a glance:

• A Group pre-tax and exceptional items profit of £23m, an improvement of £0.5m on the year ending December 2015
• Total Group revenue of £2.69bn
• Improved passenger load factor of 78.7% (up 1.9pts year on year) as network changes made in 2014 continued to mature
• A year on year reduction in airline unit passenger revenue of 4.3% at constant currency in a market impacted by wavering consumer confidence and increased capacity
• Airline operating costs were further reduced year on year, by £225m at constant currency, driven by a significant fuel cost reduction of £191m and other non-fuel cost saving initiatives
• However, realised hedging losses were £179m (£198m improvement year on year) as historic fuel hedging positions continued to unwind
• A continued strong cash position of £526m, which remained steady year on year even following the unencumbered purchase of one Boeing 787-9 aircraft
• Virgin Holidays’ profit before tax and exceptional items of £19.1m represents a 75.2% increase on the prior year, through higher passenger volume and margin
• Cargo revenue declined 15.9% year on year. Modest growth in volume of 1.8% was offset by price pressure driven by overcapacity in the market and the weakness of the pound. This resulted in a yield reduction of 17.2% year on year
• The Joint Venture with Delta Air Lines completed its third full year, and continues to grow both its passenger numbers and cargo tonnage. 45,000 customers now connect between the two airlines each month (up 30% against prior year)
• An improvement in carbon efficiency, along with a continued reduction in total CO2 emissions from the fleet (down 8% year on year)

Customer

• 5,436,000 passengers flew on nearly 22,000 Virgin Atlantic flights to 26 non-stop destinations
• Virgin Holidays increased its departed passenger volumes by 4.9%, arranging 341,000 Virgin Holidays experiences for customers to more than 45 destinations
• This was supported by the colocation of Delta into Terminal 3 at Heathrow, allowing passengers to enjoy a seamless connecting experience
• All arrival and departure targets for On Time Performance were between, representing a best ever year operationally
• The biggest business and technology transformation in Virgin Atlantic’s history delivered a new passenger service system, dramatically enhancing the customer experience

Virgin Atlantic Chief Executive Craig Kreeger said:

“This was a year in which we faced significant external headwinds, so improving our profit and growing our market share in this challenging environment is testament to the hard work of our teams.

“We remained focused on our customers, with the second year of a three year £300m investment programme, and delivered our best ever year operationally. We are committed to flying a younger and more fuel efficient fleet and in 2016 took delivery of four fantastic new Boeing 787-9s, while placing an order for 12 Airbus A350-1000s, which at list price value at $4.4bn. This investment sees our entire fleet replaced in a decade and will help our passengers to enjoy an even better experience with us. It remains an absolute focus for us to continue to improve customer satisfaction moving forward.”

A particular driver of this improved financial result was Virgin Holidays, the tour operating arm of the Virgin Atlantic Group. It grew profits by over 75% in 2016 in its first full year following a change in business model in late 2015 to become direct-sale only. Virgin Holidays Managing Director David Geer said:

“We’re delighted to have achieved another strong year of improved performance, while continuing to deliver better holiday experiences to even more customers. This was both a fantastic effort from the entire Virgin Holidays team, and a confirmation of the success of our decision to move to a direct-sale only model. We are looking forward to another successful year ahead.”

Virgin Atlantic continues to review its route network to ensure it is delivering maximum benefit and options for customers. In spring 2016 it launched a new codeshare partnership with Flybe allowing customers to book tickets through Virgin Atlantic for travel from 18 different UK or European airports.

The airline is also growing its own regional presence, with the introduction of new routes from Manchester Airport. In partnership with Delta Air Lines, new Virgin Atlantic services were launched this weekend from Manchester to Boston and to San Francisco, while a New York JFK flight will begin operations on a Virgin Atlantic aircraft in May, bringing extra capacity to the route. Also launched this weekend was a new daily service to Seattle as part of a ‘metal swap’ with Delta. Virgin Atlantic also recently announced that this winter it will fly the only direct link between London Heathrow and Barbados, with a new service starting in December.

Virgin Atlantic Chief Financial Officer Tom Mackay said:

“We are satisfied with our performance in an environment that saw increased competition, with a 6% increase in transatlantic market capacity, and a rise in Brent crude prices of more than 50% through the course of the year.

“A decline in both bookings and the rate of the pound following the EU referendum materially impacted our revenues, but through sensibly managing capacity and network, our load factors increased and we grew our UK point of sale market share on our routes. We were also disciplined on cost control.

“Looking forward, we anticipate the challenges which emerged in 2016 around currency fluctuations, rising fuel prices and lower passenger revenues to continue, but we are well positioned to manage this. We are flying the right aircraft across the right network, we have a strong cash position and a successful partner in Delta; with them we will look to grow our customer base in both the UK and the US in 2017 and beyond.”

Virgin Atlantic’s cash position was further strengthened in early 2017 with a £32m addition to its landmark senior secured note transaction. The innovative arrangement allows the airline to access the value of its Heathrow slot portfolio in a way that had not been achieved before, and it remains the only transaction of its kind in Europe.

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For more information please contact the Virgin Atlantic Press Office on 01293 747 373.

Notes to editors:

• The results stated are before tax and exceptional items
• Previous years’ Virgin Atlantic Ltd figures were:
  • y/e Dec 2015: £22.5m Group profit (IFRS)
  • y/e Dec 2014: £12.4m Group profit (restated for IFRS)
  • y/e Dec 2013: (£51m) Group loss (UK GAAP)
  • y/e Dec 2012: (£102m) Group loss (UK GAAP)