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Virgin Australia posts first quarter loss as subdued domestic market hits revenue

written by australianaviation.com.au | November 2, 2016
Virgin Australia says domestic conditions are subdued. (Rob Finlayson)
Virgin Australia says domestic conditions are subdued. (Rob Finlayson)

Virgin Australia says it is focused on cost-cutting and “disciplined capacity management” after slumping to a 2016/17 first quarter loss amid a sluggish domestic market.

On Wednesday, the airline group reported a statutory loss after tax of $34.6 million for the three months to September 30 2016, compared with a statutory profit after tax of $1.7 million in the prior corresponding period.

Virgin said the first quarter result was impacted by restructuring charges from its Better Business program, which aims to cut costs through the reduction in fleet types and improving productivity across the airline group.

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The company was also in the red on an underlying basis, which removes one-off items and is regarded as the best indicator of financial performance. The company posted an underlying loss before tax of $3.6 million in the 2016/17 first quarter, compared with underlying profit before tax of $8.5 million in the prior corresponding period,

“The result was impacted by subdued industry trading conditions during the quarter, particularly in the domestic market, which affected revenue,” Virgin said in a statement on Wednesday.

Virgin’s domestic network grew capacity, measured by available seat kilometres (ASKs), by a slender 0.6 per cent in the quarter, while demand, measured by revenue passenger kilometres (RPKs) was up 4.4 per cent. As a result load factors improved 2.9 percentage points to 77.6 per cent.

The company’s low-cost unit Tigerair Australia posted a 30.4 per cent rise in ASKs due to the start of flights to Bali from Adelaide, Melbourne and Perth earlier in 2016, with RPKs up 34.7 per cent in the quarter and load factors 2.8 percentage points higher at 88.4 per cent.

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Virgin’s international flying was impacted by the transfer of some Bali services to Tigerair and the suspension of Sydney-Abu Dhabi services for much of the quarter due to the refurbishment of its Boeing 777-300ER fleet with new B/E Aerospace Super Diamond business class seats, a refreshed premium economy cabin and a new Panasonic inflight entertainment system.

As a result, Virgin’s international ASKs were down 13.1 per cent in the quarter, with RPKs 13 per cent lower. Load factors were steady at 84.8 per cent.

“Capacity is being actively managed in response to the trading environment,” Virgin said.

“The group will continue to exercise disciplined capacity management in line with trading conditions.”

As part of efforts to improve its balance sheet and reduce costs, Virgin is withdrawing all 18 Embraer E190 jets and between four and six ATR 72 turboprops over the next three years.

The airline group’s low-cost unit Tigerair Australia will also transition from Airbus A320s to Boeing 737-800s during that time.

Moreover, the company was targeting improving operating efficiencies in crew and ground operations, as well as in maintenance, engineering, procurement and its supply chain.

Virgin said cost per ASK decreased compared with the prior corresponding period, without providing details.

“The program is already generating savings in the 2017 financial year and the group expects to deliver net free cash flow savings increasing to $300 million per annum by the end of the 2019 financial year (on an annualised basis),” Virgin said.

“The group continues to drive structural change in its cost base through ongoing cost-saving activities and new efficiency initiatives under the Better Business program. This includes the fleet simplification program and organisational rightsizing.”

Meanwhile, Virgin said it had “accelerated” its fuel hedging program to take advantage of lower fuel prices. It said 90 per cent of the airline group’s expected fuel needs were already locked in for 2016/17, while hedging for the first half of 2017/18 was already underway.

Virgin began issuing quarterly updates some years ago in line with one of its major shareholders Singapore Airlines (SIA), which is due to report its first quarter results on Thursday.

On Monday, Qantas reported a three per cent decline in revenue across the airline group to $3.98 billion for the three months to September 30 2016, compared with $4.11 billion in the prior corresponding period.

Meanwhile, unit revenue, measured by revenue per available seat kilometres (RASK), fell 5.5 per cent in the quarter.

Qantas said the result was due to “increased competition on international routes and a subdued domestic demand environment in the first two months of the year”.

20 Comments

  • Clio

    says:

    No word on how much Merren McArthurs freight operation lost?

  • Rocket

    says:

    Oh, what a surprise. Don’t see much about the leader being a messiah in now… yet another year of losses and no doubt another year of promises that the profit is just around the corner. Badly managed, a lot of bad decisions, too many time servers and not enough people who know what they’re doing. This is as close a copy of Ansett in it’s final years than I’ve seen. The organisation is replete with people without the experience or ability to close the deal. You can almost cut and paste each news story where the losses are concerned. Same excuses, same promises. Glad my shares are in the other mob.

  • rpaps5

    says:

    restructuring charges – still. Mr Virgin Australia how long are you going to be able to hide behind the apparently continuous restructuring which seems to be a hallmark of your airline group.
    If Virgin Aust domestic, Tigerair Aust and Virgin Aust International can’t make profits from loadfactors of 77.6% and 88.4% and 84,8% respectively there is something fundamentally wrong with your business model.
    I have always supported the innovation and vision of the Virgin Blue then Virgin Aust brand, as I don’t think QANTAS has been a proactive airline since James Strong was running it. But, Mr Borghetti – really!! excuses after excuses. You bought the Embraer 170’s, 190’s and ATR 72’s in, then you get rid of each of them citing inefficient use and underutilisation – others make good profits using these aircraft!
    Then getting rid of the Tigerair A320’s in the name of efficiency – yet more disruption and cost, while Jetstar and QANTAS continue to make good profits from the same mix of models – Jetstar A320/A321 and QANTAS 737-800.
    Maybe there was good reason QANTAS passed you over for the CEO position.

  • GBRGB

    says:

    It must be time for the govt to revisit our airlines policy and encourage real competition. It is clear that Virgin have failed, they have virtually vanished from regional centres like Townsville and now only have token services. Considering it is a foreign owned business anyway the govt should look at opening up our domestic skies to foreign airlines and allow them to fly routes current airlines refuse to fly.

