Taking shape

Certainly VB’s results for the first half underlined the importance of pursuing the game change strategy, with the company reporting an underlying net profit before tax of just $72 million, down almost 63 per cent, and a net profit after tax of $24 million (down 8. 5 per cent), for the half year ending December 31. Revenue increased 11. 8 per cent to $1. 69 billion over the previous half year.

Virgin Blue CEO and managing director John Borghetti said the results demonstrated “the core Virgin Blue business is sound”.

“This is a very solid result considering the impact of a number of significant one-off factors, including the Navitaire IT system outage, restructuring costs and unusually severe environmental events in Australia and New Zealand,” Borghetti said, noting that last year’s October Navitaire outage had an estimated pre-tax profit impact of $15-20 million.

Virgin Blue issued a full year profit downgrade on January 26, blaming the impact of the Queensland floods and a slowdown in consumer spending for slicing an expected $40 million in revenue for the current financial year.

“That being said, we have seen yield improvements in both short and long haul, with long haul in particular seeing a strong increase,” Borghetti noted. “With a $17 million improvement in its operating position during the first half, our long haul business is on track for reaching close to breakeven by year end. This follows the cancellation of non-profitable routes, changes to current schedules aimed at profit maximisation and the beginning of the benefits flow through from our international alliance strategy. ” VB’s short haul operations posted earnings before interest and taxes (EBIT) of $102 million, while the “long haul business is on track to reach close to breakeven at the EBIT level for the full financial year”.

Borghetti said the operating environment, in particular the lack of growth in consumer discretionary spending and continuing uncertainty in the economic outlook, validated Virgin Blue’s strategy to reposition the Group to capture a larger share of corporate flyers while maintaining a strong presence in the leisure market.

“We have continued to invest in our Game Change Program, adding the management skills necessary to take the Group to the next level. In addition, we have gained approvals for our alliances with Etihad and Air New Zealand to enhance our international network and announced a strategic alliance with Skywest covering a codeshare and wet lease turboprop agreement”, he said.

VB predicts a “challenging” outlook for the second half of the year, with both domestic and international sectors still in a state of economic recovery after a difficult start to 2011. The airline predicts the major challenge of rebuilding Queensland tourism after the sunshine state’s recent floods and cyclone Yasi to take some time. Fifty per cent of all Virgin Blue flights are scheduled within, into and out of Queensland, meaning the airline’s financial impact from the state’s recent spate of natural disasters is expected to be in the order of $50 million.

In light of this, VB’s domestic capacity growth remains under review and the company retainsthe option of reducing capacity below the full year forecast growth of six to eight per cent if required. Rising fuel prices also subsequently saw the airline increase fuel surcharges and ticket prices across its network (refer Newsdesk for details).

All of this, Borghetti noted, highlighted the importance of the Game Change program, the airline’s strategy to respond to “changes in future market conditions and ensure a stable and solid future for the Virgin Blue Group”.

“As we roll out the program, our efforts will be directed toward optimising our domestic network, building an international network of airline partners and diversifying our revenue base by increasing our share of the corporate market,” he added. “We are on track to significantly strengthen our position in both leisure and corporate markets in FY12. ” That diversification is well underway, with V Australia’s first Abu Dhabi flight in late February, and then the announcement on the same day as the half year results that it has chosen the ATR 72 as its regional turboprop airliner to be operated under its recently announced strategic alliance with Skywest Airlines.

Up to 18 68-seat ATRs will replace the four Embraer E‑170s in Virgin Blue service and provide for regional expansion. According to VB, the ATR offers less than half the fuel burn and fuel costs per ASK as the E-170, and will cover an average 150nm sector in the same block time. It is believed the choice was between the ATR 72 and Bombardier’s rival Q400.

Borghetti said the first four ATR 72s (ATR 72-500s) would be introduced from the middle of 2011, with a further four (new -600 series aircraft) to arrive next year. “The ATR is the best aircraft to operate on regional routes throughout Australia,” he said. “It provides the greatest fuel efficiency and passenger comfort for this category of aircraft. The ATR will form the foundation of our regional network plans, with the first six ATRs replacing our current Embraer E-170 fleet and the additional aircraft flying to new regional destinations. ” Virgin Blue also revealed details of the cabin layout of the two A330-200s it will be introducing on domestic service from May. The airline will offer its first domestic business class on the aircraft, featuring sixabreast 62in pitch leather seats with seatback IFE and a range of what the airline describes as “high quality food options. ” “Our new designer business and economy class product marks another step forward in our Game Change Program, which aims to position Virgin Blue as the airline of choice for both the corporate and the leisure markets,” said Borghetti.

“Creative director Hans Hulsbosch has led the superb new design of our widebody Airbus 330s which is a sign of things to come for the Virgin Blue Group. ” Said Hulsbosch, “The seating and experience of this aircraft has been designed to say contemporary quality, with luxury leather padded seating that feels as though you are driving a luxury sports car. The aircraft is stunning in its visual appeal, with a very modern simplistic look that creates more space in the aircraft. ” The ex-Emirates aircraft (see Traffic this issue for details) will be employed on the Sydney- Perth-Sydney route offering a three times daily service between the two cities.

Another element of the changing face of Virgin Blue is its new pilot and red and royal purple flight attendant uniforms, designed by Juli Grbac. The uniforms are widely regarded as much more stylish than the previous tan uniforms, but they have come under criticism from some flight attendants for being uncomfortable, with their polyester material causing rashes, and for being ill-fitting.

Then on March 9 Virgin Blue revealed its new on-board menu, “designed” by Australian chef Luke Mangan, with new food items available for purchase in Virgin Blue, Polynesian Blue and Pacific Blue economy class, and a new complementary menu for the forthcoming domestic (and V Australia’s) business class.