Airline Leader Interview Virgin Australia CEO Dave Emerson

Transcript

Oriel Morrison:Dave, welcome.

Dave Emerson:Thank you.

Oriel Morrison:I'm very excited to be here with you today.

Dave Emerson:I'm excited to be here too. It's great.

Oriel Morrison:Are you tired?

Dave Emerson:No, I could not— it's an adrenaline rush to be in front of so many of your peers.

Oriel Morrison:But since March, I mean, are you tired?

Dave Emerson:It's been a busy time, yes. And we've had a lot on, but it's been exciting stuff. It's the kind of stuff that gets you going. So yeah, I'm having fun.

Oriel Morrison:This may be the calm understatement of the year. We've had a lot on, as you would all know. You've been flat-strapped since March.

Dave Emerson:Yeah, look, you know, we went right into CEO transition to closing the Qatar partnership to launching Qatar partnership, first flights, Virgin flights to Doha, and then IPO, right? So, and now we'll be reporting our first results as a public company, you know, next month. So it has been very busy.

Oriel Morrison:So I'm going to come back to that IPO in just a moment, but first of all, you know, it's not just the last few months. You've actually been part of the transformation process at Virgin for 5 years now.

Dave Emerson:That's right. I got involved in Virgin You know, in April of 2020, basically right after, right after they went into administration. And it's been a great journey. It's really been the, the thing I've done in my career I'm most proud of, 30 years in aviation. But I think that what we've done here at Virgin and the story of Virgin is just such a unique and exciting thing, thing I'm super proud of.

Oriel Morrison:So did you ever think when you were part of this transformation process that your next would be as CEO? I mean, did you ever think this was the seat you'd be sitting in?

Dave Emerson:No, no, I did not. And, you know, it just sort of happens step by step. I don't know, maybe some people are really good at planning out their career, but for me, sort of it was each opportunity as it came along. I, you know, I first started working with Virgin as an advisor, right? So I started working on what the transformation plan might be as an advisor to Bain Capital. And then that led me to the Chief Commercial Officer role, which honestly was the best job I'd ever had, the thing that I was most excited for. And I did that for 4 years and I just couldn't have been happier about it. And I really thought that might be my last job. But then this opportunity came along and, you know, that's a once in a lifetime opportunity. You know, these jobs don't come up very often. And so I was super excited and— And you're here. And really humbled to be selected for the role.

Oriel Morrison:Was there any point that you looked at the situation and went, what have I gotten myself into here?

Dave Emerson:Yeah, I think that anytime you step up into a new role, you know, that's a whole different set of responsibilities, a whole different set of things you're doing, and you do say, oh wow, this is different, this is a lot. But, you know, we've got a great team. And honestly, the thing that energizes me is anytime I'm getting— I'm feeling like, oh, you know, is this, you know, is this too much? This is so hard. I spend time with our team, with our frontline team. And, you know, if any of you fly with us, you spend a little time talking to the crew, and I come away totally energized. They're just— they're so positive. They're so excited and there's so much energy that I just get recharged.

Oriel Morrison:Well, you've sort of had the opportunity to start afresh, haven't you, in many ways? And when you look back at your first few months in the job, because it's only been a few months, you've launched international flights that you talked about, you've gone through an IPO, and not just an IPO, an IPO that was— there might have been a slight hiccup with your IPO with airstrikes happening on the day of.

Dave Emerson:Yeah, it, it's probably a little bit of a different IPO experience than, than some, where, uh, 3 AM the night before, I get a call and say, oh, our flights have been diverted, missiles are flying. Uh, and so there was probably a little, a little question about, uh, about whether that would affect the market sentiment. Uh, but miraculously, you know, by 8 AM, Everything was, was, uh, peace declared. So, uh, and, and everything, the clouds parted, right? And just all of a sudden it was all good again, which is, is the world we're living in now. It's, it's a different and strange world where sort of events seem to come and go much more rapidly than, uh, than what we might have expected in the past. And so the, the issue of the day is a big issue, but it, it seems to move We seem to move past them, and that's been great. And so yeah, we were really excited to get the float away and excited to be a public company.

Oriel Morrison:So what difference does it make for you, obviously running the company, and for your team?

Dave Emerson:Yeah.

Oriel Morrison:Actually being a listed company?

