Virgin, British Airways Boost Fares as Business Flyers Return
July 30, 2010, 8:28 AM EDTBy Steve Rothwell
July 30 (Bloomberg) -- Virgin Atlantic Airways Ltd. and British Airways Plc, the biggest long-distance carriers at London’s Heathrow airport, said they’ve been able to raise fares as a jump in demand for business travel boosts forward bookings.
Yields, a measure of average prices, surged 14 percent in the three months ended June 30, British Airways Chief Executive Officer Willie Walsh said today. Virgin CEO Steve Ridgway said yields have risen across all classes, with premium sales more buoyant as companies let their employees book costlier seats.
“We’re seeing yields recover right across the aircraft,” Ridgway said in an interview. “Capacity is better matched to the reality of the market and that’s making a difference. Business traffic volumes have also recovered and some companies have backed off from some of their more stringent travel policies.”
Virgin’s sales rose 10 percent to 513 million pounds ($801 million) in the three months to May 31, helped by a 5 percent gain in its share of the business market as flyers switched from strike-hit British Airways on routes including New York-London, Ridgway said. Walsh said passenger revenue would have jumped 11 percent without the walkouts and a volcanic eruption in Iceland.
London-based British Airways was trading up 2.5 percent at 221.4 pence as of 11:29 a.m. in the U.K. capital. Shares of Europe’s third-biggest airline have gained 18 percent this year, valuing it at 2.55 billion pounds. Virgin is closely held.
Deutsche Lufthansa AG, the regional No. 2, said yesterday that yields rose 7.4 percent in first half, led by a 13 percent advance on trans-Atlantic routes, returning almost to pre-slump levels. The stock was trading up 0.5 percent today.
Less Austere
“The yields are really positive,” said John Strickland, an analyst at JLS Consulting Ltd. in London. “If they can do that against a backdrop of the ash cloud and strikes then it’s positive news in a difficult context.”
The New York market “has recovered very well,” Virgin’s Ridgway said in the interview, though a 4 percent gain in the carrier’s market share there was a result of “BA’s woes.” Passenger numbers in Virgin’s Upper Class business seats rose 15 percent in its fiscal first quarter, according to the CEO.
Laurie Price, an analyst at Mott MacDonald Ltd. in London, said the upturn in fares indicates an easing of the austerity measures imposed by companies during the economic slump.
“After the recession people started to move to the back of the plane, but I think that trend is starting to reverse,” Price said. “So whereas airlines had been discounting, now they aren’t having to.”
Net Loss
The cabin-crew strikes and volcanic plume cost British Airways 250 million pounds, the company said in a statement, causing its first-quarter net loss to widen to 122 million pounds from 106 million pounds a year earlier, with sales slipping 2.3 percent to 1.94 billion pounds.
That still beat analyst estimates for a loss of 167.5 million pounds on sales of 1.89 billion pounds. The airline, No. 1 on the North Atlantic market, said it aims to break even at pre-tax level for the full year, reiterating existing guidance.
“We’ve improved our underlying revenue performance in the quarter with increased yields and lower costs,” Walsh said on a conference call. “ We must continue to lower costs as revenue grows. Introducing permanent structural change across the airline remains our priority.”
An 18-month dispute over staffing levels and pay for 12,000 British Airways cabin crew spilled over into strikes in March and affected services on 22 days, mainly in the first quarter.
The cancellations were compounded by the April eruption of Iceland’s Eyjafjallajökull volcano, which spewed ash across Europe, closing the Heathrow hub. Virgin’s costs from lost flights were 30 million pounds, and the carrier also had an operating loss of 132 million pounds in the year ended Feb. 28 as sales fell 9 percent to 2.36 billion pounds, it said today.
Travel Perks
British Airways flight attendants rejected the latest pay proposals from Walsh on July 20 following a postal ballot, raising the possibility of further walkouts as negotiations resume next week. The Unite union has said the terms on offer might be acceptable if travel perks removed from striking workers are restored. Walsh said today that there’s no prospect of that and that his plan forms a sound basis for a deal.
Passenger traffic at British Airways fell 11.4 percent in June after the first nine days of the month were hurt by strikes, with travel decreasing 9 percent in premium seats and 11 percent in coach. The carrier will operate a “significant percentage” of its flights in any fresh walkout, including all long-haul trips, the CEO said on the conference call.
“The headline numbers may not look great, but for the first time in goodness-knows-when the focus should now be on how the business is trading, rather than crisis management,” said Douglas McNeill, an analyst at Charles Stanley in London.
AMR, Iberia
British Airways won U.S. antitrust approval for a revenue- sharing alliance with AMR Corp.’s American Airlines on July 20, realizing a plan that had been stymied in 1997 and 2001.
A merger between the U.K. carrier and Iberia Lineas Aereas de Espana SA of Spain is also due to close this year pending shareholder approval.
Air France-KLM Group, Europe’s biggest carrier, this week reported quarterly net income of 736 million euros ($962 million), positive for the first time in almost two years, as earnings were swelled by a 1.03 billion-euro gain from its stake in the Amadeus flight-booking system.
Lufthansa’s net income more than doubled to 194 million euros on the yield recovery and a surge in cargo shipments.
“We had a good first quarter and the summer is looking strong,” Virgin’s Ridgway said. “Are these trends going to continue or will we see consumer demand change? At the moment, it’s a case of ‘so far, so good.”
----With assistance from Maryam Nemazee in London. Editors: Chris Jasper, Kenneth Wong.
To contact the reporter on this story: Steven Rothwell in London at srothwell@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
