Virgin Australia will cut jobs, review all routes and rethink the size and make-up of its fleet, following what recently-minted CEO Paul Scurrah has described as disappointing results for the 2019 financial year.
The airline posted a $315 million loss, which compared well to last year's $653 million loss but remains the airline's third-worst performance in its history, having returned seven straight years of losses adding up to $1.9 billion.
"There is no doubt that we are operating in a tough economic climate with high fuel, a low Australian dollar, and subdued trading conditions," Scurrah noted in presenting his first set of FY results since stepping into the role in April 2019. "However, today’s financial results tell us loud and clear that we need to reduce costs."
Running the ruler over routes and fleet
Having already put the freeze on a number of projects he inherited from previous CEO John Borghetti – including the launch of an improved business class for domestic Boeing 737 jets – Scurrah is broadening his review with a focus on "rightsizing" the airline to suit the market.
Virgin's fleet will be "reviewed to meet current and forecast market demand conditions and targeting greater utilisation". Scurrah has already pushed back the delivery of new Boeing 737 MAX jets from November 2019 to July 2021, delaying a $1 billion delivery bill.
"We will be evaluating the performance of every route... and we will review every route in detail." Scurrah has promised. Some routes and destinations "deemed uneconomic" are expected to be cut, with reduced capacity (fewer flights or switching to smaller aircraft) likely across the back end of 2019, while the overall network will be "re-optimised to align frequencies with demand."
The sweeping set of reviews will be overseen by a streamlined corporate structure "to integrate the corporate, operational and commercial functions of Virgin Australia Airlines, Virgin Australia Regional Airlines and Tigerair Australia into single functions and points of accountability."
Scurrah also announced that 750 jobs will be cut from corporate and head office roles – equivalent to one in three staffers at those locations – with an expected saving of $75 million per year.
Virgin moves towards Velocity IPO
As previously reported by The Australian Financial Review, Virgin Australia is also considering an Initial Public Offering (IPO) on the ASX for its Velocity Frequent Flyer program in October or November 2019, as its minority strategic investor, Affinity Equity Partners, looks to exit its 35% stake in the scheme.
Speaking with Executive Traveller after presenting the Group's 2018-19 financial results, Scurrah affirms that "we’ve made it well known that we intend to maintain a majority controlling position of Velocity."
"We are working ... on a number of exit options (for Affinity) right now and are planning on a future where we can work under several different alternatives," Scurrah adds, when asked whether Velocity would consider separating the 'points' and 'status' aspects of the program into two separate streams, such as Cathay Pacific has done with Asia Miles and The Marco Polo Club.
"There’s a lot of internal work being done," Scurrah continues, "and I just want to reiterate that (Velocity) is a very important part of our future."
When asked more specifically what the impact would be on Velocity members should the program move to an IPO, Scurrah assures that "I don’t think the ownership of Velocity will change its focus on membership growth or the expansion of its offering at all: I don’t see the two as being linked."
"As a business, whoever owns the minority stake is going to want to see a focus on membership growth, point ‘earn and burn’ growth, and partnership growth."
Additional reporting by Chris Chamberlin.