Airline CEO Keynote with Virgin Australia Group CEO, Jayne Hrdlicka

Transcript

Jayne Hrdlicka:Good morning, everyone. It is great to be introduced by another person who has a Y in her first name, Jayne with a Y. I think it's the first time ever that's happened for me, and we'll be on the stage together, and for sure that's a double first. So thank you, Jayne. And before I get started, I just wanted to acknowledge the traditional owners of our land, The most important thing is we pay our respects to our elders, their elders past, present, and emerging. And anybody in the room today who is either Aboriginal or a Torres Strait Islander, you know, that extends to you as well. It's a really important part of reconciliation that we acknowledge and show our respects. Now today we're going to do this in 2 parts. I'm going to say a few words and then we're going to open up to Q&A. I'm going to ask Dave David Marr, our CFO, and Alistair Hartley, our Chief Transformation Strategy Officer, amongst a few other things, to join me. So, so what I just wanted to do is set the scene a little bit and give you some context on where we are today and the journey that we've traveled to get here. And it's interesting to look back because a year ago, I think, was the last time I joined CAPA, and I did that virtually. Locked up in Queensland. We were living a pretty normal life in Queensland, but we were locked off from most of the rest of the country. And when you think back to how much has changed in a really short period of time, it kind of spins your head. A year ago, we had no idea when borders were going to open. We had no idea when we'd be able to visit loved ones who live outside of Australia, let alone people who are really important to us and loved ones in other states in the country. And we were much more like a collection of countries rather than a country ourselves. And that's, um, you know, after pretty much 2 years leading to that point. In our industry, you know, that was obviously pretty catastrophic. And not being able to predict the future, we learned a lot. We learned how to stay flexible, we learned how to be agile, and we learned how to focus on the things that we could control and to get really, really good at those things, because there were a huge number of things that were outside our control. And for us as a country, uh, you know, we, we took a particular strategy through, uh, COVID which had a number of significant positives. It also had some challenges associated with it. For us as a company, you know, we tried to find the positives in everything and use the opportunity with not a lot of flying to get our act together. We started life effectively as a new company in November of 2020. That gave us a lot of opportunity to really reflect on who we were, what we wanted to be, and how we were going to get there. And we took our job really seriously, and we took the opportunity of not a lot of flying as an opportunity. And so for us as a business, we used that opportunity to be sure that we really understood our strategy. We're clear about where we wanted to play in the marketplace, and we were clear about what that looked like and what we what we needed to do in order to be able to deliver against that. So we reset strategy, we reset our balance sheet, we reset our cost structure, and we, we really doubled down and invested in talent and the ways of working for us as a business. We're pretty clear that we had a really interesting history. We're 22 years old now, and our first decade was a fabulous decade. We had beginnings you know, developed by Richard Branson and Brett Godfrey, that are a fundamental part of who we are today. And while we consider ourselves to be a new company, and we are in almost every respect, our roots are anchored in the foundation set by Richard and Brett a long, long time ago. And those foundations are fundamental to who we are. It set this deep passion inside our organization to come to work every day to make a difference, to be passionate about what you do, to be passionate about supporting each other as a team, and to be passionate about really making a difference for our guests, because we appreciate that we make a profound difference in other people's lives every day. And never has that been more apparent than post the pandemic, because for a couple of years, most of us were locked away from experiences that really meant a lot to us in our lives. We were locked away from people that really meant a lot to us in our lives. And when the borders opened up, we played a really profound role. And every single day, there were tears across our network. with people being reunited. And that emotion is at the heart of who we are as a company, because we appreciate how important it is what we do every day, whether it's helping you start your new business, whether it's growing your business, whether it's seeing family and loved ones, whether it's having life experiences which mean way more to us than, you know, buying the next handbag or sofa. And so I, for one, you know, think that our industry is going to be much more resilient through the ups and downs of the economy because at the heart of it were about experience that enriches life. And so we've been through a tough time. I think we're headed into a really exciting time. And for us, we feel really blessed because we had the opportunity to reset on a number of things which are pretty profoundly important. So if I go back to those 4 things— strategy, the balance sheet, our cost structure, and people— the strategy for us is quite simply we want to be the best value carrier in the marketplace. We know it matters a lot to people, the little extras that come with flying. There's a big chunk of the market that cares about how they're treated. There's a big chunk of the market that cares that there are choices with respect to seating. There's a big chunk of