Virgin Atlantic’s 9,000 staff face a pay freeze after being warned to brace themselves for deeper losses at the airline.

Record annual losses of £135 million are expected, raising the prospect of job cuts, the Sunday Times reported.

An internal memo from new chief executive Craig Kreeger seen by the newspaper said the airline’s financial performance is “well behind where we anticipated” following a £80.2 million deficit last year.

The airline confirmed the detail of the memo in which Kreeger imposes an immediate pay freeze and initiated a broad-based cost cutting plan. Virgin Atlantic said the UK airline industry had faced “continued challenges over the past year”.

Plans to increase long-haul revenues by £50 million and make savings of £40 million would not be enough to get the airline back into profitability, said Kreeger.

“The 2012-13 financial airline performance will be a significant loss. Two years of significant cash losses have depleted our resources and decreased our ability to invest,” he said.

This meant the carrier would have to make “some tough calls”.

“One of those decisions is to recognise and communicate the reality that we cannot afford any pay increases this year. It is not ideal that this is the first big decision I have to take,” he added.

Virgin Atlantic faces higher fuel costs and greater competition on transatlantic routes from the British Airways/American Airlines joint business.

The airline has responded by forging its own partnership on the North Atlantic with Delta Air Lines becoming a 49% shareholder and creating its own UK domestic arm to feed traffic onto long-haul services from Heathrow. More fuel efficient aircraft are also being introduced to the fleet.

“These improvements will result in considerable financial savings,” the carrier said. “The airline has also made the decision to suspend salary increases for this financial year.”