Annual report 2015 Virgin Atlantic annual report 2015 2 Our purpose To embrace Chief theExecutive human spirit Officer’s Review:and let it fly Recovery CompleteOur ambition In To2014 be the airline most loved by our customers We will achieve this by being uniquely Virgin Atlantic Safety TheThis recovery safety and security phase has been ofsuccessfully our customers and completed in our2014 with people Virgin is, and always Atlantic returning a pre-exceptional profitwill beforebe, taxour top priority of £14m Virgin Atlantic annual report 2015 3 Our routes Glasgow1 1 Belfast Manchester London Heathrow / Gatwick 1 Detroit Chicago Boston New York / Newark San Francisco Las Vegas Washington Los Angeles Atlanta Orlando Shanghai Miami Cancun Delhi Havana Antigua Dubai Hong Kong St. Lucia Montego Bay Barbados Grenada Tobago Lagos Johannesburg 1 2016 Seasonal Summer route Virgin Atlantic annual report 2015 4 2015 Highlights 5,939,000 Customers We served 5,939,000 customers on 26,739 flights to 29 non-stop destinations Our focus is always for the customer, NPS Score with flair We saw our customer satisfaction and net promoter score continue to climb Fleet We have continued to modernise our fleet, taking delivery of a further seven new, fuel efficient Boeing 787-9 aircraft Network We successfully launched a new route to Detroit and increased frequencies to other US destinations, so that approximately 70% of our flights now serve the transatlantic market 550 We have created more connecting opportunities to US destinations with more than 550 codeshare routes through our transatlantic joint venture with Delta Air Lines, Inc. (Delta), and 392,000 connecting customers 325,000 We arranged 325,000 Virgin Holidays experiences for customers to visit over 40 destinations Virgin Atlantic annual report 2015 5 2015 Highlights continued Loved for service People Throughout the year, 3,200 of our crew undertook We know our the ‘Me and My Customer’ training people are our biggest 100% differentiator Virgin Holidays moved closer to its customers by becoming a and make us 100% direct sale business unique £1.2m Together, Virgin Atlantic and the Virgin Atlantic Foundation distributed the equivalent of over £1.2m in money, time and donations-in-kind to charity, of which our people raised £275,000 for charity through fund raising activities and volunteering Waste 97% of our total UK ground waste is diverted from landfill. 65% is recycled, 30% is used to generate energy and 2% is composted. We have also reduced our total UK ground waste by 33% over the last eight years Noise We have reduced noise output per aircraft movement by 2.24dB to 95.32dB compared to 2012, and continue to work towards our target of reducing our noise output per aircraft movement by 6dB in 2020 as compared to 2012 Virgin Atlantic annual report 2015 6 2015 Highlights continued £22.5m Virgin Atlantic profit before tax and exceptional items of £22.5m, a £10.1m year on year1 improvement Financial Building on our return to 55% The transatlantic joint venture with Delta continues to strengthen, profitability with the contribution to our profits increasing by 55% year on year £196m Airline operating cost before exceptional items down £196m year on year, driven mainly by the reduction in fuel cost of £191m 85% Virgin Holidays’ profit before tax and exceptional items of £10.9m, a £5.0m (85%) year on year improvement £220m The completion of a landmark senior secured note bond financing transaction of £220m, Virgin Atlantic’s maiden capital markets transaction, and a first financing of its kind in Europe 6.8% Return on Invested Capital2 of 6.8% for 2015 1. Comparatives with 2014 are with the amounts restated under IFRS and, with the exception of profit before tax and exceptional items, are made on a constant currency basis 2. Return on Invested Capital (ROIC) has been calculated as EBIT divided by net assets deployed, less net debt. Adjustments are made to EBIT and net assets to account for those aircraft operated under operating leases and mark-to-market movements on open contracts Virgin Atlantic annual report 2015 7 Contents Our purpose, ambition and safety mission statement 2 Our routes 3 2015 Highlights 4 Contents 7 Directors’ report Strategic report Chairman’s Review 8 Chief Executive Officer’s Review 10 Chief Financial Officer’s Review 14 Key Performance Indicators 18 Principal Risks And Uncertainties 22 Change Is In The Air – Our Sustainable Business Programme 25 Governance Board Of Directors 27 Group Company Secretary 29 Committees Of The Board 30 Safety Governance 30 Joint Venture Steering Committee 30 Directors’ Report 31 Directors’ responsibilities statement 33 Independent auditor’s report 34 Financial statements Consolidated Statement of Comprehensive Income 35 Consolidated Statement of Financial Position 36 Company Statement of Financial Position 37 Consolidated Statement of Changes in Equity 38 Company Statement