Virgin Australia eyes China hubs to end its losing streak

By Bloomberg News, July 28 2017

Virgin Australia aims to add two routes to mainland China to tap into the Chinese backer’s aviation hubs and the record flow of visitors heading Down Under.

In an interview in Sydney, Chief Executive Officer John Borghetti mapped out a plan over the next five years to take advantage of carriers owned by or affiliated to HNA – which include Haikou-based Hainan Airlines, Tianjin Airlines and Kunming-headquartered Lucky Air.

“Connectivity in China is important,” said Borghetti, 61, who is halfway through a three-year turnaround plan that aims to end a streak of losses. “If you can tap into two hubs where their airlines feed, that gives you a big advantage.”

As well as adding daily flights to those hubs, which Borghetti wouldn’t name, Virgin Australia will also probably fly to one more port city in Asia within five years, he said.

There are no plans to fly to Europe, the Middle East – even though Etihad Airways is a major shareholder – or extend Virgin Australia’s reach beyond Los Angeles in the U.S., he said.

HNA, which has announced more than US$40 billion of deals since the beginning of 2016, last year acquired about 19 percent of Virgin Australia. China’s Nanshan Group, Etihad and Singapore Airlines Ltd. own similar-sized stakes in the Brisbane-based carrier, a shareholding structure almost unheard of among modern-day airlines.

Borghetti’s vision to build Virgin Australia’s Chinese business around HNA’s assets comes as the Chinese conglomerate’s ownership and some of its purchases come under heightened scrutiny. Its holdings include stakes in Hilton Worldwide Holdings and Deutsche Bank.

Chasing China

About 487 million people few to, from and within China in 2015, and that figure is set to almost double by 2025, according to forecasts by the International Air Transport Association.

Australia attracted an unprecedented 1.2 million Chinese visitors last year, representing 10-year growth of 284 percent, according to government data.

Virgin Australia’s bigger domestic rival, Qantas, is already chasing China traffic. In January, Qantas resumed its first services to Beijing from Sydney since the route was axed after the financial crisis. Qantas has a partnership with China Eastern Airlines Corp. Virgin Australia this month started its first flights to Hong Kong, from Melbourne.

Virgin Australia’s shares are down about 26 percent this year and are trading near a record low, valuing it at A$1.48 billion. Qantas, which has delivered record profits amid its own three-year turnaround plan, has gained 61 percent year to date.

Analysts expect Borghetti to report a fifth consecutive annual loss at Virgin Australia next month. His transformation program includes cutting the cost of everything from catering to maintenance, simplifying the fleet and pushing back delivery of Boeing 737 jets.

“We’re making very good progress,” Borghetti said, declining to give more details before the airline’s full-year results.

Borghetti also declined to elaborate on any potential delisting of Virgin Australia, following media speculation in May that a buyout by shareholders or management was all but inevitable within 12 months. Virgin’s free float – the proportion of shares available to change hands on the market – is only 8.6 percent, according to Bloomberg data.

“That’s a shareholder issue,” Borghetti said. “I just want to run the company whatever form it takes.”

Skipp

Skipp

Qantas - Qantas Frequent Flyer

20 Aug 2012

Total posts 126

"His transformation program includes cutting the cost of everything from catering to maintenance, simplifying the fleet and pushing back delivery of Boeing 737 jets."


Well.... There it is in black & white as to why Virgin Australia economy passengers are complaining about getting a mini biscuit or muesli bar on trips less than 3 hours.


I haven't flown VA in years but I can see why VA passengers are confused. Virgin Australia pitch themselves as a full service airline but don't seem to deliver a "full service" in return. Maybe they should stop trying to undercut Qantas by $10 to $20 constantly when it comes to domestic airfares and instead charge the same as Qantas; and therefore invest that difference in the same quality meals (both onboard and in their lounges) as Qantas. Simple.

nige00160

nige00160

07 Jan 2016

Total posts 18

Further cuts to catering ?? Bugger. I'd grown quite accustomed to those Jatz Cracker biscuits and cheese they give you on the dinnertime flights....

crwilkins

crwilkins

Qantas

02 May 2016

Total posts 35

Expect to report a 5th consecutive loss....!!!! my money is also on Borghetti reporting a 6th consecutive loss, time for him to go, he's had long enough and it's not going anywhere, clearly Chris Luxon knew that and he was as close to the heart of the action as anyone can be

UpUpAndAway

UpUpAndAway

QF

11 Jul 2014

Total posts 295

There are 2 ways you can look at the game being played; at the face value of what we can see or the long term goal. Seen it all before remember Qantas.

highflyer

highflyer

Qantas - Qantas Frequent Flyer

10 Apr 2012

Total posts 302

Im sorry, if they can't make profit locally where majority of the business is, how does he expect to make a profit internationally when its only going to be an additional "two" possibly "three" routes? 

chap6595

chap6595

Qantas - Qantas Frequent Flyer

17 May 2015

Total posts 51

Why are they retireing the E190's..they are only 9 years old yet they have 27 Year old Fockers in their fleet?