the market that cares that there's a frequent flyer program. There's a big chunk of the market that cares that there's Wi-Fi on board. But they don't want to pay more than they have to. And so our strategy basically is to keep our costs as low as they possibly can be. And then provide those extra things that matter to people in a really cost-effective way so they can fly with what they want without burning a hole in their pocket. And so our position is as a value carrier in the marketplace. And by building that strategy together as a team, it gave us real clarity on what things we needed to get rid of and what things we needed to hang on to and where we needed to invest. And the day we started life as a new company, we started spending money. We started spending money on the things that mattered. We started spending money getting cost out of the business. We started spending money on fleet. We've grown our fleet by over 60% since November of 2020. We were hiring people. We came out of, um, you know, a period of darkness into the light in November 2020 with close to 4,000 people. We're 7,000 people today. So huge growth from us starting in November 2020. We didn't wait. for the industry to come back to life, to begin to make investments. We started day one investing in technology, investing in people, investing in aircraft, investing in product, investing in experience, taking processes apart and putting them back together again. Every single person in the team was really busy even though we weren't doing much flying because we had a lot to do to get our act together. We had a lot to do to get back into position where we could compete effectively when the music restarted. So strategy was really important because it gave us the clarity, it gave us the conviction, it gave us the strength to make investments day one. But we had to have a strong balance sheet to be able to do that, and investors who were absolutely committed to the long-term health and success of Virgin Australia— the long-term success and health of Virgin Australia— because that's how they're successful. That's how we're all successful together as a team. And so we've got one of the strongest balance sheets in the world of aviation today with very little debt and a strong asset register and enough cash to do what we've done. It was a brave thing to do to start investing day one in new aircraft, adding new people, building out strength and capacity in our training programs, investing in technology. We had a tech debt that was about 10 years deep, over $300 million in technology that was required before you think about the normal annual investment in technology. So $300 million plus the, the normal day-to-day technology investments. All of that started for us day one. It's only made possible because Bain Capital are our investors. They were hand in hand with respect to our strategy. They're hand in hand with respect to thinking about building our airline for the long term. And every single employee in the company feels a huge sense of responsibility to ensure that the Virgin Australia brand has decades and decades and decades ahead of it as one of Australia's most successful airlines and as Australia's most loved airline. We've always held that mantle from our very, very early days. And we have no intention of letting that go. The third piece of the puzzle was cost and making sure that we did the right thing with respect to understanding the unit cost position we needed to operate at in order to be competitive in a market with a very strong LCC player and a very strong full-service carrier. We knew the position we wanted to play in— excuse me— we knew the position we wanted to play in, and we knew exactly what cost structure we needed to deliver. And we've worked super hard to be able to do exactly that. We've taken over $300 million in cost out of the airline since starting life as a new company in November 2020. That's after having the benefits of a completely restructured, um, supplier base during the, during the course of administration. So cost matters a lot to us. There is nobody in the business who doesn't appreciate how important it is to be really thoughtful about where we spend money and the places where we still think we've got opportunity to take cost out. And as Alastair will tell you, we're nowhere near finished taking cost out of the business. We're exactly where we want to be in terms of a unit cost competitive position in the marketplace, but we know we've got to continue to take cost out because inflation's coming at us faster than we can bail the water out. And so we've got a long list of things that we intend to do, both on the cost side and on the revenue side. And what you can't see in the slides that you've just been shown is how well we're competing today. We're punching way above our weight. We came out with real clarity with respect to how much market share we thought we needed to carry in order to serve the customers that we target in the marketplace, and that's 33%, and we're delivering against it. We were 31% before the pandemic. As it was noted, Tiger was about 8%. We've taken 2 points of Tiger share. That's a sweet spot for us. So we're sitting at 33%. That's a very rational position for us to take. And it's important for us because value— a value carrier will target value-conscious corporates, small and medium-sized businesses, value-conscious leisure, premium leisure. And, and that's a really big piece of the total market. And so in order to have the depth and breadth of network, we need to be 33% of the market. It's logical, it's rational, and it's important for our customers. And then the 4th piece of the puzzle is people. We're a business that's always been about people. We care deeply about our people. We are, we are an airline, but airlines are basically all about people. It's about our people and about our guests. And so