Virgin Australia launches "Operation Rightsize"

Nothing is off the table as Australia's challenger airline reports its seventh consecutive year in the red.

By David Flynn, August 28 2019
Virgin Australia launches

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.

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

QF

11 Jul 2014

Total posts 399

and I reckon Alliance Airlines will grow out of these plans

Qantas - Qantas Frequent Flyer

12 Jun 2011

Total posts 136

Hopefully the age of setting mountains of cash on fire are over at VA. As are signing long term contracts which are then burned at huge cost (ejets, ATRs etc)

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 192

The unwillingness of the current shareholding team to invest any further suggests that it's time for VA to grow up as well. With HNA (and EY) looking at selling out, with no clear interested shareholders on the horizon suggests most potential investors know that VA is a complete basketcase.

Even Singapore has had enough. The fact SQ has invested in Vistara (also a basketcase) by purchasing planes for them and have only started to make profits after years of losses suggests that VA is not a priority for them.

Qantas - Qantas Frequent Flyer

30 May 2013

Total posts 314

Tough times at VA. I hope they can finally put a plan in place to become sustainable.

Qantas - Qantas Frequent Flyer

09 Feb 2015

Total posts 296

Let's hope Virgin can turn red into black ASAP as Australia needs two major premium airlines to keep the market competitive and evolving.

02 Nov 2018

Total posts 3

There is nothing premium about Virgin. Nothing

Qantas - Qantas Frequent Flyer

09 Feb 2015

Total posts 296

It's really not that bad. Try flying in other parts of the world, we are very spoilt here in Aus.

Qantas - Qantas Frequent Flyer

13 Jul 2012

Total posts 119

I would not be so categorical about that.

Their business class on flights to LAX is probably the most comfortable on offer, with likely the best service available.

Qantas - Qantas Frequent Flyer

01 Nov 2016

Total posts 126

Many hands have tried starting with Brett Godfrey, then John Borghetti and now Paul Scurrah. One just looks at some of the decisions ie: MEL to JNB, SYD to AUH and some of their fleet choices and domestic operations, unfortunately begs the question on how did they make these calls. Qantas needs competition for sure but based on evidence to date, time is running out for Virgin.

Qantas - Qantas Frequent Flyer

18 Oct 2012

Total posts 122

Could this be Ansett all over again. I sincerely hope not. Competing with the "Giant" aint easy

S
S

13 Sep 2013

Total posts 110

I know the HK routes are profitable, but I'll be so upset to see them cut SYD & MEL to HKG.

VA J is hands down the best option on these routes.

27 Jan 2016

Total posts 53

Are they though? The May Bitre data shows load factors in the 60's, well down on both QF and Cathay and yields have plummeted since all the additional capacity. I flew J last year back from Hk on VA and the cabin was less then half full. With fuel prices where they are I would be surprised if it is profitable. I just hope they don't can the A330's altogether

Qantas - Qantas Frequent Flyer

20 Mar 2012

Total posts 223

Load factor in April was above 80%, with the average year-on-year load increasing, despite a growth in seats available. VA are doing well in cargo on the HK routes, with a higher respective load than QF per flight.

Forward bookings have improved and the two routes are now profitable so I'm told. Will have to wait and see how it pans out but your anecdotal quips are hardly accurate here.

Qantas - Qantas Frequent Flyer

20 Mar 2012

Total posts 223

A dreadful way to interpret data. May is a typical low month for all HKG carriers and VA was carrying 80-90%+ in the months preceding. In addition, cargo has been stronger than both QF and CX, which I'm told makes the routes quite lucrative.

Qantas - Qantas Frequent Flyer

20 Mar 2012

Total posts 223

This is not a decent analysis. May is a slow month for all carriers on this route. VA were 80% + in the months before. In addition, the flights have been chocked full with cargo. Their has been a steady increase in patronage as an overall trend. They're actually performing better than I'd expected.

OWF
OWF

06 Oct 2018

Total posts 8

VA J to HKG is truly the best without a doubt.

Qantas - Qantas Frequent Flyer

25 May 2017

Total posts 70

Key to profit is attracting the suits. Look at the taxi rank in SYD and MEL at peak time. QF is full of suits while VA is a mix of leashes and cost sensitive travellers. VA it is not your routes it's your product. You are not much better than JQ. You do not value Platinum members like QF, your domestic lounges are not much better than a bus station, your terminals need an upgrade away from the bathroom floor tiles, you need to rethink your model You either want high value time poor customers or you want to compete against Jetstar and Tiger. QF has captured majority of the high yield business traffic. Fix this and they will come!

