You can’t mothball an airline. The fixed costs are too high, and Virgin Atlantic is proof.
The company was losing money even before it was forced to ground aircraft. It has been burning through cash ever since and is now cutting its overheads to survive.
Virgin is laying-off one third of its workforce, offloading 737s and pulling out of Gatwick Airport where it has operated since it was launched by Sir Richard Branson in 1984.
Of the 3,150 proposed redundancies, 2,000 are pilots and cabin crew.
These measures should save the business more than £200 million pounds a year but, even then, the airline isn’t out of the woods.
Virgin assumes that borders will reopen and flying will resume by the end of the summer but it will be 2023 before ticket sales recover to pre-crisis levels.
- ITV News Business Editor Joel Hills provides update on Virgin Atlantic's job cuts
The airline needs £500 million of direct funding to see it through but, until now, no one has been brave enough to stump that up. The hope is that by shrinking the business down it will be easier to attract investors.
Virgin asked the government for emergency funding in March but was told that the taxpayer was only willing to a lender of last resort.
We’re not quite there yet but Sir Richard Branson, who owns a 51% stake in the company, has put in as much as he says he’s willing and able to. Virgin probably has no more than a few months to come up with a solution.
The spread of the coronavirus is causing havoc across aviation. Airlines and airports don’t know when restrictions will lift or whether people will even want to fly when they do.
In the last week British Airways, Ryanair and now Virgin Atlantic have collectively announced plans to lay off 18,000 staff, despite having used the government’s Job Retention Scheme.
The airlines argue the scale of job losses would have been even higher had the scheme not existed and warn of more redundancies if support is scaled back beyond the end of June.
The Unite union is outraged and is challenging BA in court. The head of the pilots union, BALPA, Brian Strutton accuses the government of “sitting on its hands while aviation plunges further towards a death spiral”.
The International Air Transport Association, which represents airlines all over the world says airlines would find it impossible to operate profitably if they have to enforce social distancing.
IATA calculates that only four of 122 airlines could break even if they had to fly with the middle seat empty.