  • Steve

    says:

    Rpaps5 – it was actually Brett Godfrey who brought in the E170’s and E190’s

    But yes. Terrible management by Borghetti

  • deano

    says:

    Rex seem to keep their heads above water on load factors of high 50%s
    Maybe they could offer to buy VA for what VA bought Tiger for ($1) and make profits by replacing shiny new 737s with 20 year old frames

    There is no secret on how to make money in the airline industry
    1) Keep fleet costs low (fail)
    2) Keep frames once paid off (fail)
    3) Keep load factors high (pass)
    4) Keep bellies full of freight (fail)
    5) Keep frames in the air as long as possible (fail)

    1) Buying new aircraft, then selling into an oversupplied second hand market a few years later, just burns money and is stupid, Q Link transferred some Q400 to Jetstar NZ so why not set up Tiger Regional and still feed transferring pax to VA
    2) VA seem to flog off 737s after about 8 years, again into a depressed second hand market, why not keep them for another 8 years, it’s like selling your car after a 5 year lease, it’s a great tax write off if you are making a profit in a business, but if you are only at break even, there is little advantage
    4) Freight operators like Toll, are buzzing around Queensland in the wee small hours it ATRs. Why VA can’t carry that freight in a 737 belly and sell red eye tickets upstairs rather than park their fleet overnight is beyond me
    5) VA has a fleet of domestic and a fleet of international 737s, WHY?
    Would it not be a better use of their fleet to fly a 737 to Asia overnight and return, then a couple of domestic sectors at peak times
    The VA fleet has so much down time, compare this with Jetstar or more so Ryanair
    You pay the same lease no matter how many hours you fly, yes more fuel, staff and servicing but more than offset by more revenue, but the one fixed cost is the cost of the frame
    QF seems to have opened their eyes to fleet utilization lately, but VA are yet to see the light

  • Mick

    says:

    So many staff are worried about losing our jobs. Pilots are jumping ship to QF, CX, EK and others at an alarming rate. Lost a ton of cabin crew to QF QCCA.
    Internal communication regarding finance is non existent and management seem to have their head in the clouds.
    Should I get out now?

  • Christopher Campbell

    says:

    Will they cancel the 737max order?

  • Jason

    says:

    So, so many experts…

  • Steve

    says:

    Laughing at GBRB comment.

    Right let’s allow foreign airlines to fly domestically using their foreign trained crew that are on $2 an hour. While we are at it why don’t we allow foreigns to also do your job at a more competitive rate?

  • Craigy

    says:

    It would be interesting to know how how many of each type of aircraft in the Virgin fleet is leased or owned. Qantas has a policy at the moment to purchase the aircraft as they come off lease to add flexibility in how the fleet is utilised. As the CFO of Qantas recently said, owning the aircraft is an asset to the business.

    It would also be interesting to see what the operational economics of the E190s are in Virgin service to understand why there is a need to get rid of the aircraft. Likewise the ATRs.

    The transformation program needs to deliver big time but I wonder how many for quarters restructuring costs will impact on profit. Commentators stated at the time of Virgin releasing the 2016 FY results, Virgin isn’t in the same position as Ansett, so it shouldn’t go bankrupt. But I can understand the uneasiness of staff.

    Finally, I wonder what it was the caused AirNZ to resign from the Board and dump Virgin stock at a significant loss.

  • Rocket

    says:

    @ rpaps5

    James Strong… give me a break. He was responsible for nothing more or less than starting the decline of Qantas. Gifted a massive capital injection which had been absent for 45 years of government ownership, he claimed the increased profit (easy when someone pays off most of your debt – and then the govt only did that because BA demanded it be properly capitalised). He then imported in many cases ‘cronies’ from previous places he’d worked, one of whom had to resign for sending QF business to a consultancy the offending exec owned. Many good people were dispensed with and found very successful careers with some of the world’s leading airlines and in return they got people like the bloke that went to run AN in it’s last days. Well thought of by the TN people for his brief time at TN but not by many QF people as the company took years to get back to where it was and was completely demotivated in terms of morale. Even though many didn’t like Dixon and despite the weird fleet choices, he was a far better CEO. I had nothing personally against the late Mr Strong and never wished him any ill but to credit him with having vision for Qantas – that is a joke. A destroyer is what he was in many ways but his career IMHO was marked by going in and taking credit for stuff. John Ward was actually a very, very good CEO. He couldn’t speak publicly but he was a highly intelligent and well liked exec and he was tossed aside for ‘image’ over substance.

  • GBRGB

    says:

    Well Steve if the CEO decides to give me the flick and get someone for 10% of my package then that’s his business, more than just dollars in someone’s value. But that is a side issue to having protected businesses provide an overpriced, inadequate service due to Govt regulation. We can see the value foreign airlines have added to real competition and have made the Australian carriers lift their service, the same thing would happen if they were allowed to operate in Australia. I did articulate routes that are not serviced by the current two, if a foreign airline wanted to fly many regional routes that QF and VA have no interest in we should encourage it, obviously you live in a big city with lots of choice and competition, many don’t, and to have these people denied a service by legislation is a false economy.

  • rpaps5

    says:

    Steve – Thanks, I stand corrected. At least Brett had the sense to know then his style which seems to be great for a startup was not going to be best for a maturing airline group. Borghetti initially praised these models for their efficiency and passenger popularity – well deserved I think, but now wants them to be part of the blame for the current situation.
    Rocket – Show me a CEO who hasn’t done the very same thing with former colleagues. My point was to show the difference between earlier CEO’s with at least some vision and were willing to take calculated risks and the current one and his predecessor who just react to changes competitors make. I wasn’t implying he was the king of CEO’s.
    There are more airlines in Australia than QF & VA. Airnorth is utilising Embraer 170’s very profitably on routes between Cairns, Wellcamp and Melbourne – Essendon, adding Townsville shortly, plus a range of routes radiating from Darwin and looking for more airframes.
    Rex has a fleet of over 50 SAAB 340B/B+ aircraft flying all over regional Aus. and has weathered many periods of turbulence successfully.

