Virgin Australia chair says good progress being made on transformation program

Virgin Australia is withdrawing the Embraer E190 regional jets from its fleet. (Rob Finlayson)
Virgin Australia is withdrawing the Embraer E190 from its fleet. (Rob Finlayson)

Virgin Australia chairman Elizabeth Bryan says the airline group’s three-year transformation program is yielding positive results and tracking ahead of schedule.

Writing in the company’s annual report, Bryan said Virgin Australia’s “Better Business” program and focus on improving its financial base would “help us to deliver sustainable profitability, and ultimately, returns to all of our shareholders”.

Virgin Australia was targeting $350 million in annual savings by the end of 2018/19, which was $50 million above the $300 million initial target when it was unveiled a year ago.

“The business has also made good progress in implementing the Better Business program of capital and operational initiatives and we now expect to deliver higher cash flow savings than originally targeted,” Bryan told shareholders in the annual report, released on Thursday.

In August, Virgin Australia reported a statutory after tax loss of $220.3 million for the 12 months to June 30 2017, an improvement from a loss of $260.9 million in the prior corresponding period.

The airline group said at the time the result was impacted by subdued domestic market and one-off charges as its fleet on 18 Embraer E190 regional jets and eight ATR turboprops were withdrawn.

On a more positive note, it said 2016/17 was the first positive free cash flow result since 2011/12, while its reported cash balance at June 30 2017 was the highest in its history.

“As we move through the Better Business program, these costs will subside and the company will benefit from the ongoing, sustainable savings that the program is on track to deliver,” Bryan said.

Bryan said the focus for 2017/18 would be remain on “improving our cost base, building strength in the balance sheet and growing revenue”.

“Improving cash, debt and leverage outcomes will remain a key focus and further balance sheet improvements are expected to be delivered,” Bryan said.

“In addition, the business will work to keep growing revenue. This will be done by leveraging the benefits of our strong fleet, network and product to seize growth opportunities and consolidate our market position.”

Comments

  1. deano says

    There has never been a better time for VA to show a PROFIT
    Low oil prices
    Low wage growth
    2 airline duopoly in Australia where competition is subdued resulting in high load factors and higher fares

    VA has transitioned from a funky LCC to a legacy carrier yet
    They still (like QF) cram passengers into their respective aircraft with the same density as LCCs and are yielding higher returns from business class
    They are outsourcing more and more regional sectors to Alliance, yet Qantas bought some F100s very cheap (compared to new frames) from the same company, go figure…

    All said and done, VA should be making money NOW….

    I think the reason why is mainly because they are just paying way too much in lease payments on their 737s
    Imagine for a moment if VA rather than ran a fleet of new frames, they ran a fleet of older MD80s
    They could easily pay off the entire fleet in lieu of 1 years leasing payments for their new new aircraft
    Sure, there are added costs like maintenance and fuel (although with short sectors, fuel is not that much of a factor)
    REX turns profits with an aging fleet and load factors under 60%
    As too does alliance
    In fact all legacy carriers have fleets of around 15 years old as most buy their aircraft outright when they come off lease reducing costs greatly

  2. Craig says

    You have to laugh at the Chairman’s comments. The cash and debt position has mostly been the result of cash injections of its big shareholders.

  3. JR says

    Gee the word ‘transformation’ has to be the most overused buzzword in so many businesses these days – seems everyone has a transformation program. Can’t wait for the next buzzword to come along, I’m tired of this one as I hear it in my own company every single day.

  4. JR says

    I have to agree with Deano, there’s got to be more to it why they can’t turn a decent profit now. I think they’ve just expanded too much and tried to be too many things at once. The joint venture with Delta looks good on paper but it seems to be a bit of a shemozzle in practice, just based on stories I’ve heard about flight changes where Delta and Virgin give different information on the same delayed flight resulting in mass confusion. And why no code share at least with Virgin Atlantic? I also think the 777 is too big for their routes to North America. But the domestic offering is uninspiring and every time I compare fares domestically Qantas is cheaper and Jetstar is WAY cheaper.

  5. Markie says

    The QANTAS Group held 61% of the domestic market in 16/17, while taking home 90% of the total domestic profits. I think VA have a long way to go before they make good profits domestically.

  6. Perth says

    They charge to much for a inferior product so people dont want to fly them at a cost more then a budget airline, thats how i would still describe them. In comparison to Qantas, Virgin’s In Flight Entertainment is a joke and seats still belong on Virgin Australia. Stop trying to be Qantas without offering the luxuries of Qantas.

  7. Martin says

    Anyone investing in VA say four years ago thinking of low oil prices and a boon in tourists from Asia, China and India would be wondering what happened. But I guess the war really did damage both airlines, with Qantas coming out on top by returning to profitability a lot more quickly and much stronger.

  8. Brian Doyle says

    Well wait until Virgin Australia go belly up just like Ansett Australia then there will be complaints. One only monopoly airline again alas Qantas, I remember those days 16 years ago it was a nightmare.
    I still say that the CEO should go, it any other company had been showing figures like Virgin Australia has then he would be out.

  9. Freddie says

    The business side of VA has been ‘hand balled’ from CEO to CEO for so long now – with the profitability on a steady slippery slope, down wards. It will be extremely hard to ever return it to profitability. Then there are the employees who bear the brunt of cost cutting whilst the Management still continue to reap over inflated wages/salaries. This alone doesn’t make sense even before you start looking at the operational statistics. The business model is totally flawed and until that is fixed VA will never make a return to profitability. It is like shifting deck chairs on the Titanic.

  10. franz chong says

    all you need is a one small plane and one large a mix of a350/737’s for the LA/HONG KONG/BALI/SOUTH PACIFIC/domestic and trans tasman flights.anything regional they can feed to regional express for the most part or in the case or queensland alliance or whatever it is they can do in western australia.this confusing mix of not only the planes i have mentioned but also 777’s/a320’s/f100’s is ansett or panam revisited of the it’s new must have era.