Virgin Australia isn’t in a hurry to resume long-range flights

CEO Jayne Hrdlicka wants to keep her eyes on the prize of a strong domestic network and a fresh listing on the ASX.

By David Flynn, September 15 2022
Virgin Australia isn’t in a hurry to resume long-range flights

Virgin Australia is reluctant to resume long-haul services even as demand for international travel soars, CEO Jayne Hrdlicka said, as the airline seeks to rein in costs and prepares for an initial public offering as soon as next year.

“Anything that we did from a long-haul standpoint would have a very high hurdle on it,” Hrdlicka said in an interview at a CAPA Centre for Aviation conference in Adelaide. The airline said in a filing Wednesday that it may consider a return to long haul at some point.

“There is a lot of demand right now for long-haul flying and not enough capacity, but you have to plan for the long term. You don’t invest significant amounts of capital in aircraft to solve for a moment in time,” the CEO said.

Hrdlicka anticipates that Virgin Australia will return to profit in the year ending June 2023, laying the ground for a share sale – possibly next year – and at least a partial exit by the airline’s owner, US buyout firm Bain Capital.

After collapsing under a mountain of debt at the start of the pandemic, Virgin Australia is now focused on keeping hold of one-third of the domestic passenger market and short-haul flights to destinations such as New Zealand.

“We’re very focused on running the business and making sure that we’re in great form for eventual listing,” Hrdlicka said.

Bain Capital ditched Virgin’s long-range Boeing 777 and Airbus A330 jets under a sweeping ‘rescue, rightsize and reboot’ plan which saw the airline focus almost exclusively – and, arguably, so far very successfully – on the domestic market.

Partners fill the gap

Partner United Airlines is now filling the Australia-US gap, with flights from Sydney and Melbourne to Los Angeles and San Francisco, along with Brisbane to San Francisco and Sydney to Houston.

United also offers an extensive network of connecting flights through what the carrier terms its ‘triple gateways’ of Los Angeles, San Francisco and Houston, with a one-stop service to other points on the United network.

“That all gives Virgin customers much more travel via one stop to virtually anywhere in North or South America because of United's vast network, they’re not having to double- connect or even triple-connect,” the airline’s senior vice president of international network and alliances, Patrick Quayle, tells Executive Traveller.

“It’s a real win for Virgin.”

Virgin also lacks aircraft suitable for resuming flights between Brisbane to Tokyo, the March 28 2020 launch of which was scrapped due to the pandemic.

The airline is expected to lean on partner ANA when Japan fully reopens to tourists, which is now tipped to happen by November.

Long-range jets a long way away?

Virgin has always insisted that it would resume long-range international flying when demand on its key routes returned, saying "long-haul international operations are an important part of the Virgin Australia business" but would not resume until the global travel market recovered – a process which remains in its early stages.

“We are really looking forward to restarting (long-haul international flying) with a principal focus on Japan and the USA,” CEO Jayne Hrdlicka remarked in April 2021.

In September 2021 s Virgin Australia spokesman told Executive Traveller “we remain in discussions with aircraft manufacturers on a fleet strategy to support the reintroduction of widebody services when long-haul international travel demand returns.”

Former Virgin Australia CEO Paul Scurrah, who helped steer the airline out of administration in 2020 before Hrdlicka took the stick, had previously launched a “widebody fleet review” with the aim of replacing the A330 and B777 with a single aircraft type – either the Airbus A350 or the Boeing 787 – citing “significant cost savings available from next-generation aircraft.”

“We did a lot of work pre-administration on replacing both those aircraft types with a more efficient, newer version of a wide-body,” Scurrah elaborated at a media briefing in August 2020.

“We are having discussions with aircraft manufacturers but there's also going to be leasing opportunities for us, and it might be that we go straight to the end solution or we might have a temporary lease solution” he allowed at the time.

Additional reporting by Bloomberg

Qantas - Qantas Frequent Flyer

09 Feb 2015

Total posts 356

Word on the street (and I have heard this from two separate sources) is that Virgin have signed a letter of intent or memorandum of understanding for 8 x B787's.  

I would certainly like to see them flying back to LA as well as the planned route to Tokyo.

Qantas - Qantas Frequent Flyer

20 Aug 2014

Total posts 147

I don't have any insider knowledge but your comments seem to be at odds with CEO Jane's comments. In any case, a LOI isn't worth the paper it's written on.

QF

11 Jul 2014

Total posts 870

I've heard the same thing but as an "option" that a 737 Max can be converted to a 787 but the numbers don't stack up. I'd be putting lie flat business seats into a couple of the 737 Max aircraft for Sydney - Perth, Sydney - Bali etc.

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 319

A 737MAX subfleet for Syd / Mel - PER and Bali doesn't stack up when your competitors also largely use the 737s with recliners in J on the majority of their flights same routes and the yield on the short haul international routes is largely budget tourist heavy where the "flat bed on every flight" doesn't make sense.

QF

11 Jul 2014

Total posts 870

Talking with people in the Know on Monday they questioned what will happen to the slots in LA and Japan? Good Question.

Also talking to Dr John Doe yesterday he confirmed he had over $20,000.00 in flight credits (I think he would have $30k-$40k worth) and they need to be used by January 2023 on VA Domestic (No Hope). He rang wondering if I had any ideas how to use the flight credits? Any ideas welcomed......

24 Aug 2011

Total posts 1175

If the Haneda slots are not activated by October, I believe they go back to the IASC to reallocate which would probably mean QF will be the only bidder for them.  I don't believe VA can take the slots and then give them to ANA to operate.