the most important thing for us from day one was ensuring that we were all together. We designed strategy together. We looked at our opportunities together. We engaged across the business. What are the things we need to keep? What are the things we need to get rid of? What do we need to invest in? We made those decisions together as a business, and we've doubled down to invest in improving the, the pace at which we can onboard people, train people, and get them ready to go. We've made investments in talent. We've really focused on reinvigorating talent in the business. You know, for, for the last decade pre-pandemic, Virgin Australia lost nearly $2 billion in shareholders, um, in shareholder value. $2 billion in losses in the 10 years leading up to the pandemic. So a lot of things had to change, and they had to change really, really quickly. So in addition to reinvigorating talent and focusing on onboarding and developing people, we've also really focused on ways of working. It doesn't just happen overnight that you lose that much money in a period in time when the industry was actually making money. So, so we've had to focus on improving financial disciplines, making sure that we're doing basic things like having a clear strategy, we understand the economics of that strategy, we understand what that means in terms of our unit cost position, what that means in terms of our pricing strategy, what that means in terms of commercial disciplines and how we go to market. Again, against all of our customer segments. A comprehensive rethink was necessary after a period of kind of losing our way. And so we're really proud of the fact that we have achieved so much in a really short period of time. We stand today as a very, very different airline than the airline we were pre-pandemic, and that was necessary. It's really important to our guests that we did that because it enables us to continue to invest in the things that matter to them. and ensure that we're delivering an absolutely exceptional experience on that journey. Now, like every other industry— sorry, like every other airline in our industry, it has not been easy to go from a couple of years of low mode to pretty much overnight going to high. And if I look at the 12 months of FY22, really there was 6 months that was darkness a quarter, so another 3 months, that was pretty nerve-wracking when Omicron hit in Australia. While the borders were open, Australia self-isolated for the better part of 3 months. And then the 4th quarter of '22 was unbelievably busy. And what none of us fully factored was the strain that puts on a business when you've gone for so long partly dormant, and then you go to high mode and it's sustainably high. Well, We'd had moments of high, but now you're sustainably high. It has a big impact on every process in your business and on your people who have had all this volatility over a period of a couple of years and now it's just full on every single day. And it wasn't just us, it was all of our partners. So we feel really good about the number of people that we employ. We're feeling very match fit going into the September school holiday period. And we— but we've all learned and, and built quite a lot of humility in what we didn't see and what we didn't appreciate about the challenges associated with the end of lockdown for Australia. I really do think that that demand is here and it's staying. When you look at the statistics that were just shown by Jane and Hans, what you don't see is that the underlying demand is actually much higher than 2019 levels, much higher. We just don't have the capacity to support it right now because of unusually high levels of absenteeism. So it's people capacity more than it is aircraft capacity. The, the physical capacity is there, and hopefully by Christmas time everything is more back to normal and all of that activity is out and available to Australia. And it is inevitable with inflation, it's inevitable with the constraints on capacity right now that prices are a bit higher and they will remain higher for a while because the industry has to be able to sustain the challenges that we've got with fuel and the, and the challenges we've got with productivity, frankly, as we work our way through the back end of the consequences of a couple of years of lockdown. So I think the future is very bright and we're really excited about our role in it. And the last thing I would say is that we are today announcing our results from FY22, not in the way you would as a public company, but we're posting them, um, with the ASX. And, and what that will do is show the story of the last, uh, 12 months, um, which was really a tale of 2 halves, but mostly it was a tale of 3 quarters and 1 quarter. Um, and we are posting an underlying loss pre-tax of $386 million, which in the context of last year is a good result. Not a result that we would like to see again in the future, but, but a result that speaks to the transition out of a really tough period as an industry into a period which looks pretty bright. And we are forecasting a profit for FY23 and a period of continued growth. So that's probably the short story, and I'll just leave you with Um, the most important thing I think to take away, which is that we're a fundamentally new airline. We look and feel different. There are a lot of amazing things that are the same, which is really down to our people and our culture and the spirit with which we take every day, which is a focus on making sure that we're impacting people in a really positive way. We're making a difference in people's lives every day, and we're doing that with our unique and, and very important Virgin flair. So thank you, and with that, I'll ask Jayne to come back on the stage and get Alastair and Dave here. Thank you so much, Jayne. Please give a round of applause for Jayne.

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