Virgin chief "cautious" about recovery

The chief financial officer of one of Europe's leading airlines said she does not expect the economy to fully recover until at least 2012.

Julie Southern of Virgin Atlantic said she was "cautious" about planning for the future, and "glass half empty" when thinking about the potential bounce-back of the UK economy.

She was talking to delegates at the Guild of Travel Management Companies' annual overseas conference in Hong Kong about the economics of aviation.

Southern acknowledged there had been a small improvement in market conditions since the depths of the recession last year. But she warned against any excitement surrounding a return to pre-2009 levels of business.

"There has been a global recession, but when you look at the UK's figures you see we have faired much worse than many other areas," she said.

"And although we are seeing air travel, and particularly freight, come back, it has only just taken us back to the levels seen in 2007, the last time the industry was profitable.

"So there's a huge way to go to get the industry back to some sort of sustained profit levels. And we're not very optimistic about how quickly that will happen."

She said Virgin had calculated that the global economy's "normal demand levels" would not return before 2012/13.

"And even when it does return, we're going to have to question what normal looks like," she said.

"Will customers' expectations have changed? There's been quite a lot of talk about people wanting products that are locally sourced, where they understand the provenance of products a bit more.

"But people are questioning luxury and whether they want to be doing conspicuous consumption, or whether they still want luxury but don't want to be seen to be really spoiling themselves. This is quite a big question for airlines, particularly long haul."

Southern said airlines had to be thinking long and hard about what kind of products they had on their aircraft, and should be focused on what will positively resonate with customers.

She added that investment in product should not stop in times of austerity.

"You cannot cost cut your way to success, so getting revenue right is critical.

"Last year we were dynamic in the way we dealt with the market. We cut lots of deals and changed our targets to make sure we were getting a good share of the market. But we're in a different world now.

"We are a 15% smaller airline and that capacity is not going to come back anytime soon."

She said that in order for airlines to return to profitability, capacity would have to stay out of the market and that airlines would have to start selling seats at "sensible" prices.

"Last year there was never a better time to be a consumer, there were some ridiculous deals and that's not good for anyone in the industry."