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Virgin Australia tells shareholders at AGM market conditions challenging

written by australianaviation.com.au | November 16, 2016
VIRGIN AUSTRALIA AIRCRAFT SYD APR15 RF 5K5A1324
Virgin Australia says there has been good progress on fleet simplification efforts as part of its Better Business program. (Rob Finlayson)

Virgin Australia chief executive John Borghetti says the airline group is making good progress in efforts to cut costs and position the business for sustainable growth and profitability amid challenging market conditions.

Borghetti told shareholders at the company’s annual general meeting in Brisbane on Wednesday there had been little change in market conditions since Virgin reported a statutory loss after tax of $34.6 million for the three months to September 30 2016.

“As evidenced by our recent trading update for the first quarter of FY2017, industry trading conditions continue to be challenging,” Borghetti said in prepared remarks.

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“In this environment, we are actively managing capacity in our domestic and international network, with total sectors flown in the first quarter of FY2017 defining 2.3 per cent on the prior corresponding period.

“We will continue to look at ways of growing our revenue in smart, sustainable ways.”

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.

A screenshot of Virgin Australia chief executive John Borghetti on the webcast of the company's annual general meeting. (Virgin Australia)
A screenshot of Virgin Australia chief executive John Borghetti on the webcast of the company’s annual general meeting. (Virgin Australia)

The airline group’s low-cost unit Tigerair Australia will also transition from an all-Airbus A320 fleet to the Boeing 737 during that time.

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Moreover, the company was targeting improving operating efficiencies in crew and ground operations, as well as in maintenance, engineering, procurement and its supply chain in what it has labelled its Better Business program.

Borghetti told shareholders Virgin has sold four Embraers E190, with the sale of a fifth aircraft due to be completed by the end of November.

Further, the request for proposal process for the ATRs and the remainder of the E190 fleet was “well underway”.

“On operating efficiencies, we have made significant progress in organisational rightsizing from the top down,” Borghetti said.

“For example we have created a single point of accountability for each of our operating business segments and reduced management positions.”

The Better Business program was targeting $300 million in net free cash flow savings per year by the end of 2018/19.

Virgin chairman Elizabeth Bryan said the airline group would be “tenacious in implementing the Better Business program”.

“In doing so, we will become more resilient, which will put us in good stead amidst continued uncertainty in both the domestic and global aviation environments,” Bryan told shareholders in prepared remarks.

“We are an industry challenger to a much larger and iconic Australian institution; always a precarious journey.

“And although we have weathered the last three years when we had to fight for our right to exist, this has of course taken its toll and we are now in the process of strengthening the company and improving our financial foundation.”

Shareholders voted to approve the appointment of new directors from Virgin’s two new Chinese shareholders – Nang Qi from HNA and Dr Chien-tsung Lu from Nanshan.

A screenshot of Virgin Australia chairman Elizabeth Bryan on the webcast of the company's annual general meeting. (Virgin Australia)
A screenshot of Virgin Australia chairman Elizabeth Bryan on the webcast of the company’s annual general meeting. (Virgin Australia)

“I look forward to working closely with all of our new directors over the coming year and I believe they will each bring enormous value to the board,” Bryan said.

“It is important that board remain independent and are refreshed periodically in line with the principles of good corporate governance.

“Going forward, you will continue to see evolution in the board’s membership to support independence, good governance and the future of the Virgin Australia group.”

Bryan welcomed its two new Chinese shareholders and thanked “longstanding major shareholders” UK-based Virgin Group, Singapore Airlines and Etihad Airways for their support in the 2016/17 equity raising, as well as all other shareholders that participated in the capital raising.

The chairman also had a word of reassurance for the company’s smaller shareholders.

“While you are relatively small in number compared to other listed companies, I want to reaffirm you are top of mind in the board’s work and decision-making process,” Bryan said.

Also, Marvin Tan and David Baxby, as well as independent non-executive director Samantha Moystyn, were re-elected to the board.

Separately, Virgin has appointed Ken Dean, who currently sits on the Energy Australia and BlueScope Steel board, as a new independent, non-executive director.

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7 Comments

  • Craigy

    says:

    I may have this wrong, but didn’t Borghetti start that air fare war a couple of years ago? As for right to exist. No private company has a right to exist. It exists only by delivery a product people are willing to purchase and profitability to sustain the company. Isn’t that what business is all about?

  • John

    says:

    Another agm/financial report with more excuses. When virgin starts paying a dividend to shareholders then we will know that their business has turned around.

  • Paul

    says:

    Instead of just trying to copy Qantas and enter routes already served by them and other carriers, why not have the foresight to look at new routes with little competition and establish a great product from what should be a great airline. Perth offers so many opportunities which Virgin Australia could take the lead on but no Borghetti is far more interested in trying to compete with the airline that schafted him to prove a point which is never going to be made. Virgin Australia will be stuck in a rut until they get rid of Boghetti and bring in a fresh leader with no baggage. Shocking decisions being made in regards to fleet and routes!

  • Dave

    says:

    I’m just waiting for all the armchair CEO’s to tell everyone else how much better they could run the company

  • Brad

    says:

    Craigy, you do have it wrong. The fare war was initiated by Qantas.as it dumped capacity to maintain 66% market share but both continued in the fight too long and both got bloody noses.

  • Craigy

    says:

    @ Brad. Thanks for correcting me.

  • john

    says:

    Virgin now seem to be top heavy with managers, managers.

    We tried to buy a large block of seats on Virgin & had meeting after meeting & nothing was resolved, so went to another airline & bought from them.

    Dealing with Virgin, is worse than dealing with the public service.

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