Virgin starts its domestic services from Heathrow, to Manchester, Edinburgh and Aberdeen

By Telegraph Staff

Mr Kreeger has blamed the losses on ballooning fuel costs and increased competition on transatlantic services.

Kreeger has imposed an immediate pay freeze across the whole business and initiated a broad-based cost-cutting plan, according to the memo, which has been seen by The Sunday Times.

While the memo did not mention specific figures, sources close to the airline told the paper that the latest draft of the full-year results shows a deficit of £135m. The final figure may be slightly lower, however, owing to some exceptional one-off gains that have yet to be added to the accounts.

Kreeger said in the memo: “The 2012-13 financial year airline performance will be a significant loss … Two years of significant cash losses have depleted our resources and decreased our ability to invest.”

He also warned that the airline would “have to make some tough calls”.

“One of those decisions is to recognise and communicate the reality that we cannot afford any pay increases this year. It is not ideal that this is the first big decision I have to take.”

Kreeger told staff that the company plans to increase long-haul revenues by £50m. He also wants to cut costs, which could improve the struggling airline’s position by a further £40m.

“It results in about £90m improvement — significant but not enough to get us back to profitability,” he said.

Virgin Atlantic confirmed the details in the internal memo to The Sunday Tomes. The company said that the British airline industry has faced “continued challenges over the past year”.

It added that it was introducing newer, more fuel-efficient planes, and aimed to increase revenues through the introduction of new domestic flights and a transatlantic joint venture with Delta.

“These improvements will result in considerable financial savings,” it said. “The airline has also made the decision to suspend salary increases for this financial year.”

In January Virgin Atlantic announced that Craig Kreeger, senior vice-president for customers at American Airlines, would succeed Steve Ridgway as chief executive of Virgin Atlantic on February 1.

His insight into the workings of a competitor will be crucial to Virgin as it embarks upon its own transatlantic partnership with US giant Delta Air Lines, which last year agreed to pay $360m (£224m) for a 49pc stake in Virgin and form a new transatlantic partnership to rival BA’s tie-up with American.

Virgin’s deal with Delta, which is still waiting for regulatory approval, sparked speculation that the US giant could ditch the airline brand Sir Richard Branson created in 1984 – an accusation that was vigorously denied.

If approved, as expected, the deal will mark a new chapter in the fierce rivalry between BA and Virgin.

Mr Kreeger will also oversee the launch of Virgin’s first UK domestic flights, when it starts services between Heathrow and Manchester in March.

http://www.telegraph.co.uk/finance/newsbysector/transport/9920468/Bransons-Virgin-Atlantic-faces-record-loss.html

Craig Kreeger, who took the top job on February 1, said the new service, flying from Manchester, Aberdeen and Edinburgh into London Heathrow, will be a key part of the wider Virgin Atlantic business.

“It really is about getting passengers down to Heathrow and connecting on to our long haul networks. If we didn’t think they’d made sense, there’s no reason for us to be flying them,” he said.

Virgin last year acquired 12 pairs of take-off and landing slots at Heathrow that British Airways was forced to give up after buying BMI.

Asked why he thought Little Red would succeed where BMI had not, he said: “We’ve done this in a way that will work. BMI obviously struggled but they didn’t have the long-haul network to connect to.

“So it’s a completely different proposition from a business case standpoint to create a short haul network that feeds a long haul network the size of ours which gives the capability for it to be successful.

He denied industry suggestions that Virgin only bid for the slots to block rivals from acquiring them, noting that the Scottish slots in particular can only be used for those specific routes.

He was speaking ahead of an ‘inaugural’ launch flight today on which he and Virgin founder Sir Richard Branson will fly from Heathrow to Edinburgh.

Once in the Scottish capital, the pair are expected to be joined by Nicola Sturgeon, Scotland’s deputy first minister, to discuss the economic benefits of the new services.

The actual first flights began between Manchester and London on Easter Sunday, with Edinburgh joining the network on Friday, and the Aberdeen route opening tomorrow. (April 9)

The Little Red planes are A320s which have been ‘wet leased’ from Aer Lingus, the Irish flag carrier. “That means Aer Lingus is actually flying the plane on our behalf. So they’re employing the cockpit and the cabin crew and operating the flight with our livery and our product,” he said.

Mr Kreeger went on to say that such a lease is cheaper to run given Virgin has no experience of operating narrow-bodied planes. All the staff are however trained by Virgin, with the new chief executive describing it as “a single class, short haul flight, with a Virgin style.”

“It’s a way of offering the virgin product to a different set of customers who have not had access to that before,” he said.

He also dismissed any suggestion that Virgin Atlantic was placing itself in competition with Virgin Trains, which runs services between London, Manchester and Edinburgh, and is part-owned by Sir Richard.

“We’re not viewing that as a primary competitor on this route. We obviously think this is about offering our entire network to the people of say, Manchester, and Manchester to the rest of our network.

“Yes we will carry some people between Manchester and Heathrow, airport to airport, if that’s convenient for them. But the bigger opportunity for us is Manchester to the rest of the world, and therefore BA is our primary competitor.”

http://www.telegraph.co.uk/finance/newsbysector/transport/9977384/Virgin-CEO-little-Reds-long-haul-links-should-help-it-fly.html

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