Virgin Australia flies high with $110 million turnaround

By David Flynn , February 11 2016
Virgin Australia flies high with $110 million  turnaround

Virgin Australia will this morning report a $110 million year-on-year turnaround as the airline continues to grow its share of the business travel market.

Across the six months from July to December 2015 Virgin recorded a bottom-line profit of $62.5 million, up from a $47.8 million loss booked for the corresponding period in 2014.

The uplift reflects broad gains after Qantas and Virgin Australia called an end to a bruising 'capacity war' which saw supply outstrip demand, along with a substantial drop in the price of jet fuel.

At the same time, domestic airfares – the most sizeable portion of Virgin's network – have edged up while airlines keep a tight rein on costs.

Virgin's strongest result since 2010 was "was driven mainly by strong revenue growth in each of the group's business units" said CEO John Borghetti, adding that savings delivered by lower fuel "were offset by the weakening Australian dollar."

Virgin has made solid gains at the revenue-rich pointy end. Corporate and government travellers are expected to account for 30% of the airline's domestic revenue by mid-2017, helping insulating it from the more fickle leisure segment.

That's most recently been buoyed by the launch of Virgin's new domestic business class (below), which is now available on all east-west A330 flights while Qantas is still six months out from completing its own A330 refit, plus upgrades to Virgin's airport lounges at Perth and Brisbane.

Virgin's long-range Boeing 777-300ER jets will be upgraded to the same business class seats from early April as the airline eyes a larger slice of the lucrative trans-Pacific market on its Sydney-Los Angeles and Brisbane-Los Angeles routes.

The wide, comfortable seats with their ample personal space, 18 inch video screens and direct aisle access will easily outclass the Skybed II business class on Qantas’ Airbus A380s and Boeing 747s, giving Virgin Australia a critical advantage in the tussle for LA-bound business travellers.

Read: 10 things you didn’t know about Virgin Australia's 'The Business'

Virgin Australia's international arm is said to be on track to return to profitability by the end of the 2017 financial year.

On the domestic front Virgin is working on a wide-scale roll out of a self-service check-in system and bag drop which in November debuted at the airline’s new Perth terminal.

The airline's Velocity Frequent Flyer program enjoys continued momentum from its alliance with BP in the face of the stalled Qantas partnership with Woolworths/Caltex.

Velocity now has 5.7 million members now on the books – up some 21.7% over this time last year - and an average sign-up rate of almost 2,600 new members per day.

Borghetti is eager to swell the ranks of Velocity with more Qantas card-holders, especially those at the top of the loyalty ladder, shifting them from rusted-on Red Roo followers to "Virgin Australia loyalists."

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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.

Qantas - Qantas Frequent Flyer

04 Nov 2011

Total posts 350

Clearly the lower price of fuel is contributing heavily to the bottom lines of airlines.

sgb
sgb

Emirates Airlines - Skywards

30 Nov 2015

Total posts 745

Yes, lower fuel prices an Airlines CEO's god send.

Qantas - Qantas Frequent Flyer

21 Jan 2014

Total posts 263

Virgin will need to address its poor share of domestic numbers in regional areas to try and reach its potential. Even larger regional cities like Townsville, Darwin, Newcastle have poor offerings from Virgin. QF get great returns from its regional network which feed into other services from the capitals as well. Even players like Air North and Jetgo are increasing offerings to regional areas with a lot of success while Virgin in some places is going backwards.

24 Apr 2013

Total posts 18

Hi David, seems Virgin have been using 737 on morning flight from Perth to Sydney even though this is still sold as "The Business" until you arrive at the airport only to find the change of aircraft. Has happened 9 times out of the last 11. Do you know if this will now become a permanent change. 

Qantas - Qantas Frequent Flyer

12 Jun 2011

Total posts 145

Also happened to me Aus Day Eve on the red eye PER-SYD. Didn't know anything until check in online and saw our seat alocation had changed. One of the reasons why I won't fly them in business coast-to-coast anymore as it happens far too often.

06 Jan 2015

Total posts 69

Happened to me on Qantas last Nov Syd-Per also, (A330 last min sub to 737).

Happens to any airline that has it's fleet stretched.

Virgin Australia - Velocity Rewards

15 Aug 2012

Total posts 175

You're right, this does happen on any airline, however I think you'll find that Virgin will be more likely as they just don't have the fleet size of Qantas, and with adding A330 on Fiji routes this thins their fleet out more.

Does Virgin have sponsorship with AUSBT?  This isn't a negative question but more an observation as they do seem to get very favourable coverage and comments compared to Qantas.

For the record, I was a virgin loyalist but my new employer has me on Qantas with much more international travel, and I have to say I'm really impressed with them now. I'm torn between which Airline I favour, but I think I have a lean to Qantas now.

24 Oct 2010

Total posts 2404

Hi Charles: You ask "Does Virgin have sponsorship with AUSBT?  This isn't a negative question but more an observation as they do seem to get very favourable coverage and comments compared to Qantas."

Virgin and Qantas both advertise on AusBT (there's no 'sponsorship' per se) and do so to reach our premium audience, not for the sake of any stories we write or don't write – we've reported swings and roundabouts for both, and all stories on AusBT are judged according to their own merits. As for comments on airlines, that's of course totally up to our readers.

30 Mar 2014

Total posts 13

"....business class travellers now accounting for 30% of total passengers compared to 20% two years ago...".

I assume this is revenue rather than passenger numbers, or else they aren't flying many passengers in economy!?

Virgin Australia - Velocity Rewards

11 Feb 2016

Total posts 1

Another point of interest with these results are the reduction from 18 to 13 of the Embraer 190 fleet by September 2016, better utilisation of the current 737's is noted will cover the fleet reduction. Some ports may see a reduction in frequency to the larger jets, as seen in Launceston over a year ago, when 4 return Melbourne daily flights were reduced to 3, by changing to only 737's and dropping the 2 daily Embraer 190 flights.

Virgin Australia - Velocity Rewards

24 Aug 2011

Total posts 761

True. And it's a shame, the E190 was a very comfortable Y prospect. 

Qantas - Qantas Frequent Flyer

09 Feb 2015

Total posts 303

Any truth that they have a B777-300 up for sale with all E190's to be gone in 3 years?

31 Mar 2014

Total posts 332

That would be very surprising

24 Oct 2010

Total posts 2404

Here's the relevant fleet slide from this morning's VA half-yearly report.
 

Qantas - Qantas Frequent Flyer

02 Jul 2011

Total posts 1390

Also interesting that despite the profit - operating cashflow was pretty poor -- explained by more business travellers who tend to book last minute (so higher yield but lower cash)

And no dividend

Qantas - Qantas Frequent Flyer

08 Dec 2014

Total posts 43

"Also interesting that despite the profit - operating cashflow was pretty poor..."

Which explains why they are having to sell off aircraft.  With the vast amount of costs being loaded in to the business, along with poor fuel hedging, they are rapidly running out of cash.

Virgin Velocity

12 Feb 2016

Total posts 1

Totally agree with GBRGB.  Its very hard to stay loyal to Virgin for business flights when they only have one flight out of our regional airport (Ballina/Byron) which leaves around 2.30 pm and Jetstar have up to 3 per day.


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