  • Goose

    says:

    Ok Deano, I’ll work for your airline

    We make sure our aircraft are flown 100% of the time , we don’t care about maintenance overnight or MPD or CASA requirements or the costs associated with flying mostly empty red eye flights with a full compliment of trolley dolleys on Aus wages against the Asian carriers doing it at in a330s or care about our passengers flying in 20 year old [email protected] boxes

    WTF are accountants doing on this website

  • Reed

    says:

    Fly Fiji Airways. It is better then both Qantas Airlines or Virgin Australia Airlines.

  • Rocket

    says:

    GVRGB.

    What planet are you living on??? Already Australia has removed its tariffs and dropped all sorts of restrictions on foreign competition because we bought the BS about globalization… and where has it got us??? A Qantas significantly weakened in many respects not because of inefficiency but because all of the barriers have been dropped, the company sold into public hands and who are these efficient carriers they’re competing with… EY, EK, NZ, SQ, MH, GF – they’re ALL owned by their governments either substantially or majority. The biggest joke is NZ which is efficient yes, but wouldn’t even be around if it hadn’t been for Helen Clarke’s government buying the damn thing post Ansett. Our car industry is gone, we don’t build half of the rolling stock on rails that we used to (and in Melbourne, every time the temp goes over 35 in summer the european garbage that we bought for trains/trams breaks down while the Australian built rolling stock keeps going.
    So, this is your solution, let foreign operators, with foreign licenses and foreign crew in to operate domestically. Would you mind telling me exactly which of the ‘free-market’ loving countries in the world we compete with allow this… USA = never, you can’t even own more than 20% there and if you do, you only get 20% voting rights, Malaysia = no, Middle East = no, Indonesia = no… and the list goes on. So you think we should allow something that no other country allows??? If that is the case then you are a fool and you would see the destruction of any aviation industry in this country. Mind you, when all the local airlines are gone, watch the prices go up and the service to remote areas go down. You are living in cloud-cuckoo land.
    It would perhaps just be better to get a better management team into VA, one that can actually run an airline and therefore create local competition. Australia already has the most liberalized aviation industry in the world. There are NO other countries where foreigners can own domestic airlines. Fool.

  • GBRGB

    says:

    Rocket, plain and simple you are a protectionist, protecting poor businesses, badly run, don’t worry there are many in Australia like you, so go jump in your HQ Holden and run down the shop before it closes at 5.00 pm and go home and watch the black and white news on your old HMV and remember how great life was in the seventies.

  • rpaps5

    says:

    Folks,
    Please lets keep the conversation civil. The fact is that Australia is the origin of many technologies and inventions that the world takes for granted today, but we need to focus our national talents to areas where we can make real forward progress.
    Aust is a small/medium country in terms of population but we seem to have a big country mindset when trying to tell everyone else how to do things properly!
    Australian research and industry capabilities are world-leading in many areas, BUT we cannot continue to use the scatter gun approach to how we allocate finite resources to industries willy-nilly!
    We are world leaders in Robotics, composite materials fabrication and manufacture, medical research, the aviation flight data recorder etc… the list goes on…
    That said, we should NOT continue to throw money at industries like domestic car manufacturing – it has been a dead-man-walking for the last 30 years – propped up by taxpayer subsidies. It is a volume manufacturing industry now, and with our miniscule population (therefore very small domestic market), we would never be able to compete with the Japanese, Koreans, Thai’s, US and Germany etc.

  • franz chong

    says:

    I am sure they will bounce back but for the most part they should for anything other than Trans Tasman and Domestic plus the South Pacific leave everything to their partners.Singapore Airlines for everything Asian and most of Europe with the exception of Bali,Etihad for Europe and Abu Dhabi and Delta AND Hawaiian for Hawaii/West Coast USA.

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Virgin Australia posts first quarter loss as subdued domestic market hits revenue

written by australianaviation.com.au | November 2, 2016
Virgin Australia says domestic conditions are subdued. (Rob Finlayson)
Virgin Australia says domestic conditions are subdued. (Rob Finlayson)

Virgin Australia says it is focused on cost-cutting and “disciplined capacity management” after slumping to a 2016/17 first quarter loss amid a sluggish domestic market.

On Wednesday, the airline group reported a statutory loss after tax of $34.6 million for the three months to September 30 2016, compared with a statutory profit after tax of $1.7 million in the prior corresponding period.

Virgin said the first quarter result was impacted by restructuring charges from its Better Business program, which aims to cut costs through the reduction in fleet types and improving productivity across the airline group.

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The company was also in the red on an underlying basis, which removes one-off items and is regarded as the best indicator of financial performance. The company posted an underlying loss before tax of $3.6 million in the 2016/17 first quarter, compared with underlying profit before tax of $8.5 million in the prior corresponding period,

“The result was impacted by subdued industry trading conditions during the quarter, particularly in the domestic market, which affected revenue,” Virgin said in a statement on Wednesday.

Virgin’s domestic network grew capacity, measured by available seat kilometres (ASKs), by a slender 0.6 per cent in the quarter, while demand, measured by revenue passenger kilometres (RPKs) was up 4.4 per cent. As a result load factors improved 2.9 percentage points to 77.6 per cent.

The company’s low-cost unit Tigerair Australia posted a 30.4 per cent rise in ASKs due to the start of flights to Bali from Adelaide, Melbourne and Perth earlier in 2016, with RPKs up 34.7 per cent in the quarter and load factors 2.8 percentage points higher at 88.4 per cent.

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Virgin’s international flying was impacted by the transfer of some Bali services to Tigerair and the suspension of Sydney-Abu Dhabi services for much of the quarter due to the refurbishment of its Boeing 777-300ER fleet with new B/E Aerospace Super Diamond business class seats, a refreshed premium economy cabin and a new Panasonic inflight entertainment system.