Qantas

02 May 2016

Total posts 45

I would exit Tigerair, LCC's around the world are struggling and it seems clearly Tiger is not winning against JQ and losing money so I would just exit that. International needs big decisions, stay in or get out, revenue growth seems ok but not able to turn it into profit - can they really compete on scale with the big guys, don't know but really needs deep strategic thought. I would suggest they put a huge amount of effort and focus into making the domestic operation strong and highly profitable. All the major airlines build on highly profitable strong domestic businesses, QF, DL, UA, LH etc etc. Agree with comments by @blamex above, have flown QF, VA, DL and AA on LAX/SYD and pax profile on VA is clearly a different mix than the others, VA needs to figure out how to attract the higher paying pax, not just in J but in Y as well.

This focus on cost & effficiency though is long overdue at VA, Borghetti just clearly kept spending hoping they would come.

30 Jul 2015

Total posts 2

VA launched with a great product and I switched over to them exclusively and was platinum with velocity for about 5 years. Two years ago I drifted back to QF because the VA product, especially domestic economy, just started to slide. Onboard “all inclusive” catering is awful. Cheese and crackers at dinner time is not a meal. Trying to obtain business class reward seats on flights to LAX is almost impossible. Not being able to select seats on VA flights operated by Singapore Airlines is frustrating. No more partnership with Air NZ also makes the airline less appealing. There's some things VA do well, especially The Business on the A330/777, but I just feel the whole airline is slowing going backwards. There's definitely lots of work to do to keep them in the game, and a solid option. Meanwhile over at QF they're growing, new fleet, new routes, profitable, and it's showing. At least for me. Happily platinum at QF now and always lots of options to redeem points on oneworld airlines and other partners. Interesting thing I noted about VA, I never once got any communication enquiring why I was no longer flying with them. Usually more difficult (and expensive) to attract a new customer than to keep an existing one. I would have thought they may have reached out to get some feedback but obviously they weren't really that interested. Might be an opportunity for the new boss to put something in place to get that feedback before too many more VA flyers work out what I have.

Qantas - Qantas Frequent Flyer

09 May 2013

Total posts 119

I'm always intrigued how QF charges a huge premium between regional towns to nearby capital cities and yet VA got out of the ATR's instead of spending more time getting that business model right.

They could truly concentrate on domestic market only instead of international (until their books look very good). The random network of destinations is not of great help.

Qantas - Qantas Frequent Flyer

21 Jan 2014

Total posts 247

I agree mspcooper, QF make a killing out of their regional fares and that is further compounded by the following connecting flights on QF to further destinations, VA doesn't get that pull through. Might be time for VA to seriously look at partnering with Rex and get some connections and reciprocal benefits happening.

Virgin Australia - Velocity Rewards

02 Jun 2019

Total posts 12

Velocity 'point "earn and burn" growth' is a misnomer. It is going backwards. The devaluation from partners like Amex, BP and transfer caps for Flybuys - is compounded by a consistent lack of Business Class availability on popular routes.

If my discretionary spend is twice the dollars, just for Velocity FF points equating to a J fare - I'd like to think I have more than a reasonable chance to redeem a bloody flight.

16 Feb 2017

Total posts 3

I have flights booked on virgin to LA over Christmas - I wonder if the route will still be in operation?

The dreadful availability of premium award availability to LA sure make using points tough.

Virgin Australia - Velocity Rewards

13 Dec 2012

Total posts 45

Just received a survey from VA covering international travel partner and alliances - surveying their passengers as input into those decisions I suspect.

QF

11 Jul 2014

Total posts 399

I received the same thing yesterday, interesting they had Star Alliance, Skyteam and One World on the survey, what is Virgin Lacking

05 Dec 2017

Total posts 2

As long as Qantas extinguishes my status points for the year on a single anniversary rather than 12 months after earning them, I'll stick with VA. Throw in the supremely awful QF Melbourne domestic terminal and VA's superior Ths Business, and I'm pretty happy with VA.

Qantas - Qantas Frequent Flyer

30 May 2013

Total posts 314

Whilst not overly great, the QF domestic terminal at MEL certainly trumps that of VA!

Virgin Australia - Velocity Rewards

11 Dec 2016

Total posts 59

I'm quite amazed at how they can make profit from so many of their regional locations.

QF use their Dash 8 planes across most regional areas with economy only as the available choice.

VA operate out of some of these same airports, normally with their 737 full service product. I know that they do have a few ATRs but not many.

How can they be making profit doing this when the much larger giant QF has obviously found they can't afford to run the larger plane. It would cost substantially more fuel to run aside from the other aspecgs as well.

04 Jun 2018

Total posts 16

I would suggest as per the first comment on this article, that Virgin may try and offload / outsource underperforming regional routes to Alliance and it's Fokkers going forward as they have already done for some QLD routes, and as they plan to do for the new MEL-KNX route.


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