So Virgin’s first half loss was in fact bigger than Qantas’s on a proportional basis.
Yet in announcing that loss on Friday Virgin Australia CEO John Borghetti was good humoured and relaxed, and spoke of growth and opportunity. In contrast on Thursday, Qantas chief Alan Joyce was sombre and serious in announcing his airline group’s own loss and his latest cost cutting and job shedding plans.
So both airline groups are losing money, but Borghetti’s optimism and Joyce’s pessimism can be best explained by the fact that Borghetti’s loss has largely come from managing growth, while Joyce is now managing decline.
Much of Virgin’s losses can be attributed to growing pains (such as absorbing Skywest and its controlling share of Tigerair), while Qantas’s losses are in large part driven by its shrinking international operation.
Perhaps the biggest surprise of the last two days is that the Qantas domestic, Jetstar domestic and Virgin domestic operations are all profitable – for all the talk of capacity wars of the last 18 months or so – although the level of profitability is down markedly. Still, of the big four domestic carriers only Tigerair, which could really be said to be in a ‘re-startup’ phase following its takeover by Virgin, made a loss.
But what a mess both airline group’s international services are in – Qantas international lost $262 million, Virgin’s much smaller international operations $29.5 million. And that despite both Qantas sayings its Emirates alliance and Virgin its trans-Tasman operations performed strongly.
The Qantas Group does have its growing pains, too, with its Jetstar franchises in Asia proving increasingly problematic. The strategy of a pan-Asia network of Jetstar airlines is as alluring as the realities of executing it are painful.
How both airline groups have reacted to these losses really tells the story. Qantas is slashing jobs, selling off assets and cutting its fleet growth. Virgin, meanwhile, seems intent on maintaining a steady cruising altitude, flagging no major changes to its operations.
That is because for Qantas the biggest challenge is managing decline in its international for business, whereas Virgin’s challenge is managing growth. Virgin’s restructuring costs will fall away and as it continues to grow, scale will drive down its unit costs. For Qantas international the problem is almost exactly the opposite.
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No wonder Borghetti could afford to smile when Joyce could only grimace.
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