As a result, Virgin’s international ASKs were down 13.1 per cent in the quarter, with RPKs 13 per cent lower. Load factors were steady at 84.8 per cent.

“Capacity is being actively managed in response to the trading environment,” Virgin said.

“The group will continue to exercise disciplined capacity management in line with trading conditions.”

As part of efforts to improve its balance sheet and reduce costs, Virgin is withdrawing all 18 Embraer E190 jets and between four and six ATR 72 turboprops over the next three years.

The airline group’s low-cost unit Tigerair Australia will also transition from Airbus A320s to Boeing 737-800s during that time.

Moreover, the company was targeting improving operating efficiencies in crew and ground operations, as well as in maintenance, engineering, procurement and its supply chain.

Virgin said cost per ASK decreased compared with the prior corresponding period, without providing details.

“The program is already generating savings in the 2017 financial year and the group expects to deliver net free cash flow savings increasing to $300 million per annum by the end of the 2019 financial year (on an annualised basis),” Virgin said.

“The group continues to drive structural change in its cost base through ongoing cost-saving activities and new efficiency initiatives under the Better Business program. This includes the fleet simplification program and organisational rightsizing.”

Meanwhile, Virgin said it had “accelerated” its fuel hedging program to take advantage of lower fuel prices. It said 90 per cent of the airline group’s expected fuel needs were already locked in for 2016/17, while hedging for the first half of 2017/18 was already underway.

Virgin began issuing quarterly updates some years ago in line with one of its major shareholders Singapore Airlines (SIA), which is due to report its first quarter results on Thursday.

On Monday, Qantas reported a three per cent decline in revenue across the airline group to $3.98 billion for the three months to September 30 2016, compared with $4.11 billion in the prior corresponding period.

Meanwhile, unit revenue, measured by revenue per available seat kilometres (RASK), fell 5.5 per cent in the quarter.

Qantas said the result was due to “increased competition on international routes and a subdued domestic demand environment in the first two months of the year”.

20 Comments

  • Clio

    says:

    No word on how much Merren McArthurs freight operation lost?

  • Rocket

    says:

    Oh, what a surprise. Don’t see much about the leader being a messiah in now… yet another year of losses and no doubt another year of promises that the profit is just around the corner. Badly managed, a lot of bad decisions, too many time servers and not enough people who know what they’re doing. This is as close a copy of Ansett in it’s final years than I’ve seen. The organisation is replete with people without the experience or ability to close the deal. You can almost cut and paste each news story where the losses are concerned. Same excuses, same promises. Glad my shares are in the other mob.

  • rpaps5

    says:

    restructuring charges – still. Mr Virgin Australia how long are you going to be able to hide behind the apparently continuous restructuring which seems to be a hallmark of your airline group.
    If Virgin Aust domestic, Tigerair Aust and Virgin Aust International can’t make profits from loadfactors of 77.6% and 88.4% and 84,8% respectively there is something fundamentally wrong with your business model.
    I have always supported the innovation and vision of the Virgin Blue then Virgin Aust brand, as I don’t think QANTAS has been a proactive airline since James Strong was running it. But, Mr Borghetti – really!! excuses after excuses. You bought the Embraer 170’s, 190’s and ATR 72’s in, then you get rid of each of them citing inefficient use and underutilisation – others make good profits using these aircraft!
    Then getting rid of the Tigerair A320’s in the name of efficiency – yet more disruption and cost, while Jetstar and QANTAS continue to make good profits from the same mix of models – Jetstar A320/A321 and QANTAS 737-800.
    Maybe there was good reason QANTAS passed you over for the CEO position.

  • GBRGB

    says:

    It must be time for the govt to revisit our airlines policy and encourage real competition. It is clear that Virgin have failed, they have virtually vanished from regional centres like Townsville and now only have token services. Considering it is a foreign owned business anyway the govt should look at opening up our domestic skies to foreign airlines and allow them to fly routes current airlines refuse to fly.

  • Steve

    says:

    Rpaps5 – it was actually Brett Godfrey who brought in the E170’s and E190’s

    But yes. Terrible management by Borghetti

  • deano

    says:

    Rex seem to keep their heads above water on load factors of high 50%s
    Maybe they could offer to buy VA for what VA bought Tiger for ($1) and make profits by replacing shiny new 737s with 20 year old frames

    There is no secret on how to make money in the airline industry
    1) Keep fleet costs low (fail)
    2) Keep frames once paid off (fail)
    3) Keep load factors high (pass)
    4) Keep bellies full of freight (fail)
    5) Keep frames in the air as long as possible (fail)

    1) Buying new aircraft, then selling into an oversupplied second hand market a few years later, just burns money and is stupid, Q Link transferred some Q400 to Jetstar NZ so why not set up Tiger Regional and still feed transferring pax to VA
    2) VA seem to flog off 737s after about 8 years, again into a depressed second hand market, why not keep them for another 8 years, it’s like selling your car after a 5 year lease, it’s a great tax write off if you are making a profit in a business, but if you are only at break even, there is little advantage
    4) Freight operators like Toll, are buzzing around Queensland in the wee small hours it ATRs. Why VA can’t carry that freight in a 737 belly and sell red eye tickets upstairs rather than park their fleet overnight is beyond me
    5) VA has a fleet of domestic and a fleet of international 737s, WHY?
    Would it not be a better use of their fleet to fly a 737 to Asia overnight and return, then a couple of domestic sectors at peak times
    The VA fleet has so much down time, compare this with Jetstar or more so Ryanair
    You pay the same lease no matter how many hours you fly, yes more fuel, staff and servicing but more than offset by more revenue, but the one fixed cost is the cost of the frame
    QF seems to have opened their eyes to fleet utilization lately, but VA are yet to see the light

  • Mick

    says:

    So many staff are worried about losing our jobs. Pilots are jumping ship to QF, CX, EK and others at an alarming rate. Lost a ton of cabin crew to QF QCCA.
    Internal communication regarding finance is non existent and management seem to have their head in the clouds.
    Should I get out now?