Dave Emerson:Yeah, look, I guess I would step back and say that Bain Capital has been a great owner for us and was really the best owner for the phase of the journey that we were in, which is taking a company from administration, uh, all the way through to sort of record financial results, you know, record customer results, sort of the biggest domestic footprint ever, uh, for Virgin Australia. And so really, they were a great partner on that journey, but, you know, their business model requires them to eventually return their capital back to their investors. And so This is a good time to hand the baton off to the next set of owners, one being Qatar with 25% ownership, which we're super excited about, but then with public owners and investors and super funds. And I think those will be great long-term owners as well to take us to the next phase of the journey. You know, we did not do this IPO in order to raise capital. You know, the company's actually doing really well. We're generating enough capital to fund our own growth. Fund our fleet replacement. And so we really did this to transition owners so that we have the right owners for the next phase of our journey. And also it allows, uh, our whole team to participate. And so, you know, we're really excited to be able to offer the, the takeoff grants where all our employees now are shareholders and everybody got a stock grant. Uh, and so they participate directly in the success of the company, which is something that the previous structure didn't really allow.

Oriel Morrison:Do you find that motivates?

Dave Emerson:Yeah, look, I think our people— I've always found them highly motivated. And so— but I think it's always nice to be tangible in expressing our appreciation for everything that they've done and to make sure that they benefit from all their own efforts. And so, yeah, I think it's great.

Oriel Morrison:So you've said before that you've been brought in to really deliver long-term value. over the long term. What you talked about, the next phase, what is the next phase for Virgin?

Dave Emerson:Yeah, look, the, the next phase is, is, is to build on the platform that, that we, we built over the last 4 years. I mean, Jane did an awesome job in turning the company around and really taking it to a place where it's now highly competitive, delivering good results across, you know, not just, not just financial results, but great results for our customers, you know, really good operational performance, really good NPS, good results for our people. But there's a lot more to do and we're not done getting better. And so what we're really looking to do is build on this position and deliver more value for our core customers. You know, we really— we're a very focused airline. We're focused on delivering for small business, for value-oriented corporates, and the premium leisure segment. And there's more we can do there. We can deliver better and we can win more share. And then that will allow us to deliver more for our owners. And then that will allow us to invest more in our people. And, you know, that's that virtuous cycle. Our people create great results for our customers who then give us good financial results.

Oriel Morrison:Well, your operational performance has been very, very good, very strong as of late. How much has that been driven by, when we're talking about growth and growth opportunities, opportunities, investment in technology, integration of AI, all of those sorts of things. How much is that impacting on what you're doing right now?

Dave Emerson:Yeah, look, our, our journey in technology has been a long one. I think the, you know, one of the legacies of where Virgin came from is that, you know, as much as Virgin did a lot of great things pre-administration, they didn't actually earn money. And so there was no money to invest in technology. And so when we came in, With the new plan, a key piece of that was just— was investing heavily to get our technology just back to a baseline level. You know, we had a lot of very old systems, a lot of tech debt. So, you know, Bain Capital committed $300 million just in technology, tech debt, addressing all of those issues. And so that's been a great start.

Oriel Morrison:Okay.

Dave Emerson:start, and now we've gone from where we really were quite behind in technology to probably where we're, we're competitive. But, but we're not really done on that journey either. We now, we want to continue investing to where technology actually becomes a competitive advantage over time. And yes, uh, that has been a piece of our ops improvement, but frankly, there's a lot more to do, uh, and a lot of our ops improvement had been delivered with our existing systems just through the efforts of our people, uh, and there's more we can do to help them going forward with, with better system technology. And look, AI will be a part of that. I think that, uh, like probably every company in the room, we're on our AI journey, uh, and it's an exciting one. But, you know, it's still early in that process, uh, and we'll all, we'll all be excited to see where it goes.

Oriel Morrison:Yeah, absolutely. I think it's going to be— there's going to be many movies. Yeah, that's right. About what we're going through at this particular time. Now you've talked about investing and investing in growth for Virgin, and you've talked about investing only where there's a return above the cost of capital. You've also talked about your partnership with Qatar, but what does this mean for your long-haul operations?

Dave Emerson:Yeah, look, it's a great question, and, and to be honest, I think that when we think about launching the long-haul to Doha with Qatar, It's really sort of a test and learn for us, right? And so in the best possible way, we get all the benefits of the long-haul flying, but without having to go and spend $1 billion on new aircraft. And so, so we will monitor the performance of these flights and see how they do, see what the economics look like. That'll give us a better ability to understand, do we have an investment case to put our own capital into long-haul? Right? And so we'll probably take a couple of years to look at the results. We have, you know, this is a 5-year authorization partnership, so we'll take the first couple years and see where the results come out, and then we'll, and then we'll see what that means for our ability to invest. But, you know, I think our shareholders rightfully expect us to be good stewards of their money and that not to put money in places we can't earn, earn it back. And so that'll be the— that'll be what we'll be looking at. Can we earn it back? if we get back into the long-haul business. And then the other thing, of course, as you would know, is that it's almost impossible to get wide-body aircraft for many, many years. So that would be another thing we'd have to consider if we wanted to do that.