of Changes in Equity 39 Consolidated Statement of Cash Flows 40 Notes 41 Corporate structure 97 Glossary 98 Virgin Atlantic annual report 2015 8 I am pleased to report that the Sustainable profitability Chairman’s Virgin Atlantic Group increased its profits The main objectives of the Plan to Win in the 2015 financial year, following its are to be consistently profitable through Review return to profitability in 2014. Our profit the economic cycles; to maintain an before tax and exceptional items3 for 2015 appropriate return on capital; and to have was £22.5m, compared to £12.4m for 2014 the most engaged and effective work (both results stated under IFRS, which force in the industry delivering the unique Our joint venture we adopted in 2015). Virgin Atlantic experience to customers. In 2015, we took a number of important steps with Delta on Since the end of 2014, the price of oil towards these goals. We strengthened the transatlantic routes has fallen by over 34%. This has been balance sheet with long-term financing, welcome. However, because we did invested considerable sums in capital has continued not anticipate this development, our programmes, technology and training customary hedging programmes have and development, including our Loved to produce restricted the immediate benefit we for Service initiative. We also reduced can pass on to customers. It is possible operating costs in a number of areas and excellent results that a lower price level will persist for in 2016 will move into a new headquarters some time, as there is a clear excess of facility which will give us a more flexible supply over demand, in the absence of working environment as well as reducing significant changes in extraction levels, or expenses. The new building has been rated of geopolitical events, which might restrict as ‘excellent’ under BREEAM 2011 and supply. Our objectives are to remain as meets the EPC ‘B’ standard. competitive as possible by passing on the benefit of reducing costs to customers, while remaining appropriately prudent in terms of managing the risk of future price increases. We will also continue to take every opportunity we have to reduce consumption, by investing in new generation aircraft and engines. Over the long term, in the absence of alternative energy sources, reduced consumption is the most effective Los Angeles Clubhouse counter to price volatility. We made significant investments in Our joint venture with Delta on customer service, introducing new menus, transatlantic routes has continued to on-board Wi-Fi and a new Clubhouse in produce excellent results. In addition, Los Angeles. We took delivery of seven Virgin Holidays has achieved a significant more Boeing 787-9 aircraft, so we now increase in profits, producing a profit have nine out of our total order of 17. We before tax and exceptional items of are on track to have the most modern £10.9m (2014: £5.9m). and efficient fleet across the Atlantic. This will be supported by the introduction In 2015, we made great progress in in 2016 of our new passenger service implementing our long-term Plan to Win. system, Air4. This is a vital project for While there remains a lot to be done, Virgin Atlantic, and in 2015 we made good we are confident that the foundations progress in the development phase. of a sound and consistently profitable business are being built. To achieve the Plan to Win we must reach higher levels of operating efficiency, so that our non-fuel costs are properly competitive. We have undertaken a root and branch exercise to identify ways of doing this. We are creating centres of excellence, automating processes and eliminating overlaps and duplication in our departments. As a result we have reduced managerial and support staff numbers by approximately 500. The efficiency programme will deliver £30m of recurring annual benefit from 2016, which we will invest in our customer service and our people. Virgin Atlantic annual report 2015 9 Chairman’s Review continued On behalf of the Board, I give heartfelt thanks to all our people at Virgin Atlantic for their loyalty, commitment and very hard work during 2015 Virgin Atlantic and Delta Air lines Shareholder returns Colleagues Our balance sheet structure has benefited During 2015, there were a number of from the successful completion of a large changes to our Board and Executive long-term financing. This raised proceeds Management Team. Perry Cantarutti of £220m through a securitisation format stepped down as a non-executive which is the first of its kind in Europe. We director and we thank him very much are investing the proceeds in purchasing for his contribution to our Board. We outright two of the Boeing 787-9 fleet. welcome his replacement, Nat Pieper, We will continue to re-balance our fleet and also Erik Varwijk, who has joined profile, by increasing our level of outright our senior executive team as EVP, ownership of aircraft.