Brisbane-based Virgin Australia (formerly Virgin Blue) is Australia’s second-largest airline and one of the rare airlines successfully to have made a full transformation from LCC to full service airline. Virgin Australia commenced operations in 2000 as Virgin Blue, wholly owned by the Virgin Group, the country's first surviving true LCC, but has since moved away from that market. Under the leadership of new CEO, John Borghetti, the the airline rebranded in May-2011. Virgin Australia now operates a full service model, targetting higher-yielding corporate traffic, while seeking to maintain its core leisure market share and low-cost base.
V Australia (also now rebranded as Virgin Australia), the Group's wholly-owned long-haul division, operates to Abu Dhabi and Los Angeles, using Boeing 777-300ER equipment. Pacific Blue (now also incorporated under the rebranded Virgin Australia) is the shorter-haul international subsidiary of Virgin Australia, operating to New Zealand, Indonesia and the South Pacific. A third subsidiary, Polynesian Blue (now rebranded as Virgin Samoa), is a JV between Virgin Australia and the Samoan Government, which operates scheduled service to Samoa from the east coast of Australia.
Location of Virgin Australia main hub (Brisbane Airport)
Virgin Australia share price
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Virgin Australia and Tigerair Australia are beginning to flex their muscles with Tigerair Australia making its first strategic move since becoming part of the Virgin Australia Group in Apr-2013 by launching direct services between Sydney and Perth as the carrier takes delivery of its 12th A320 in Dec-2013.
Virgin Australia meanwhile has taken another step to challenge Qantas’ domestic regional network domination with the launch of the first direct link between its home base of Brisbane and Cloncurry.
The changes signal the start of Virgin Australia’s ambitions to duplicate the successful Qantas/Jetstar model which seeks to separately maximise the returns from the full service and leisure markets.
Corporate travel remains a critical sector for airlines but rapid change is making it increasingly challenging to navigate for both buyers and suppliers. Competition is intensifying as full-service carriers continue to introduce product improvements and as an increasing number of low-cost carriers start to target corporate buyers. At the same time corporate buyers are seeking to cut costs and leverage new technology to make smarter travel decisions while taking advantage of the cut throat competition.
One month ago CAPA held its inaugural Corporate Travel Innovation Summit in tandem with CAPA’s Australia Pacific Aviation conference in Sydney. The one-day summit featured over 30 panellists and more than 160 delegates from across the corporate travel sector, including leading airlines, corporate travel agents and corporate travel buyers. CAPA’s successful foray into the dynamic corporate travel sector will be followed by the Corporate Travel Innovation World Summit 2013, which will be held in Amsterdam on 25-Nov-2013 in parallel with the 2013 CAPA World Aviation Summit and CAPA Aviation Awards for Excellence.
Qantas and Virgin Australia appear to have reached an uneasy armistice in their domestic capacity war that added nearly 8% in seat capacity in the year to 30-Jun-2013. But a stay in hostilities is likely to be temporary at best, with neither side laying down arms.
Indeed, after Qantas offered an olive branch by stating it would limit its domestic capacity increases to between 1.5% and 2% for the first half of FY2014, Virgin Australia responded the next day by declaring it would grow capacity by up to double that amount. And that does not include any increase that its newly acquired 60% subsidiary Tigerair Australia may have planned.
Virgin Australia CEO John Borghetti also provocatively stated that Virgin Australia Regional Airlines, bolstered by the acquisition of Perth-based Skywest, will soon seek to break more Qantas monopoly routes, placing more pressure on fares and yields.
Virgin Australia reported a statutory loss after tax of AUD98.1 million (USD87.8 million) for the financial year to 30-Jun-2013, coming in at the lower end of its surprise profit warning issued on 05-Aug-2013, largely due to a tough competitive domestic environment, a slowing economy and large one-off restructuring and business transformation costs.
During FY2013 Virgin Australia undertook the monumental task of switching to the SabreSonic bookings system, acquired Western Australia regional carrier Skywest to expand its reach into the regional and lucrative fly-in-fly-out contract markets and took a 60% controlling stake in LCC Tigerair Australia providing the group with a dual brand strategy to match the Qantas/Jetstar model.
Two years into a five year transformation programme, Qantas sees the light at the end of the tunnel, reporting an underlying profit before tax of AUD192 million (USD172 million) for the financial year to 30-Jun-2013 against a backdrop of high fuel costs, excess domestic capacity and intense competition in its international markets.
The result, however, benefits from an AUD134 million (USD120 million) accounting estimate change relating to bringing forward accounting of passenger revenue. Without this adjustment the underlying result would have been AUD58 million (USD52 million).
But Qantas’ previously troubled international business is on the mend as the first benefits from the cornerstone alliance with Emirates begin to flow, costs are removed and loss making routes exited as well as aircraft reconfigured and alliances expanded, particularly in Asia.
CEO Alan Joyce stated: “Our financial position has been strengthened by the actions we have taken over past 12 months: reducing debt, extending our maturity profile and taking a prudent approach to capital expenditure". But Qantas has not provided profit guidance for the year ahead as the operating environment in the first half of FY2014 remains volatile.
Air New Zealand has reported underlying earnings of NZD256 million (USD200 million) for the financial year to 30-Jun-2013 and in so doing delivering on its promise to more than double profits on the prior year. The net profit after tax was NZD182 million (USD142 million), up 156% on the previous year.
The result, which is at the upper end of the guidance range provided in Jun-2013, follows up on the 300% improvement reported in the first half of FY2013 with all parts of the network contributing profitably.
Chairman John Palmer stated the result places Air New Zealand amongst the best performing airlines globally. “We are focused on further improving on this result in the 2014 financial year. Based on the airline’s forecast of market demand and fuel prices at current levels, early results and forward bookings are encouraging. Our expectation is that next year we will improve on the result that we have announced today.”