Oriel Morrison:But what you've also got with your partnership with Qatar and the ownership of Qatar in the airline is opportunities for your staff. So your staff, you can almost train your staff at the same time.

Dave Emerson:Yeah.

Oriel Morrison:If you are considering long haul in a couple of years' time?

Dave Emerson:It's been, it's been really, yeah, it's been a nice feature of the partnership and, and really, uh, something good for the company, but really also good for our people to create career opportunities. Uh, we had pilots and cabin crew seconded over to Qatar. In fact, the, uh, the captain who flew me in last night, was his last flight, uh, Virgin for the next couple years. He's headed off next week to training at Qatar to transition over to wide-body flying. And so yeah, we've created those opportunities for our people, and that's right, and they will come back. They'll come back with those skills. But it also creates employment opportunity in Australia because those, those 60 people go out, and then we, we backfill with, with new pilots, new cabin crew. So yeah, it's really a win-win.

Oriel Morrison:So, so let's talk— you talked about wide-body aircraft and how difficult it is to get wide-body aircraft at the moment. When we talk about your fleet expansion, you are in a unique position, are you not? You are able to fund your fleet expansion without raising capital.

Dave Emerson:Yeah, look, it's— we've been fortunate to have strong cash flow in the business and to be able to fund what is actually sort of a pretty aggressive fleet renewal program. We have 16 aircraft Scheduled to come in in this, this coming fiscal year, you know, on a base of a little over 100 aircraft. So that's a pretty good investment, and that just sort of worked out that way with some of the delays of the Boeing MAXs. We would have had them spaced out a little bit more, but yeah, we're, we're fortunate that we're able to do that without sort of raising new equity, uh, out of cash flow and with our existing debt facilities. And so But we're excited about what that fleet renewal is going to do. That includes 12 new MAXs that will reduce the age of our fleet, increase our capabilities, but also includes the Embraer E2s out on the West Coast, which we're super excited for. It's sort of the first time new equipment has really been invested in the resources market in WA. And we think that's really going to be a game changer for that market and create lots of new opportunities. So that'll be great.

Oriel Morrison:What is it about that particular aircraft?

Dave Emerson:Yeah, look, it's a modern aircraft. It's got all the benefits of, you know, much better fuel burn, much more friendly, you know, carbon-friendly, quieter, longer range, newer cabin. It's configured with not just economy but business so that when we can fly it over the weekends to the East Coast and back or other destinations. It's just going to open a lot of possibilities for us that, you know, they're basically replacing the F-100, which has been a workhorse, but, you know, it's much more— it's an older, shorter-range plane that's just reaching end of life.

Oriel Morrison:Are you— how are you dealing with the supply chain issues that are occurring right now?

Dave Emerson:Yeah, look, I think it's a challenge for everyone. But we have, you know, like everybody, we adapt and overcome. You know, the industry's still flying. We're all still up delivering for our customers. But, you know, we've had to stretch out our fleet renewal. And so that means that we've extended older aircraft, we've renewed leases, we've brought in more wet lease flying to cover some lines that we would've done ourselves. So it has created— What's the impact on the environment? a little bit of a cost headwind for us, but it's something that everybody's facing, and so, you know, it's just something you have to deal with.

Oriel Morrison:So we can't, you know, have a conversation like this without talking about competition. Yeah, in the marketplace, obviously you've got one main competitor out there right now in Qantas. Rex is out of the market now, obviously. Bonds is out of the market, which has created a little bit more space, I'd say, but at the same time we're hearing that Qantas is bringing their Jetstar Asia planes into the domestic market. What does that mean for where you're at right now?

Dave Emerson:Yeah, look, we— when we sort of reset the business, we had a very clear vision of who we were, how we thought we could win, and what our place in the market was going to be. And we said, look, we believe we can win in the value segment. We think they're underserved, the small business, value corporates. and premium leisure, we think we can offer the very best product for those customers. And when we look at the Australian market, we think that means we could win about a third of the market. And that's the way we designed the plan right from the beginning. And we still think that's the case. And so we've got about a third of the capacity today. We think that's about right. That's— we'll probably continue to stay around in that space. Now the market's going to grow and we'll grow with that market. But what we really are focused on is driving more value for our core customers. And so therefore we offer them a better product, better service, and win more share with those customer segments. And so instead of sort of chasing the whole market, we're really saying, how do we win more share with our core customers? And that's how we see ourselves providing effective competition for Australia. That's how we see ourselves adding value to the whole Australian economy.

