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.
“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.
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.
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.
“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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