  • Christopher Campbell

    says:

    Will they cancel the 737max order?

  • Jason

    says:

    So, so many experts…

  • Steve

    says:

    Laughing at GBRB comment.

    Right let’s allow foreign airlines to fly domestically using their foreign trained crew that are on $2 an hour. While we are at it why don’t we allow foreigns to also do your job at a more competitive rate?

  • Craigy

    says:

    It would be interesting to know how how many of each type of aircraft in the Virgin fleet is leased or owned. Qantas has a policy at the moment to purchase the aircraft as they come off lease to add flexibility in how the fleet is utilised. As the CFO of Qantas recently said, owning the aircraft is an asset to the business.

    It would also be interesting to see what the operational economics of the E190s are in Virgin service to understand why there is a need to get rid of the aircraft. Likewise the ATRs.

    The transformation program needs to deliver big time but I wonder how many for quarters restructuring costs will impact on profit. Commentators stated at the time of Virgin releasing the 2016 FY results, Virgin isn’t in the same position as Ansett, so it shouldn’t go bankrupt. But I can understand the uneasiness of staff.

    Finally, I wonder what it was the caused AirNZ to resign from the Board and dump Virgin stock at a significant loss.

  • Rocket

    says:

    @ rpaps5

    James Strong… give me a break. He was responsible for nothing more or less than starting the decline of Qantas. Gifted a massive capital injection which had been absent for 45 years of government ownership, he claimed the increased profit (easy when someone pays off most of your debt – and then the govt only did that because BA demanded it be properly capitalised). He then imported in many cases ‘cronies’ from previous places he’d worked, one of whom had to resign for sending QF business to a consultancy the offending exec owned. Many good people were dispensed with and found very successful careers with some of the world’s leading airlines and in return they got people like the bloke that went to run AN in it’s last days. Well thought of by the TN people for his brief time at TN but not by many QF people as the company took years to get back to where it was and was completely demotivated in terms of morale. Even though many didn’t like Dixon and despite the weird fleet choices, he was a far better CEO. I had nothing personally against the late Mr Strong and never wished him any ill but to credit him with having vision for Qantas – that is a joke. A destroyer is what he was in many ways but his career IMHO was marked by going in and taking credit for stuff. John Ward was actually a very, very good CEO. He couldn’t speak publicly but he was a highly intelligent and well liked exec and he was tossed aside for ‘image’ over substance.

  • GBRGB

    says:

    Well Steve if the CEO decides to give me the flick and get someone for 10% of my package then that’s his business, more than just dollars in someone’s value. But that is a side issue to having protected businesses provide an overpriced, inadequate service due to Govt regulation. We can see the value foreign airlines have added to real competition and have made the Australian carriers lift their service, the same thing would happen if they were allowed to operate in Australia. I did articulate routes that are not serviced by the current two, if a foreign airline wanted to fly many regional routes that QF and VA have no interest in we should encourage it, obviously you live in a big city with lots of choice and competition, many don’t, and to have these people denied a service by legislation is a false economy.

  • rpaps5

    says:

    Steve – Thanks, I stand corrected. At least Brett had the sense to know then his style which seems to be great for a startup was not going to be best for a maturing airline group. Borghetti initially praised these models for their efficiency and passenger popularity – well deserved I think, but now wants them to be part of the blame for the current situation.
    Rocket – Show me a CEO who hasn’t done the very same thing with former colleagues. My point was to show the difference between earlier CEO’s with at least some vision and were willing to take calculated risks and the current one and his predecessor who just react to changes competitors make. I wasn’t implying he was the king of CEO’s.
    There are more airlines in Australia than QF & VA. Airnorth is utilising Embraer 170’s very profitably on routes between Cairns, Wellcamp and Melbourne – Essendon, adding Townsville shortly, plus a range of routes radiating from Darwin and looking for more airframes.
    Rex has a fleet of over 50 SAAB 340B/B+ aircraft flying all over regional Aus. and has weathered many periods of turbulence successfully.

  • Goose

    says:

    Ok Deano, I’ll work for your airline

    We make sure our aircraft are flown 100% of the time , we don’t care about maintenance overnight or MPD or CASA requirements or the costs associated with flying mostly empty red eye flights with a full compliment of trolley dolleys on Aus wages against the Asian carriers doing it at in a330s or care about our passengers flying in 20 year old [email protected] boxes

    WTF are accountants doing on this website

  • Reed

    says:

    Fly Fiji Airways. It is better then both Qantas Airlines or Virgin Australia Airlines.

  • Rocket

    says:

    GVRGB.

    What planet are you living on??? Already Australia has removed its tariffs and dropped all sorts of restrictions on foreign competition because we bought the BS about globalization… and where has it got us??? A Qantas significantly weakened in many respects not because of inefficiency but because all of the barriers have been dropped, the company sold into public hands and who are these efficient carriers they’re competing with… EY, EK, NZ, SQ, MH, GF – they’re ALL owned by their governments either substantially or majority. The biggest joke is NZ which is efficient yes, but wouldn’t even be around if it hadn’t been for Helen Clarke’s government buying the damn thing post Ansett. Our car industry is gone, we don’t build half of the rolling stock on rails that we used to (and in Melbourne, every time the temp goes over 35 in summer the european garbage that we bought for trains/trams breaks down while the Australian built rolling stock keeps going.
    So, this is your solution, let foreign operators, with foreign licenses and foreign crew in to operate domestically. Would you mind telling me exactly which of the ‘free-market’ loving countries in the world we compete with allow this… USA = never, you can’t even own more than 20% there and if you do, you only get 20% voting rights, Malaysia = no, Middle East = no, Indonesia = no… and the list goes on. So you think we should allow something that no other country allows??? If that is the case then you are a fool and you would see the destruction of any aviation industry in this country. Mind you, when all the local airlines are gone, watch the prices go up and the service to remote areas go down. You are living in cloud-cuckoo land.
    It would perhaps just be better to get a better management team into VA, one that can actually run an airline and therefore create local competition. Australia already has the most liberalized aviation industry in the world. There are NO other countries where foreigners can own domestic airlines. Fool.