Oriel Morrison:Is there a point in time where you see yourself with a half share in the market?

Dave Emerson:You know, not with this strategy. You know, the reality is that there aren't— you know, when we look at our core market, it's not half the market. It's a third of the market. And so we'd have to go after other segments, segments that we don't currently have competitive advantage in. And so we'd have to find a different growth avenue, a different business model. model. And you never say never in business because that's always possible, but it's not something that's in our near-term plan.

Oriel Morrison:What is a bit, you know, with the growth strategy that you've got looking forward and all the planning and the transformation planning that you did in the 5 years prior, what has been your biggest challenge? What is your biggest challenge as you sit here today? Because as an airline, you're dealing with so many issues: oil prices, geopolitics, demand, the local economy, the international Yeah, look, it's a great question.

Dave Emerson:And, and, you know, when I reflect back, you know, the challenge, the biggest challenge has changed every year, right?

Oriel Morrison:Yeah.

Dave Emerson:Sort of, it's getting, it's spooling up and then down and then getting enough aircraft and then getting stability, operational stability, and then sort of getting, getting our people back. And so all of that phase, the challenge was always different. all about resetting and then renorming up to, uh, you know, what was— we, we, we came out of administration with 58 aircraft. We have over 100 now. You know, growing that pace was unprecedented.

Oriel Morrison:Mm-hmm.

Dave Emerson:Uh, and so that was a big challenge. But now I think we're past that phase. And, and, you know, look, my personal challenge is maintaining the momentum. Uh, I came into this job with with the company at such great momentum, firing on so many cylinders, that, that sets a very high bar. And, and I need to continue delivering, lifting the company further. Not, you know, this— it's aviation. The moment you think you've got it all figured out, the moment you start resting on your laurels, you're in trouble. And so we need to keep lifting and improving, and that's my biggest challenge.

Oriel Morrison:What do, what do things look like for you in, in 10 years' time? And not specifically for Virgin, I more mean in the aviation industry. You've been an aviation analyst for many years, you've been a management consultant, you know, obviously running this airline. You've probably got a better idea than most what this— what does this world look like for us in 10 to 15 years' time?

Dave Emerson:Yeah, look, I guess what I would say is, uh, I see no evidence that the desire to travel in any way is, is going down. If anything, it's going up. When you, when you look at everything that consumers are doing, they are prioritizing experiences, and travel is one of those premium experiences that people are willing to invest in. And particularly those once-in-a-lifetime trips, those things that are going to make memories for forever. And so I don't see any change in that. I think the industry is going to continue to grow strongly. And so I think forecasting airlines is— where airlines are going to be in 10 years is just a great way to look foolish.

Oriel Morrison:Because we've I've heard that before.

Dave Emerson:Never ever gotten it right. But if you look over the long term, the one thing that you have been able to count on is that demand has grown with or faster than GDP all over the world for decades. And I think that will be true. The shape of the industry will change. People, you know, competitors will move around. Technology will change. But the desire to travel will be there.

Oriel Morrison:What have you needed to pull from yourself the most in this role when it comes to leadership? Because again, the airline industry is probably one of the most difficult in the world.

Dave Emerson:Yeah, yeah, look, I think the difference between this role and my previous roles, this role is much more external, right? Sort of this is, for better or for worse, you know, you're the face of your company, you know, and they could have chosen a prettier face. But, um, but that, that is— that's part of the job. And so I think that's the part of that I've had to, to learn the most in and, and put the most of myself out there, you know, is sort of— I'm, I'm probably more of a natural introvert, but, uh, but, you know, I, I, I do love talking about the company, and that's the thing that gets me through, is, is I'm very passionate about what we've done. I'm passionate about our people and, and everything they do, and, and Really, you know, they're the heroes in our business. I love talking about what they do every day, our frontline. And so that's probably the growth for me.

Oriel Morrison:So how do you make sure in an industry like this, which changes so rapidly, that you do have the right people around you?

