Supply chain challenges, rising labor costs and the price of flying more sustainably will be felt keenly by Virgin Atlantic Airways this coming year, and passengers will foot the bill. CEO Shai Weiss also warned that higher inflation is here to stay.
“Inflationary costs, and containing them, is a major risk not just for an airline but to everyone in the industry right now,” Weiss said. “I’m assuming we will need to pass some of it on in the form of prices.” He added that inflation is likely to persist for another year.
Speaking during a Bloomberg event on Tuesday, Weiss added that “all of us need to become more efficient.” However, Virgin Atlantic is a carrier that’s become as lean as possible during its fight for survival during the pandemic. It laid off 45 percent of its employees, reduced its cost base by more than $400 million, and secured a $1.6 billion rescue deal. Last month it added $530 million from both the Virgin Group and Delta Air Lines.
“We’ve gone further than any other airline to ensure we’re fit for purpose for the future, and future volatility,” Weiss said.
Agility will be essential in the coming year in the face of the Great Resignation too. The tight labor market means wages will rise in the fight for talent. Weiss said 4.5 million people quit their jobs in December alone. “That gives you the scale of the issue. It’s not going to go away in the next few months.”
The CEO was also quizzed on how the aviation industry could afford to deliver on its pledge to become greener.
Isabel Schnabel, a member of the executive board of the European Central Bank, has said the planned transition away from fossil fuels to a greener low-carbon economy “poses measurable upside risks to our baseline projection of inflation over the medium term.”
Weiss countered the argument by saying Virgin Atlantic had already made the required investments, with its Airbus A330neos joining its fleet this year. “They are 30-40 percent more efficient than the Boeing 747s and A340s that we have,” he said. Overall they would lead to a 30 percent reduction in fuel by 2030.
But he warned that scaling up the amount of sustainable aviation fuel, which is currently three to five times more expensive than conventional fuel, would also hit pockets. “That will come at a price,” Weiss said. “It’s not just the airlines that will have to foot the bill to fly on more sustainable fuel. It’s going to be shared by all stakeholders.”
David Rubenstein, co-founder of private equity firm the Carlyle Group, also issued a stark warning at the event that inflation would dog the global economy for some time. “It’s not as bad as the 1970s, but it’s not going to be two percent for a while. This is going to be with us for as long as we have Covid, and supply chain problems,” he said.
A Global Business Travel Association report in November predicted hotel prices would rise by 13 percent in 2022.