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Virgin warns of unsustainable yields

PRESS RELEASE

August 29, 2014: Virgin Atlantic Cargo saw tonnage rise 1% in the first six months of 2014 to 111,196 tonnes and a 3% increase in its load factor to 76% network-wide.

The increases were achieved despite a 3% reduction in the airline's cargo capacity in the six months to the end of June. However, overcapacity in the industry on major routes continued to suppress yields.

John Lloyd, Director of Cargo, said: "In terms of revenue, we are slightly ahead of our target for the year but the level of capacity some airlines are bringing onto the main markets is driving yields down to a level that will be unsustainable for many operators. This needs to be seen as a warning message for the industry."

Yields in the first half of the year were flat in the Europe, Middle East and Africa region as well as in Asia Pacific. The drive for all-in ULD rates in the American market and increased customer buying power due to excess market capacity meant this was the market most impacted by falling yields.

Highlights for Virgin Atlantic in the first six months included a 4% increase in tonnage on its flights from the Americas and the consistency of its year-on-year tonnage levels out of Asia Pacific despite a 6% reduction in capacity from the region, largely due to the end of the airline's Hong Kong-Sydney route in May. Virgin Atlantic's partnership with Virgin Australia continued to perform strongly with a 20% increase in tonnage and a 9% revenue gain. Cargo capacity on Virgin Australia's flights from Los Angeles, which is marketed by Virgin Atlantic, was fully sold out throughout the first half of the year.

"We have a good yield position in the market compared to many of our competitors and have done well considering how our network is proportioned with a high percentage of transatlantic operations," John added.

As part of its transatlantic joint venture with Delta Air Lines, Virgin Atlantic will begin a daily Airbus A330-300 service from London Heathrow direct to Atlanta Hartsfield-Jackson International Airport from October 26. Following analysis of the route, Virgin is "confident we will get good load factors and it will be a profitable route for us," he continued.

Cost efficiencies continue to be achieved as a result of the co-location of Virgin Atlantic and Delta cargo handling operations. In the first half of 2014, Orlando and Miami became the latest stations where the two airlines now share the same handling facilities, following similar moves in New York JFK and Boston last year.

In April, Virgin Atlantic Cargo reported a healthy turnover of £225.3m for 2013, exceeding expectations in a challenging global market. Last year saw the airline achieve the highest ever average cargo load factor in its 30-year history of 76%, up 6% year-on- year and well ahead of the industry average. Tonnage rose 5% to 224,500 tonnes for the year.

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