BA and Virgin Atlantic Face Slowdown in US Demand

Virgin Atlantic has signalled a slowdown in demand for transatlantic travel, which has resulted in a decline in the share price of rival British Airways’ owner, IAG. Both UK long-haul carriers rely heavily on profitable routes between London and North America to bolster their earnings. Analysts have expressed concern that growing economic uncertainty and increasing tensions between the US and Europe could begin to impact their performance.

Despite announcing a return to profitability for the first time since the Covid pandemic in its full year results for 2024, Virgin Atlantic’s chief financial officer, Oli Byers, noted recent trends indicating a decline in bookings for the second quarter, which is typically a peak travel period. This diminished demand appears to correlate with general consumer uncertainty that has surfaced in recent weeks.

In early 2025, Virgin Atlantic’s trading began strong, leading to what the airline’s chief executive, Shai Weiss, described as a turning point following a transformative year. To support its growth strategy, the airline is introducing new transatlantic routes to Toronto and Cancún, in addition to opening a new Virgin clubhouse in Los Angeles. However, these plans are now overshadowed by the current dip in demand.

Following Byers’ comments, IAG shares experienced a significant downturn, closing down 6.6%. The airline reported a robust annual profit of £2.2 billion, driven largely by a flourishing transatlantic market. However, following a recent high in early February, its stock market value has since plummeted by 30%, fueled by concerns over a weakening dollar and its potential effects on high-spending American customers who book premium seats.

The overarching theme of faltering economic confidence in the US has prompted various airlines to warn of decreased domestic demand, a trend that may extend to international routes. BA’s US partner in its transatlantic alliance, American Airlines, has seen its share price spiral down by 40% over the past two months.

Barclays’ analyst Andrew Lobbenberg has raised alarms about IAG’s vulnerability, advising investors to sell rather than buy its shares, and citing heavy reliance on the transatlantic routes for profits as a significant risk. Tariffs imposed on international trade, particularly under the Trump administration, have exacerbated market volatility, with the potential to negatively affect affluent consumers’ travel confidence.

Recent data from aviation analytics company OAG indicates a staggering 70% drop in advance passenger bookings on Canada-US routes compared to the previous year. Stricter border policies in the US add to these challenges, as evidenced by the UK Foreign Office revising its travel advice amid concerns over visa issues.

Despite these challenges, Virgin Atlantic reported a pre-tax profit of £20 million for the year, recovering from a loss of £139 million the previous year. Revenue reached £3.3 billion, up £183 million from the year prior, aided by an 8% increase in seat capacity and sustained demand for business and premium leisure travel.

The upcoming months will be crucial for both Virgin Atlantic and IAG as they navigate a landscape increasingly influenced by economic uncertainties and shifts in consumer behaviour.