The Virgin Revival: Little Red is dead. But thanks partly to Delta, its parent Virgin Atlantic is on the upswing
What? A Virgin Atlantic turnaround? Last week’s headlines about the demise of Little Red surely didn’t give that impression. Little Red is Virgin’s domestic U.K. A320 operation, operated by Aer Lingus and launched to provide Manchester, Edinburgh and Aberdeen feed to longhaul flights from London Heathrow. The unit started when Virgin grabbed domestic-specific Heathrow slots that regulators required British Airways to surrender as a quid pro quo for approving its British Midland acquisition. But after a year and a half of extremely low load factors—not to mention incessant ridicule by BA’s chief Willie Walsh—Little Red is closing.
A profitability renaissance was hardly the signal conveyed, moreover, when Virgin Atlantic just last month announced the retreat from four of its longhaul markets, namely Tokyo Narita, Cape Town, Mumbai and Vancouver— all this following the exit earlier this year from the Hong Kong-Sydney route. Since 2010, Virgin has launched a grand total of two new longhaul routes— Mumbai and Vancouver—from its Heathrow stronghold. During that same period, British Airways started Heathrow nonstops to San Diego, Buenos Aires, Tokyo Haneda, Seoul, Chengdu and Austin (and retreated from exactly zero Heathrow longhaul routes—just a few midhaul trouble spots like Tripoli) all while merging with Iberia, buying British Midland and Vueling and cementing joint ventures with American, Finnair and Japan Airlines.
Fifteen years ago, Richard Branson’s flagship airline was one of the hottest properties on the block. So hot, in fact, that Singapore Airlines felt compelled to pay nearly $1b to buy 49% of it in a deal announced at the end of 1999. And why not? Fuel prices were extremely low, transatlantic markets were booming and a regulatory shield at Heathrow ensured sky-high yields: even if slots did become available, the prevailing U.K.-U.S. air service bilateral gave just four privileged airlines—United, American, BA and indeed Virgin—the valuable right to serve the U.S. from Heathrow. In its fiscal year roughly corresponding with calendar year 1998, Virgin Atlantic earned a $180m pretax profit and a 9% pretax margin, better than it had ever done before. And—to the dismay of Singapore Airlines—better than it would ever do again.
The September 2001 terrorist attacks left Virgin Atlantic with deep losses, and although modest profits returned thereafter, the fuel shock of the 2000s hit Virgin especially hard due to its all-four-engined fleet of B747s and A340s. Outside the U.K., meanwhile, Virgin Atlantic itself was largely protected from losses at Virgin Express and Virgin America—the Virgin Group holding company had made separate…
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