  • GBRGB

    says:

    Rocket, plain and simple you are a protectionist, protecting poor businesses, badly run, don’t worry there are many in Australia like you, so go jump in your HQ Holden and run down the shop before it closes at 5.00 pm and go home and watch the black and white news on your old HMV and remember how great life was in the seventies.

  • rpaps5

    says:

    Folks,
    Please lets keep the conversation civil. The fact is that Australia is the origin of many technologies and inventions that the world takes for granted today, but we need to focus our national talents to areas where we can make real forward progress.
    Aust is a small/medium country in terms of population but we seem to have a big country mindset when trying to tell everyone else how to do things properly!
    Australian research and industry capabilities are world-leading in many areas, BUT we cannot continue to use the scatter gun approach to how we allocate finite resources to industries willy-nilly!
    We are world leaders in Robotics, composite materials fabrication and manufacture, medical research, the aviation flight data recorder etc… the list goes on…
    That said, we should NOT continue to throw money at industries like domestic car manufacturing – it has been a dead-man-walking for the last 30 years – propped up by taxpayer subsidies. It is a volume manufacturing industry now, and with our miniscule population (therefore very small domestic market), we would never be able to compete with the Japanese, Koreans, Thai’s, US and Germany etc.

  • franz chong

    says:

    I am sure they will bounce back but for the most part they should for anything other than Trans Tasman and Domestic plus the South Pacific leave everything to their partners.Singapore Airlines for everything Asian and most of Europe with the exception of Bali,Etihad for Europe and Abu Dhabi and Delta AND Hawaiian for Hawaii/West Coast USA.

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Virgin Australia posts first quarter loss as subdued domestic market hits revenue

written by australianaviation.com.au | November 2, 2016
Virgin Australia says domestic conditions are subdued. (Rob Finlayson)
Virgin Australia says domestic conditions are subdued. (Rob Finlayson)

Virgin Australia says it is focused on cost-cutting and “disciplined capacity management” after slumping to a 2016/17 first quarter loss amid a sluggish domestic market.

On Wednesday, the airline group reported a statutory loss after tax of $34.6 million for the three months to September 30 2016, compared with a statutory profit after tax of $1.7 million in the prior corresponding period.

Virgin said the first quarter result was impacted by restructuring charges from its Better Business program, which aims to cut costs through the reduction in fleet types and improving productivity across the airline group.

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The company was also in the red on an underlying basis, which removes one-off items and is regarded as the best indicator of financial performance. The company posted an underlying loss before tax of $3.6 million in the 2016/17 first quarter, compared with underlying profit before tax of $8.5 million in the prior corresponding period,

“The result was impacted by subdued industry trading conditions during the quarter, particularly in the domestic market, which affected revenue,” Virgin said in a statement on Wednesday.

Virgin’s domestic network grew capacity, measured by available seat kilometres (ASKs), by a slender 0.6 per cent in the quarter, while demand, measured by revenue passenger kilometres (RPKs) was up 4.4 per cent. As a result load factors improved 2.9 percentage points to 77.6 per cent.

The company’s low-cost unit Tigerair Australia posted a 30.4 per cent rise in ASKs due to the start of flights to Bali from Adelaide, Melbourne and Perth earlier in 2016, with RPKs up 34.7 per cent in the quarter and load factors 2.8 percentage points higher at 88.4 per cent.

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Virgin’s international flying was impacted by the transfer of some Bali services to Tigerair and the suspension of Sydney-Abu Dhabi services for much of the quarter due to the refurbishment of its Boeing 777-300ER fleet with new B/E Aerospace Super Diamond business class seats, a refreshed premium economy cabin and a new Panasonic inflight entertainment system.

As a result, Virgin’s international ASKs were down 13.1 per cent in the quarter, with RPKs 13 per cent lower. Load factors were steady at 84.8 per cent.

“Capacity is being actively managed in response to the trading environment,” Virgin said.

“The group will continue to exercise disciplined capacity management in line with trading conditions.”

As part of efforts to improve its balance sheet and reduce costs, Virgin is withdrawing all 18 Embraer E190 jets and between four and six ATR 72 turboprops over the next three years.

The airline group’s low-cost unit Tigerair Australia will also transition from Airbus A320s to Boeing 737-800s during that time.

Moreover, the company was targeting improving operating efficiencies in crew and ground operations, as well as in maintenance, engineering, procurement and its supply chain.

Virgin said cost per ASK decreased compared with the prior corresponding period, without providing details.

“The program is already generating savings in the 2017 financial year and the group expects to deliver net free cash flow savings increasing to $300 million per annum by the end of the 2019 financial year (on an annualised basis),” Virgin said.

“The group continues to drive structural change in its cost base through ongoing cost-saving activities and new efficiency initiatives under the Better Business program. This includes the fleet simplification program and organisational rightsizing.”

Meanwhile, Virgin said it had “accelerated” its fuel hedging program to take advantage of lower fuel prices. It said 90 per cent of the airline group’s expected fuel needs were already locked in for 2016/17, while hedging for the first half of 2017/18 was already underway.

Virgin began issuing quarterly updates some years ago in line with one of its major shareholders Singapore Airlines (SIA), which is due to report its first quarter results on Thursday.

On Monday, Qantas reported a three per cent decline in revenue across the airline group to $3.98 billion for the three months to September 30 2016, compared with $4.11 billion in the prior corresponding period.

Meanwhile, unit revenue, measured by revenue per available seat kilometres (RASK), fell 5.5 per cent in the quarter.

Qantas said the result was due to “increased competition on international routes and a subdued domestic demand environment in the first two months of the year”.

