Virgin Atlantic Plans Job Cuts After $1.6 Billion Rescue
Virgin Atlantic Airways Ltd. will eliminate 1,150 more jobs to preserve its rescue funding as demand for long-distance flights remains depressed and Britain winds down its worker furlough program.
The cuts take the number of posts lost since the start of the Covid-19 crisis to 4,700, or about 45% of the workforce. Hundreds of cabin crew will also be put on reserve, so that the overall staff will be about half its pre-virus size.
“That is the stark reality that the aviation industry as a whole now faces,” Chief Executive Officer Shai Weiss said in an interview with Bloomberg TV on Friday. “Our job is always to protect as many jobs as we can, but ensure the survival of Virgin Atlantic.”
The move was announced less than 24 hours after Virgin Atlantic secured final legal approval for a 1.2 billion-pound ($1.6 billion) rescue package that the Crawley, England-based carrier said was vital for it to survive the pandemic. The deal includes funds from U.S. hedge fund Davidson Kempner Capital Management and Richard Branson, the airline’s billionaire founder.
While European short-haul flying has begun to recover with the end of national lockdowns, the long-haul routes in which Virgin Atlantic specializes remain depressed by continuing travel curbs and a lack of demand. Cross-border traffic is down 92% globally compared with a year ago, according to the International Air Transport Association.
Weiss said that Virgin Atlantic expects to operate only a quarter of its usual capacity during the fourth quarter and that revenue next year could be half of 2019 levels. The carrier is projecting a return to profit in 2022, while calling the goal “challenging.”
The new funding means Virgin Atlantic has sufficient reserves to see it through the rest of this year and into next without a significant rebound in demand. The CEO said he’s assuming that the trans-Atlantic flights that represent 70% of its business will recover by next summer.
“If there’s still no pick-up then, it’s not just a problem for Virgin Atlantic, it’s a problem for the entire industry and for the British economy,” he said.
Weiss backed calls from across U.K. aviation for the introduction of coronavirus tests as an alternative to a 14-day self-isolation requirement for arrivals from most countries. Until rapid testing is ready Britain should look at allowing regional and even city-based travel corridors for the U.S., as it has with individual European nations and even some Greek islands, he said.
The second round of job cuts is also a response to the winding down of Britain’s state furlough program, which has supported about 4,000 Virgin workers. Companies are required to contribute to the cost of paying laid off staff from Sept. 1, and the scheme is set to close completely next month.
Weiss said the company will finance its own furlough plan while waiting on demand to recover, allowing it to retain 600 more cabin crew who might otherwise lose their jobs in a pool for return when needed.
The carrier started the year with a workforce of about 10,000 people, but saw demand slump to a quarter of 2019 levels in the first half as the virus grounded flights. After being refused a state bailout, it eliminated 3,150 positions through compulsory cuts and a further 400 via voluntary severance as it worked to secure the private funding.
Virgin Atlantic is shrinking its fleet by 20%, a figure Weiss said will still allow it to operate the same number of flight sectors as it recasts the network. The airline is also shuttering a base at London Gatwick airport, and the CEO said there’s no prospect of returning even next summer, though operating slots won’t be sold and the search is on for someone to “babysit” them.
In pursuit of the few passengers who want to fly long-haul, the company announced its first routes to Pakistan after safety bans on that country’s flag-carrier created a gap in the market. While Pakistan is subject to the U.K. quarantine, the market chiefly comprises people visiting friends and family for whom the requirement is less of an issue, Weiss said.
Virgin is scouting for other nations that fit the same model, but with any new services having to immediately return cash the scope is limited, he said.
Timeline of Virgin Atlantic rescue:
- March 15: CEO Weiss seeks 7.5 billion-pound U.K. aviation industry bailout
- March 24: U.K. rules out targeted sector aid, denting hopes of a state-led package
- April 20: Branson issues a plea for state aid, saying his airlines won’t survive otherwise. He pledges to mortgage his Caribbean island and denies moving there to avoid taxes
- May 1: Virgin Galactic signals some of its owners may sell shares. Branson eventually raises more than $450 million
- May 5: Virgin Atlantic says it will eliminate more than 3,000 jobs and shutter its Gatwick hub
- July 14: Virgin Atlantic secures a 1.2 billion-pound rescue anchored by Branson and Davidson Kempner. A court will oversee the restructuring under a new U.K. process
- Aug. 4: Virgin files for Chapter 15 bankruptcy in the U.S. to freeze creditors and recognize the U.K. proceeding
- Aug. 25: All four Virgin Atlantic creditor groups support the restructuring plan
- Sept. 2: U.K. court approves the plan; U.S. bankruptcy court follows a day later
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