UK air capacity will not return to 2007 levels “any time soon” and fares will have to rise, Virgin Atlantic has warned.
The carrier’s chief commercial and financial officer Julie Southern told the Guild of Travel Management Companies (GTMC) conference: “There were ridiculous prices in the market last year. This year we will be arresting that.
“We have to wean people off the idea they can get improved product and reduced prices. It is not economically sustainable.”
She added: “The industry has seen an extraordinary downturn and Virgin is much smaller than a year ago. We took out capacity on a lot of routes and it is not coming back any time soon.
“We are not optimistic about how long it will take. We expect it to be 2012-13 before the world returns to normal demand levels. But we need to question whether demand will look the same.”
Virgin Atlantic has 14% fewer seats and 1,200 fewer staff than a year ago.
“The UK economy has faired much worse than other areas,” added Southern. “There is a huge way to go to get to sustained profit levels. Airlines are rebuilding revenue by offering fewer seats at more sensible prices.”
However, the challenges on costs remain enormous. Fuel comprises 35% to 40% of the carrier’s costs and Southern said: “We expect oil to be a much higher price this year than last.”
The high value of the dollar, in which oil is priced, makes matters worse. “A run on sterling [lowering the value of the pound] would be bad for us,” she said.
Agents will feel the tightening, Southern warned. “We are going to be much stricter about duplicate bookings sitting in the system and bookings remaining unticketed,” she said.
Meanwhile, Southern held out no hope of a cut in APD on fares. “We don’t believe there is any prospect of persuading the government not to collect that revenue. But we need to discuss how it is applied.”