Not so sure on LAX.  Airlines don't own landing slots in USA (or most other airports for that matter, LHR being the obvious big exception) but there are some limitations for landing and take-offs as well as gate allocations.  I would think the old VA international allocations at LAX are now probably gone and, if they ever decide to resume long-haul, they will start from a completely new application.

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 605

Jayne needs to think laterally (don't laugh, stop it!) and find a way to extend these FFCs WELL BEYOND next January.  

One idea might be to extend FFCs indefinitely , but introduce a sliding scale of cross-subsidy fare purchase whereby, say, only 80% of the fare can paid using flight credits from January 2024, reducing to 60% from January 2026, then 40% from January 2028 and 20% after January 2030.  Of course, I'm assuming that ALL flights booked via the Virgin web site (including those on partner airlines such as United, Singapore, Qatar, Etihad, Virgin Atlantic, etc.) can be purchased using FFCs.    

Yeah, you're welcome Jayne. 

QF

11 Jul 2014

Total posts 870

FFC are only on VA metal which is currently domestic unless you love Fiji or one of those countries in a poor excuse for business class.

24 Aug 2011

Total posts 1175

Not a surprise.  VA is being disciplined in concentrating on its domestic franchise.  In what is effectively a duopoly, this should be a ticket to very significant profits.  

VA's current approach mirrors that of Southwest or the original JetBlue with a large single fleet and a mid-market product.  Of course, it also has a small FIFO fleet but that is an opportunistic uniquely Australian play and, even then, it is coming closer to the mainline business with the recent announcement of 737-700s replacing the F100s. 

VA is constantly getting questioned about when it will re-introduce widebodies, long-range services, free WiFi and Business Class lounges.  To its credit, it resists these temptations and continues with its chosen strategy as a way to grow market share and profits rather than attempting to be a Mini-Me version of Qantas.

QF

11 Jul 2014

Total posts 870

Reading the financials I think they will struggle to be profitable in years 3 to 4 unless Qantas goes under.

It’s a duopoly and I’ve seen this done 30 years ago where a competitor increased the price and the other prices matches, they both use the excuse that they have rising cost to content with and that is the reason for the increase.

24 Aug 2011

Total posts 1175

Not sure how you can possibly read financials for FY22 and deduce profitability levels 3 years out.  Great skill if you've got it and, if so, I'd be concentrating on listed stocks and buying those you know will be booming and selling those on the decline.

Your comment on dupolies is why they are so good.  A duopoly doesn't attract the restrictions imposed by authorities on a monopoly but offers great profit potential for both members.

 

QF

11 Jul 2014

Total posts 870

@Reeves35, Blind Freddy with One Eye can see the future from past and present conditions.

One example of reading the future is hostesses are getting $150.00 a day to work then they have to pay tolls, Rego, Fuel etc to get to work, staff are leaving in droves. The upward presses on the business will impact 3 -4 years out. 

Considering I've been right on so many other points, put that in the memory bank for 2025- 2026. 

24 Aug 2011

Total posts 1175

Not quite sure where you are getting the $150 per day from.  Indeed quotes VA cabin crew as earning around $57K p.a. which works out as around $257 per day assuming 220 work days per year, not great but cabin crew wages have declined in recent years as supply exceeded demand.  Maybe that is changing but it will change across the industry.  Ticket cost has tracked under long-term inflation for many years so, at some point, consumers will have to accept an ongoing increase in prices.

I agree with Mr TAA staff are complaining to me about there $150.00 a day pay.

So jump on the ATO website punch in $57,000.00 divided by 52 equals $900.00 a week divided by 6 equals $150.00 and on your next trip politely tell the cabin crew what a great job they do and Paul Scurrah and John Thomas should be running VA. 

Qantas - Qantas Frequent Flyer

29 Apr 2016

Total posts 7

Except UUAA its been many a long year that cabin crew have been called hostesses.

You should try to get out of the TAA era.

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 605

I trust, UpUpAndAway, that you were referring to the source of this observation:

The accounts note that Bain has an ongoing agreement to provide the carrier with “management and other consulting services”, which include a fixed annual feeand expensesthat tally to several million dollars a month.

22 May 2011

Total posts 85

Anything regarding international, I'd avoid Virgin.  Highly confusing lounge arrangement with partner airlines, some of which there is zero lounge option at all.  A reason enough to stick with Qantas (even with their current issues) and why I abandoned any chase for Virgin Platinum status.

What happened to this "future of flying" event that was planned a few months back but was cancelled "due to COVID"?

XWu
XWu

09 May 2020

Total posts 530

Unless they are going at a low price or the regular punter is ultra optimistic about the future of VA (particularly the sustained profitability aspect of it), I would think a timeline of IPO for Jun 2023 is challenging to say the least.

QF

11 Jul 2014

Total posts 870

June 2023 is a big challenge but once real numbers come into play the challenge will be a lot worse.

24 Aug 2011

Total posts 1175

With rumours of VA and NZ once again looking at merger options (The Australian 15/9 behind paywall), it may happen that VA never does an IPO but lists via NZ which is already dual-listed in both Australia and NZ.

QF

11 Jul 2014

Total posts 870

Air NZ would be a good tie up but I think it's a play at upppping the price other airlines will pay for VA.

Remember I predicted a REX (talks) take over and also Air NZ talks. Logic here is Singapore Airlines to put bums on seats.

XWu
XWu

09 May 2020

Total posts 530

A narrative of an alternative suitor may very well help with the IPO subscription to suggest its future “profitability” but ultimately like Uber and Tesla its business model is subject to no similar alternative.

If REx gets its act together in term of inter capital scheduling in the east coast, j class experience and more importantly, it’s loyalty program then it will challenge VA particularly with its country route feeders. I am seriously surprised how it is still struggling in the latter issues some 18 months into its foray into the golden triangle market 


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