Surely they are losing money doing that?

BRIS_VA_HAWK

BRIS_VA_HAWK

Virgin Australia - Velocity Rewards

04 Aug 2017

Total posts 3

The E90's have the same fuel burn as the 737's, but only 2/3 the seating. Only way that VA save on the E-jets is less cabin crew IIRC. The Fokkers are wet leased (jet and crew) from Alliance. VA pays Alliance to run the routes (BNE-BDB/GLT/EMD/ROK) for them.

AeroSexual

AeroSexual

Qantas - Qantas Frequent Flyer

27 Jan 2016

Total posts 14

E190's have some re-sale value, F100's don't.

F100's would be fully depreciated, cheaper to run.

F100's operate where there's lots of dust, sand etc - to operate E190's here would negatively impact the quality and life of the airframe, whereas for the F100's - the damage is already done (not in an unsafe sense - you get my drift).

So unlike some of the other decisions I see VA make - this one seems to have some method to the madness.

ZT

ZT

07 Jan 2017

Total posts 31

Virgin to Hong Kong. Almost to where Ansett were approx. 23 years ago

John Phillips

John Phillips

QF

03 Jul 2015

Total posts 8

Borghetti must be running out of excuses for Virgin by now.  

How much longer can Virgin survive?

Markspark

Markspark

16 Dec 2016

Total posts 28

When are the Virgin Board and foreign owners going to hold Borghetti responsible for his failed strategy? It's just embarrassing now

Bert the Banker Banned

Bert the Banker Banned

04 Aug 2017

Total posts 6

John Phillips is a sage man. 

My sources tell me that Virgin is in the last throws of what industry insiders refer to as a "death spiral".  I think people have woken up and realized what a poxy airline it really is. 

I am not QF fanboy, but seriously, VA is a farce by comparison. Inattentive and disinterested staff, closing flights up to 30 mins before departure, frankly pathetic lounge offerings are just the start of the issues. 

Polbathic

Polbathic

Virgin Australia - Velocity Rewards

15 Jul 2016

Total posts 13

As a P member of VFF I get around a bit, and I've not encountered inattentive and disinterested VA staff (quite the contrary), any flights closing 30 minutes before departure and nor do I find the Lounge offering "pathetic". Indeed I think the Lounge is pretty good, especially when compared on a world wide basis. What I do agree with other commentators on is the economy food offering: it really needs to be tossed altogether or markedly improved. Personally I would be opting for improvement, which must be something achievable within the current operational paradigm, given that the catering carts come on board and the staff already do a range of catering activities during a flight anyway. E.g. Lufthansa offer a tasty roll and include soft drink in their catering, the cost difference to the current woeful VA offering is probably less than $2 wholesale per unit, and the weight difference similar to some ignored oversized carry-ons.

I think if VA are going to improve their overseas offering, they need to improve the alliance with Etihad. It's a great airline for long haul Business, and I'm about to test its Economy product ADL-GVA in a week or so. What I did find surprising was that a P VFF had absolutely no seating benefits in Economy! I mean, I can go to the very fancy First Lounge in Abu Dhabi on my cheap Economy ticket but I cannot request a decent seat on the plane, not even with any full Economy ticket.... although I can pay extra (for legroom) on any E ticket. First world problem I know, but it does point to broken bits in the interline.

Bert the Banker Banned

Bert the Banker Banned

04 Aug 2017

Total posts 6

Polbathic, 

Where do I start with your post? I really don't know, but as an old friend says to me regularly, I will "give it bash".

Firstly, I agree with your comments about the VA-Etihad alliance.  That said, it is a little bit like partnering a terminally-ill octogenarian with a twenty-something in the prime of their life. 

Otherwise, under what rock or rocks have you been hiding? VA staff are universally unfriendly and inattentive.  Whilst a lot of people criticize the QF lifers, at least they get the job done with minimal fuss. 

With respect to flights closing early, I suggest you attend upon any of the major Australian airports as soon as you can hail a taxi or, perhaps, in your case jump on a train.  VA almost invariably will close domestic flights with a "final boarding call" at least 15 and up to 30 minutes before departure. QF, by comparison, will have no compunction in allowing you board right up to departure. 

Finally, in relation to the lounge, I appreciate we all come from different socio-economic backgrounds and, therefore, tend to view things through that prism.  Whilst I do not come from a particularly privileged background myself and do not incline to offer a view on anyone else's background, I do not find $15 bottles of wine and domestic lager partnered with "hotdogs" and crisps to be anything other than utterly pathetic.  I, of course, appreciate that we all come at things from different perspectives and that this, to you, might seem more luxurious. 

japanair772

japanair772

Japan Airlines - JAL Mileage Bank

09 May 2017

Total posts 14

How about Tokyo?

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