Virgin Express posts big fall in profits

Virgin Express, the Brussels-based no-frills airline which is part-owned by Sir Richard Branson's Virgin empire, yesterday reported a 96 per cent drop in second-quarter profits, providing further evidence of the financial crisis gripping the aviation industry.

Net profit dived to €117,000 (£81,000) for the quarter from €2.9m a year ago, though operating profits doubled. Total revenues fell 6 per cent to €58.16m.

The airline, which operates 13 planes connecting Brussels with 16 European destinations, lost money on its revaluation of assets, dollar hedging and the conversion of a dollar-denominated loan into euros.

Despite reducing its cost per available seat per kilometre by 19 per cent to 5.07 cents, and raising its occupancy rate to 83 per cent in the second quarter - from 79 per cent a year ago - the airline signalled that it may soon be forced to raise ticket prices.

"The outcome for year-end will depend significantly on the extent of price discounting in the market place," the executive chairman, David Hoare, said.

The airline added that it did not expect full-service carriers to keep pricing tickets below costs for long, saying that they would be obliged to reduce their excess capacity. However, the company was able to become virtually debt free this year after raising €35m to pay off a loan owed to the main Virgin Group, which owns 89 per cent of the airline. It is also currently in talks to set up a €50m working capital facility.

A spokesman for the airline said it expected to make a profit in the third quarter, but did not expect those to wipe out a significant loss in the first quarter. "I think we'll still have a loss for the full year," Yves Panneels, a spokesman, said.

The no-frills airline industry has been hit hard over the past 18 months after passenger numbers dropped significantly amid fears of global terrorism and the Sars epidemic, and traditional carriers began cutting their ticket prices.

In July, MEPs also voted to pass a law allowing passengers whose flights are cancelled or delayed legal entitlement to have the entire cost of their tickets reimbursed, up to £415 each.

Earlier in the year, the airline was forced to drop plans to open hubs in Paris and Cologne, citing the need to "re-focus management attention" on consolidating its position in Brussels.

Shares in Virgin Express, which are listed in Brussels, closed flat at €1.50.