Tigerair Australia to switch from A320 to 737 over next three years

Tigerair Australia Boeing 737-800 VH-VOR operating the airline's inaugural flight Bali. (Tigerair Australia)
Expect to see more Boeing 737s in Tigerair Australia colours. (Tigerair Australia)

Virgin Australia says its low-cost unit Tigerair Australia will become an all Boeing 737 operator within three years as part of fleet simplification efforts at the airline group.

Currently, Tigerair flies 14 A320s on domestic routes and three 737-800s on flights from Adelaide, Perth and Melbourne to Bali.

Those 14 A320s will be progressively replaced with Boeing 737s over the next three years, according to a slide presentation released to the Australian Securities Exchange on Wednesday on Virgin’s proposed A$852 million capital raising.

The move to replace Tigerair A320s with 737s comes after Virgin previously announced in June it would withdraw all E190 jets, as well as between four and six ATR turboprops, in an effort to reduce the number of aircraft types, improve fleet utilisation and reduce costs.

“Tigerair-branded A320 aircraft will be replaced with B737 aircraft,” Virgin said in the slide presentation.

“Fleet simplification through reduction in fleet types will make the business more scalable and productive.”

The airline group has also disposed of all eight Fokker 50 aircraft that were previously operated by Virgin Australia Regional Airlines (VARA).

The slide presentation did not refer to the two A320s operated by VARA that serve Christmas/Cocos (Keeling) Islands, as well as charter and fly-in/fly-out clients.

Virgin slide presentation on Tigerair Australia's future fleet plans. (Virgin Australia)
Virgin slide presentation on Tigerair Australia’s future fleet plans. (Virgin Australia)

Virgin had five outstanding deliveries for 737-800s alongside an order for 40 of the updated 737 MAX, according to the Boeing website. The first MAX delivery for the airline was slated for 2018, the company has said previously.

While the withdrawal of 18 E190s and up to six ATRs suggested a significant fleet reduction, Virgin chief executive John Borghetti said in June the airline was continuing to take deliveries of 737s and had the flexibility to keep leased aircraft longer.

Further, Borghetti said the current ATRs and E190s were “not very well utilised”.

“It is all about network footprint and frequency, not about capacity,” Borghetti told reporters during a conference call on June 15.

“Fundamentally, 90 plus per cent of the footprint will remain the same, it is the tweaking around the edges which are driven really by supply and demand.”

At June 30 2016, Virgin’s fleet comprised 75 Boeing 737s (73 737-800s and two of the smaller 737-700s), five 777-300ERs, six Airbus A330-200s, 16 Embraer E190s and 14 ATR turboprops. Also, VARA operates 14 Fokker 100s.

In terms of financial performance, Virgin reaffirmed previously issued guidance in May of an underlying profit before tax of between A$30 million and A$60 million for the 12 months to June 30 2016. The compared with an underlying loss before tax of $49 million for the 12 months to June 30 2015.

The 2015/16 result would be impacted by between A$410 million and A$450 million in one-off charges, including $90-100 million in cash restructuring costs and $155-175 million of non-cash balance sheet impairments associated with its cost cutting program that were charged in the final quarter of the financial year.

When added to the A$59.4m restructuring charge recorded in the first half, as well as $105-115 million in the second half, Virgin’s total one-off charges and impairments for 2015/16 total between $410 million and $450 million, meaning the airline was expected to report a statutory loss when it hands down its full year results on August 5.

The slide presentation showed Etihad Airways was yet to commit to the $852 million capital raising. Should the Abu Dhabi-based carrier not participate, its 21.83 per cent shareholding in Virgin would potentially be halved, Virgin said. Singapore Airlines and Sir Richard Branson’s UK-based Virgin Group, as well as Virgin’s two new Chinese shareholders HNA Group and Nanshan, have agreed to take up their full entitlements.

The $1.011 billion in fresh equity raised through the $852 million capital raising and $159 million share placement to HNA would be used to repay a A$425 million shareholder loan and reduce other debt in an effort to bolster Virgin’s stretched balance sheet.

“We are seeking a reduction in leverage of around 15 to 18 per cent with the capital raised,” Virgin chief financial officer Geoff Smith said on June 15.

Under the share offer, existing shareholders can purchase one new share for every share they currently hold at a price of 21 Australian cents per share. This is a 28.8 per cent discount to the company’s closing share price of 29.5 cents on June 14, the day before the capital raising was announced. Virgin shares closed at 20 cents on Wednesday, the day before the official launch of the capital raising.

Comments

  1. GBRGB says

    Yes I use Virgin to fly TSV – SYD as QF don’t service the route and am always happy when I see it is an E190

  2. Sam says

    So essentially Virgin mainline’s fleet (and subsequently that of the whole group) will be reduced by about a dozen frames?