20 Comments

  • Clio

    says:

    No word on how much Merren McArthurs freight operation lost?

  • Rocket

    says:

    Oh, what a surprise. Don’t see much about the leader being a messiah in now… yet another year of losses and no doubt another year of promises that the profit is just around the corner. Badly managed, a lot of bad decisions, too many time servers and not enough people who know what they’re doing. This is as close a copy of Ansett in it’s final years than I’ve seen. The organisation is replete with people without the experience or ability to close the deal. You can almost cut and paste each news story where the losses are concerned. Same excuses, same promises. Glad my shares are in the other mob.

  • rpaps5

    says:

    restructuring charges – still. Mr Virgin Australia how long are you going to be able to hide behind the apparently continuous restructuring which seems to be a hallmark of your airline group.
    If Virgin Aust domestic, Tigerair Aust and Virgin Aust International can’t make profits from loadfactors of 77.6% and 88.4% and 84,8% respectively there is something fundamentally wrong with your business model.
    I have always supported the innovation and vision of the Virgin Blue then Virgin Aust brand, as I don’t think QANTAS has been a proactive airline since James Strong was running it. But, Mr Borghetti – really!! excuses after excuses. You bought the Embraer 170’s, 190’s and ATR 72’s in, then you get rid of each of them citing inefficient use and underutilisation – others make good profits using these aircraft!
    Then getting rid of the Tigerair A320’s in the name of efficiency – yet more disruption and cost, while Jetstar and QANTAS continue to make good profits from the same mix of models – Jetstar A320/A321 and QANTAS 737-800.
    Maybe there was good reason QANTAS passed you over for the CEO position.

  • GBRGB

    says:

    It must be time for the govt to revisit our airlines policy and encourage real competition. It is clear that Virgin have failed, they have virtually vanished from regional centres like Townsville and now only have token services. Considering it is a foreign owned business anyway the govt should look at opening up our domestic skies to foreign airlines and allow them to fly routes current airlines refuse to fly.

  • Steve

    says:

    Rpaps5 – it was actually Brett Godfrey who brought in the E170’s and E190’s

    But yes. Terrible management by Borghetti

  • deano

    says:

    Rex seem to keep their heads above water on load factors of high 50%s
    Maybe they could offer to buy VA for what VA bought Tiger for ($1) and make profits by replacing shiny new 737s with 20 year old frames

    There is no secret on how to make money in the airline industry
    1) Keep fleet costs low (fail)
    2) Keep frames once paid off (fail)
    3) Keep load factors high (pass)
    4) Keep bellies full of freight (fail)
    5) Keep frames in the air as long as possible (fail)

    1) Buying new aircraft, then selling into an oversupplied second hand market a few years later, just burns money and is stupid, Q Link transferred some Q400 to Jetstar NZ so why not set up Tiger Regional and still feed transferring pax to VA
    2) VA seem to flog off 737s after about 8 years, again into a depressed second hand market, why not keep them for another 8 years, it’s like selling your car after a 5 year lease, it’s a great tax write off if you are making a profit in a business, but if you are only at break even, there is little advantage
    4) Freight operators like Toll, are buzzing around Queensland in the wee small hours it ATRs. Why VA can’t carry that freight in a 737 belly and sell red eye tickets upstairs rather than park their fleet overnight is beyond me
    5) VA has a fleet of domestic and a fleet of international 737s, WHY?
    Would it not be a better use of their fleet to fly a 737 to Asia overnight and return, then a couple of domestic sectors at peak times
    The VA fleet has so much down time, compare this with Jetstar or more so Ryanair
    You pay the same lease no matter how many hours you fly, yes more fuel, staff and servicing but more than offset by more revenue, but the one fixed cost is the cost of the frame
    QF seems to have opened their eyes to fleet utilization lately, but VA are yet to see the light

  • Mick

    says:

    So many staff are worried about losing our jobs. Pilots are jumping ship to QF, CX, EK and others at an alarming rate. Lost a ton of cabin crew to QF QCCA.
    Internal communication regarding finance is non existent and management seem to have their head in the clouds.
    Should I get out now?

  • Christopher Campbell

    says:

    Will they cancel the 737max order?

  • Jason

    says:

    So, so many experts…

  • Steve

    says:

    Laughing at GBRB comment.

    Right let’s allow foreign airlines to fly domestically using their foreign trained crew that are on $2 an hour. While we are at it why don’t we allow foreigns to also do your job at a more competitive rate?

  • Craigy

    says:

    It would be interesting to know how how many of each type of aircraft in the Virgin fleet is leased or owned. Qantas has a policy at the moment to purchase the aircraft as they come off lease to add flexibility in how the fleet is utilised. As the CFO of Qantas recently said, owning the aircraft is an asset to the business.

    It would also be interesting to see what the operational economics of the E190s are in Virgin service to understand why there is a need to get rid of the aircraft. Likewise the ATRs.

    The transformation program needs to deliver big time but I wonder how many for quarters restructuring costs will impact on profit. Commentators stated at the time of Virgin releasing the 2016 FY results, Virgin isn’t in the same position as Ansett, so it shouldn’t go bankrupt. But I can understand the uneasiness of staff.

    Finally, I wonder what it was the caused AirNZ to resign from the Board and dump Virgin stock at a significant loss.

  • Rocket

    says:

    @ rpaps5

    James Strong… give me a break. He was responsible for nothing more or less than starting the decline of Qantas. Gifted a massive capital injection which had been absent for 45 years of government ownership, he claimed the increased profit (easy when someone pays off most of your debt – and then the govt only did that because BA demanded it be properly capitalised). He then imported in many cases ‘cronies’ from previous places he’d worked, one of whom had to resign for sending QF business to a consultancy the offending exec owned. Many good people were dispensed with and found very successful careers with some of the world’s leading airlines and in return they got people like the bloke that went to run AN in it’s last days. Well thought of by the TN people for his brief time at TN but not by many QF people as the company took years to get back to where it was and was completely demotivated in terms of morale. Even though many didn’t like Dixon and despite the weird fleet choices, he was a far better CEO. I had nothing personally against the late Mr Strong and never wished him any ill but to credit him with having vision for Qantas – that is a joke. A destroyer is what he was in many ways but his career IMHO was marked by going in and taking credit for stuff. John Ward was actually a very, very good CEO. He couldn’t speak publicly but he was a highly intelligent and well liked exec and he was tossed aside for ‘image’ over substance.

