Game on for Virgin Australia
Virgin Australia annual general meeting signalled Game On to its rivals as the first phase of the airline’s transformation comes to close and the second phase – certain to be of ongoing concern to domestic and international competitors – begins.
Posting solid growth across all key commercial and financial indicators, Virgin Australia chairman Neil Chatfield described the results as “as exceeding our own high expectations in transforming the company.”
Reflecting further on the airline’s successes in the last 12 months, Chatfield said Virgin Australia had established a global network through its four alliance partners Air New Zealand, Delta, Etihad and Singapore Airlines. He also noted the development and launch of business class for the domestic market, expansion of its regional network and relaunching international operations under the Virgin Australia brand.
These efforts have combined to increase the group’s underlying profit before tax by $149.1 million to $82.5 million during 2011/12, based on strong revenue growth of 20 per cent to $3.919 billion. Yield, which improved 12 per cent across the group, shows the airline’s early successes in capturing a growing proportion of business travellers.
Chatfield said: “Our progress implementing the Game Change Program strategy has seen the business make significant inroads in diversifying earnings, as we now have a strong presence in both leisure and corporate markets.”
The growth of higher-yielding traffic has been one of the stand-out areas of success in the last 12 months for Virgin Australia. Of course it also presents the greatest threat to Qantas’s domestic viability.
Virgin Australia’s CEO John Borghetti said: “We have surpassed our target of 20 per cent of domestic revenue from the corporate and government market, seen strong growth of Velocity frequent flyer from 2.5 million members in 2011 to 3.2 million in 2012, and have driven a 113 per cent increase in high yield fares driven by corporate penetration and changes to fare class structure, network and product offering.”
Now it is Game On for Virgin Australia. It is bringing forward the next phase by a year.
With the intent of being “efficient and nimble” as the airline continues to grow, Game On – as the successor to Game Change – will deliver productivity gains of $400 million over three years. It also targets five million Velocity members by the end of 2015 and further enhancement to products and services.
Significantly, however, Game On relies on the continued use of Virgin Australia’s “global virtual network” to increase interline and codeshare revenue to around $150 million each year by the end of the 2015 financial year. This ambition will, at least in part, be supported by the airline’s move to a Sabre reservations system which will give better exposure of the airline’s products to retail and wholesale distributors worldwide.
Despite seeing the last 12 months’ performance as having created a solid foundation from which to execute the remainder of its five-year strategic plan, Chatfield was cautious about the ongoing global economic conditions and the effect it will continue to have on demand.
“While Virgin Australia currently anticipates an improved underlying profit before tax in financial year 2013 compared to financial year 2012 (excluding the impact of the proposed Skywest and Tiger acquisitions), the uncertainty in economic conditions and the particularly competitive environment precludes us from providing a profit guidance for the year.”
Also announced today was an extension of Virgin Australia’s codeshare agreement with Singapore Airlines to cover more destinations in Australia, Asia, Europe and the UK.
In Australia, Singapore Airlines will now codeshare on all Virgin Australia domestic flights to 32 cities. Subject to regulatory approval the agreement will be extended early in 2013 to include trans-Tasman services to Dunedin, Queenstown and Wellington.
Also in the first quarter Virgin Australia will codeshare on all Singapore Airlines’ east-coast flights to Singapore and beyond to 64 destinations in Asia and 12 in Europe.