U.S. Markets open in 7 hrs 48 mins

Virgin Atlantic Seeks To Expand Cargo Footprint

FreightWaves

Virgin Atlantic is expanding network and is challenging slot allocations

Virgin Atlantic has released details of its planned long-haul and new short-haul route network, as the airline calls for an end to a "stranglehold" held by International Airlines Group (IAG), parent of British Airways, Aer Lingus and Iberia as well as several smaller carriers, at London Heathrow, the U.K.'s only hub airport and main air cargo gateway.

Future Virgin Atlantic route maps show the intention to serve up to 84 new destinations in the U.K., Europe and across the globe when the third Heathrow runway is complete, a four-fold increase on its 19 long-haul destinations from Heathrow in 2020. Ambitious plans to become the U.K.'s second flag carrier hinge on a forthcoming government decision on slot allocation at an expanded Heathrow.

Heathrow currently handles over 70% of the U.K.'s air cargo trade, totalling 1.7 million tons annually, a figure projected to grow to three million tons by 2040. By value, over 30% of U.K. trade moves through the airport, worth more than £100 billion ($123 billion) annually, with 95% carried in the bellies of passenger aircraft.  

IAG currently dominates Heathrow, controlling more than half of total capacity. IAG holds more than 55% of all the take-off and landing slots at Heathrow, with no other airline holding more than 5% of the remaining slots. IAG and joint venture partners operate 77 monopoly routes, which forces customers to fly on their aircraft as no rival direct services exist. As part of ambitious expansion plans, Virgin Atlantic intends to compete on 25 routes that IAG currently has a monopoly. 

Rules governing the allocation of new slots are being reviewed by the government. Virgin Atlantic warns that the new take-off and landing slots must be allocated in a way that enables development of a second flag carrier with the necessary scale to compete effectively with IAG. 

And it's not just Heathrow; capacity at London Gatwick, the second-largest airport in the U.K. is constrained. With the recent demise of Thomas Cook Group, a major tour operator and scheduled airline, Virgin Atlantic, London Luton Airport-based low-cost carrier EasyJet, IAG, German rival tour operator Tui Group and Budapest-based low-cost carrier Wizz Air reportedly are looking at Cook's slots at Gatwick, which certainly will be valued in tens of millions of pounds.

The current year has seen significant growth for Virgin Atlantic, which includes the announcement of three new routes from Heathrow to Tel Aviv, Mumbai and São Paulo. Virgin Atlantic is a major partner in the Connect Airways consortium that recently acquired Flybe and will launch its expanded joint venture with Air France, KLM and Delta by the end of the year. The latest addition to the Virgin Atlantic fleet, the Airbus A350, took to the skies in September and follows the carrier's announcement in June that it will purchase 14 A330-900neo aircraft.

As part of expansion plans, Virgin Atlantic plans to use the purchase of U.K.-based regional airline Flybe as a platform for acquiring additional U.K. carriers to feed into long-haul operations. Flybe was acquired earlier this year with a fire-sale takeover price of £2.2 million ($2.8 million) by Connect Airways, a consortium led by Virgin Atlantic, after the airline struggled with rising fuel costs, currency volatility and political uncertainty. The takeover was approved by the European Commission on July 5.

In addition to a 30% stake in Flybe held by Virgin Atlantic Ltd., New York-based private equity firm Cyrus Capital Partners holds 40% of the new venture, with Aer Lingus regional operator Stobart Group holding a 30% stake. Cyprus Capital Partners previously held a 28% stake in Virgin America, with Virgin Group Holdings owning a 30% stake, before the carrier was sold in 2016 to Alaska Airlines.

The £2.2 million value of the airline represents a significant fall from grace for a company worth more than £300 million less than five years ago. Virgin Atlantic has been struggling to feed long-haul flights with passengers from U.K. cities other than London.

Flybe has flights from more than a dozen U.K. cities and spans European destinations, such as Portugal and Poland. In Ireland, Flyby has routes from Belfast, Cork, Dublin and Knock. Virgin Atlantic previously attempted to enter the U.K. domestic market with a carrier branded as Little Red but closed the operation in 2015.

Virgin Atlantic's first flight to Tel Aviv touched down at Ben Gurion International Airport on September 25 with a full cargo payload as the airline continues to extend its international route network. The new daily Airbus A330-300 flights offer 20 tons of cargo capacity to and from London Heathrow, as well as connections with Virgin Atlantic's network serving major gateways in the U.S., Israel's biggest trading partner. 

Virgin Atlantic Cargo is attempting to gain a healthy share of the market, which produces high volumes of pharmaceutical, e-commerce, express and valuable shipments as well as high-tech products, fresh produce and other general cargo. Virgin Atlantic's cargo capacity ex-Israel is being marketed by its GSSA (general sales and service agent) partner WTA Aviation, while Swissport is providing cargo handling services in Tel Aviv. 

In October, Virgin Atlantic is scheduled to further expand its long-haul cargo network when the carrier begins daily London-Mumbai services and, in early 2020, the airline will begin its first operation in South America with a new daily London-Sao Paulo route.

Image Sourced from Pixabay

See more from Benzinga

© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.