  • GBRGB

    says:

    Well Steve if the CEO decides to give me the flick and get someone for 10% of my package then that’s his business, more than just dollars in someone’s value. But that is a side issue to having protected businesses provide an overpriced, inadequate service due to Govt regulation. We can see the value foreign airlines have added to real competition and have made the Australian carriers lift their service, the same thing would happen if they were allowed to operate in Australia. I did articulate routes that are not serviced by the current two, if a foreign airline wanted to fly many regional routes that QF and VA have no interest in we should encourage it, obviously you live in a big city with lots of choice and competition, many don’t, and to have these people denied a service by legislation is a false economy.

  • rpaps5

    says:

    Steve – Thanks, I stand corrected. At least Brett had the sense to know then his style which seems to be great for a startup was not going to be best for a maturing airline group. Borghetti initially praised these models for their efficiency and passenger popularity – well deserved I think, but now wants them to be part of the blame for the current situation.
    Rocket – Show me a CEO who hasn’t done the very same thing with former colleagues. My point was to show the difference between earlier CEO’s with at least some vision and were willing to take calculated risks and the current one and his predecessor who just react to changes competitors make. I wasn’t implying he was the king of CEO’s.
    There are more airlines in Australia than QF & VA. Airnorth is utilising Embraer 170’s very profitably on routes between Cairns, Wellcamp and Melbourne – Essendon, adding Townsville shortly, plus a range of routes radiating from Darwin and looking for more airframes.
    Rex has a fleet of over 50 SAAB 340B/B+ aircraft flying all over regional Aus. and has weathered many periods of turbulence successfully.

  • Goose

    says:

    Ok Deano, I’ll work for your airline

    We make sure our aircraft are flown 100% of the time , we don’t care about maintenance overnight or MPD or CASA requirements or the costs associated with flying mostly empty red eye flights with a full compliment of trolley dolleys on Aus wages against the Asian carriers doing it at in a330s or care about our passengers flying in 20 year old [email protected] boxes

    WTF are accountants doing on this website

  • Reed

    says:

    Fly Fiji Airways. It is better then both Qantas Airlines or Virgin Australia Airlines.

  • Rocket

    says:

    GVRGB.

    What planet are you living on??? Already Australia has removed its tariffs and dropped all sorts of restrictions on foreign competition because we bought the BS about globalization… and where has it got us??? A Qantas significantly weakened in many respects not because of inefficiency but because all of the barriers have been dropped, the company sold into public hands and who are these efficient carriers they’re competing with… EY, EK, NZ, SQ, MH, GF – they’re ALL owned by their governments either substantially or majority. The biggest joke is NZ which is efficient yes, but wouldn’t even be around if it hadn’t been for Helen Clarke’s government buying the damn thing post Ansett. Our car industry is gone, we don’t build half of the rolling stock on rails that we used to (and in Melbourne, every time the temp goes over 35 in summer the european garbage that we bought for trains/trams breaks down while the Australian built rolling stock keeps going.
    So, this is your solution, let foreign operators, with foreign licenses and foreign crew in to operate domestically. Would you mind telling me exactly which of the ‘free-market’ loving countries in the world we compete with allow this… USA = never, you can’t even own more than 20% there and if you do, you only get 20% voting rights, Malaysia = no, Middle East = no, Indonesia = no… and the list goes on. So you think we should allow something that no other country allows??? If that is the case then you are a fool and you would see the destruction of any aviation industry in this country. Mind you, when all the local airlines are gone, watch the prices go up and the service to remote areas go down. You are living in cloud-cuckoo land.
    It would perhaps just be better to get a better management team into VA, one that can actually run an airline and therefore create local competition. Australia already has the most liberalized aviation industry in the world. There are NO other countries where foreigners can own domestic airlines. Fool.

  • GBRGB

    says:

    Rocket, plain and simple you are a protectionist, protecting poor businesses, badly run, don’t worry there are many in Australia like you, so go jump in your HQ Holden and run down the shop before it closes at 5.00 pm and go home and watch the black and white news on your old HMV and remember how great life was in the seventies.

  • rpaps5

    says:

    Folks,
    Please lets keep the conversation civil. The fact is that Australia is the origin of many technologies and inventions that the world takes for granted today, but we need to focus our national talents to areas where we can make real forward progress.
    Aust is a small/medium country in terms of population but we seem to have a big country mindset when trying to tell everyone else how to do things properly!
    Australian research and industry capabilities are world-leading in many areas, BUT we cannot continue to use the scatter gun approach to how we allocate finite resources to industries willy-nilly!
    We are world leaders in Robotics, composite materials fabrication and manufacture, medical research, the aviation flight data recorder etc… the list goes on…
    That said, we should NOT continue to throw money at industries like domestic car manufacturing – it has been a dead-man-walking for the last 30 years – propped up by taxpayer subsidies. It is a volume manufacturing industry now, and with our miniscule population (therefore very small domestic market), we would never be able to compete with the Japanese, Koreans, Thai’s, US and Germany etc.

  • franz chong

    says:

    I am sure they will bounce back but for the most part they should for anything other than Trans Tasman and Domestic plus the South Pacific leave everything to their partners.Singapore Airlines for everything Asian and most of Europe with the exception of Bali,Etihad for Europe and Abu Dhabi and Delta AND Hawaiian for Hawaii/West Coast USA.

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Your email address will not be published. Required fields are marked *

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