Virgin Express on probation

BELGIAN regulators came within a hair's breadth of grounding Virgin Express, the low-cost airline controlled by Richard Branson, last week.

The country's Civil Aviation Authority put the Brussels-based carrier on probation, by granting a three-month air operators' certificate rather than the usual one-to-two-year licence, after the company promised to tighten up its management and stop leasing "unregulated" planes and crews from Ireland.

After the demise last month of the Luton-based, no-frills airline Debonair, speculation mounted that Virgin Express would be the next casualty of the price wars between Ryanair, easyJet, Go and KLM's new Buzz.

Mr Branson, who owns 61 per cent of the company, sacked the American top management in the summer and brought in cost-cutter John Osborne from BA franchisee GB Airways as managing director.

"What I'd like to do is position the airline above the low-cost image but below the traditional scheduled carriers because that's what the Virgin name is: value for money and quality," said Mr Osborne. "Next summer, there will possibly be some limited growth but we need time to sit back and look at the business. We're not like Ryanair, where we're going to start 10 new destinations every year."

The new boss has promised to hack company costs and boost its flagging stocks. "The share price is at rock bottom," said Mr Osborne. "We want to consolidate and get our costs under control, become more efficient in how we operate, and get the stock price up. We've got a lot of investors who are not very happy at the moment."

The stock, quoted on Nasdaq and the Brussels exchange,was trading at $5.88 (pounds 3.65) on Friday, down from $11 in March. Soaring costs, the loss of a third of the company's pilots to rival carriers and a threat of grounding from the Belgian CAA have all contributed to its woes.

Third-quarter profits published a fortnight ago revealed that, while revenues were up 11.9 per cent at 225m euros (pounds 142m) in the nine months to the end of September, operating expenses were up 18.7 per cent.

Based on the improved revenue performance, investment bank Salomon Smith Barney was predicting full-year operating income of 8.38m euros this year for Virgin Express. "I'm not sure its going to be as high as that," said Mr Osborne, pointing out that he planned to make significant provisions for a heavy plane maintenance programme. "We may put our house in order this year so as to get a good result next year."