  3. Chris says

    The move to phase out the A320’s under the Tigarair brand replace them with B738’s makes economic sense with additional 1o passengers being carried compared to the A320’s plus fleet standardization.

    By the way, Air NZ has signed up for the share ratio offer.

  4. random says

    Goes to prove what many said when Virgin stopped following the single aircraft type model pioneered by carriers like Southwest. They would have been better off procuring/working all four models of the 737 – giving seating options between 100-200 pax.
    This effectively means that neither mainline airline is able to work the economics of long thin routes in Australia under parent company operations, and in some respects they seem to struggle to do it under direct subsidiaries also.
    Hopefully carriers like Airnorth and JetGo can continue to expand their E170 / E135 direct routes and operations. There are a lot of routes in Australia that could sustain an aircraft like the E170 / E135 (lots of cities in the 50K-500K population band in Australia with poor direct connections), but very little will for these longer / thinner connections in QF and VA.

  5. Greg says

    Is there any remaining value to shareholders from the purchase of Skywest ? They have quit all the aircraft and stopped flying the routes

  6. Dave A says

    How about the two VARA A320-200’s? and will they acquire or merge with Alliance Aviation?

  7. franz chong says

    Should this happen it’s like we have gone back in time but with different planes in the smaller cities.I visit the airport often enough and almost if we don’t include Jetstar for a minute all planes domestically that are jets are ALL 737’s for all flights.I won’t be going Tiger Air anytime soon.

  8. Craigy says

    The Tigerair A320s’are to be replaced by Virgin B737s as they are replaced by new B737s. So Tigerair get the old aircraft which are probably owned by Virgin. The A320s were new but leased.

  9. inherentchoice says

    I wonder if this means Virgin will withdraw all their flights to Bali and Tigerair will take over them, like they did with the PER/ADL/MEL to DPS routes. Maybe the same thing will happen with Virgin’s flights from MEL/SYD to MCY?

  10. Elliot says

    The only rationality to keep the VARA A320s would be if they were specified with the container option – allowing them to ferry heavy cargo to the Islands. However, I haven’t been able to find any evidence that this is the case.

  11. Andrew says

    inherentchoice, I highly doubt tiger will fly to MCY given that they culled it just a year ago and the qantas groups dominance, but I think Denpasar & Gold Coast do have potential to be entirely tiger, as does new zealand and the pacific

  12. franz chong says

    Disappointing to see the e190’s go.Hopefully I shall get a final few rides in them before they move on.It’s not like they were unloved like the DC9’s we saw in Australia from 1967 to 1989 which were replaced by 737-200’s and later 737-300’s or were kept in service way past their use by date like the 727’s of which there was no suitable replacements for them till the eighties and into the nineties which could have seen 757’s or A320’s fill the void yes we had the 737-400 over at Qantas and before that Australian Airlines but would have having two planes of the same type but of a different series been most cost economic.I know for cost reasons it makes sense to switch to a 737 but what about sectors that cannot always support something that size,where do they go for that.

  13. Joe says

    They fail to mention that Tiger will get the OLD 737’s from Virgin and the new 737’s will go to Virgin.

    This is a silly decision and as an ethical investor (Virgin Share holder) I must evaluate the constant diluting of the share’s! I feel that VA will be trying to merge into Tiger and that will mean plenty of overstepping on the current employee’s (pilots and crew) for captain positions etc; it reeks of an EBA screw-job coming and one must keep a close eye on the plans here.

    I will sell my VA shares as I dont believe that VA has show due diligence in this move with Tiger, although a smarter decision to streamline fleets, the irony here is that 330’s are still in use, and are used terribly!!! They lose money because they are pleasing too many shareholders/airlines!!!!! not to mention the 777 as well!

    The 330’s needed to go to Tiger! Simple Simon could have seen that! JB what are you playing at!!!???

    Terrible choice to strip Tiger of the Airbus.

  14. Simon Gunson says

    Man… somebody only needs to buy some Bombardier CS100’s and they will wipe the whole field. The C-Series only need 4,000ft runways with 130 pax + transcontinental range.

    Boeing 737 & Airbus A320 will both be dinosaurs in five years form now, even NEO & MAX types.

  15. Nik says

    I think you’ll find if Virgin stop flying to Christmas and Cocos Islands the VARA A320s will be goneski.

  16. Ernest says

    Simon Gunson is right – C-Series would be a great addition to the local market. Only issue would be the high cost acquiring & setting up a new type but why not!

  17. Jared says

    Seems like a logical choice if you ask me. still not sure how they are planning to operate A330’s to China, when they barely have enough to operate to PER from the east coast as it is. And would assume would be frm Numerous Locations (PER is one rumoured place)

  18. Mattsey says

    I would hope that if VA are planning to use A330s to China that they plan to add more to the fleet whether its through leasing or ordering new A330s. Virgin needs those A330s on those routes to compete to QF.