Dave Emerson:Yeah, look, I think that the thing about Virgin is that we have a through line of our culture and DNA that goes all the way back to our founding 25 years ago with, with Brett Godfrey and Richard Branson. And that has, despite all the ups and downs, that has stayed with us. And that sort of sets the culture and people, and then those people attract more people who think the same. And so that has been the thing that has been actually one of the key things that pulled us through the tough times, is the Virgin flair, that sort of the can-do attitude of our people. And that's what really is our key competitive differentiator, honestly. You know, we fly the same planes, the same markets, but we think our culture and people are different. And we think that's what we build on in the market. And so that's what I care about, and we work hard to keep that going.

Oriel Morrison:So I wanted to ask you about something that's very dear to my heart.

Dave Emerson:Yes.

Oriel Morrison:I have just bought myself a horse. Now you might ask why I'm saying that. Pets on board.

Dave Emerson:Yes.

Oriel Morrison:I've been told Abby says no horses. Okay, I'm accepting that. What about my 3 dogs?

Dave Emerson:Yes, well, the, uh, we're very excited to, uh, as you know, we announced quite a while ago that we were planning on bringing pets on board. It has been a longer process than we had thought, but anytime you do something that's truly new, uh, you don't know what you don't know. And so So there were a lot of regulatory changes that needed to be put in place, including— it was a little-known fact, and not known by me, that aviation airlines— an airplane is considered to be a restaurant for service, the food services regulations.

Oriel Morrison:Mm-hm.

Dave Emerson:And so you're not allowed to bring your pets in a restaurant. And so we had to change the rules and get an exemption. And that process took over a year but just recently completed. So now actually we're past that hurdle and we're looking forward to launching before the end of the year.

Oriel Morrison:Wow.

Dave Emerson:And obviously I don't know how big your pets are. It's only the little ones that can go under the seat that will be in the cabin. But yeah, we're very excited for that. And as you would know, that's something that you see in Europe, you see it in the US. We think Australians are going to be super excited for it. And so We're really, we're waiting anxiously for that to happen.

Oriel Morrison:So before the end of the year?

Dave Emerson:Before the end of the year.

Oriel Morrison:And bigger pets?

Dave Emerson:In the hold underneath. We have a very strong pet transport business also in the hold.

Oriel Morrison:That was not what I wanted to hear, Dave. No, I'm sorry.

Dave Emerson:That's the, you know, you might have to find a private jet business for that.

Oriel Morrison:I'll accept that. Okay, so the other thing was the Last Flight Club.

Dave Emerson:Yes.

Oriel Morrison:I read about this the other day. Tell us about it. Have you guys heard of the Last Flight Club?

Dave Emerson:No.

Oriel Morrison:No?

Dave Emerson:So yeah, look, this is one of the many events that we put on with our partners, in this case Visit Victoria, where we were just trying to do something different, a little fun. You know, sort of this is who we like to be as Virgin. You know, a little different, a little fun. And so this is just where we've got— it's a one-time-only event. We had to take the last flight of the day from Sydney into Melbourne, and then we'd just sort of just make it a little bit of a nightclub on the plane and then on the ground and sort of just have a fun experience. And so it's just, you know, it's just a little flair, a little different, a little fun, and just one of the many things we try to do to do that. Whether, you know, if anybody's gone on some of our other highly flair flights. I'll leave it there. But so we do a lot of those kind of events and we just like to think it keeps it fun and interesting.

Oriel Morrison:So you get left in Melbourne or do you get flown home too?

Dave Emerson:Well, I think people might need a night in Melbourne to recover after that. So yeah.

Oriel Morrison:So if you're in for a party.

Dave Emerson:Yes. That's where it is. That's a good party.

Oriel Morrison:So on a much more serious note, can you put this all together for us? Obviously you've got some plans, some big plans for the airline. It really sounds like from our conversation today and from the comments you've made before that it really is, it's slow and steady, but you do have plans. You do have plans to grow, potentially long haul somewhere in the future. What can we expect next from you?

Dave Emerson:Yeah, look, I think The, you know, when I characterize it, I'd say, yeah, we might be slow and steady from a capacity growth, but we are nowhere near slow and steady on a transformation. Uh, we have incredibly ambitious transformation, uh, objectives, not just the fleet, not just technology, but, but a whole bunch of things on the customer side, a bunch of things on the operations side, uh, continuing to deliver better, uh, both for our customers and our people. And so, so that agenda is as busy as it ever was. And, uh, and, and really, we're only about, you know, when we talk about the transformation we've been undergoing, we're a little bit less than halfway through, you know. So it's, yes, it's been 4 years, but, but when we look forward, you know, we have things that we're doing not just FY26 but FY27, FY28. already lined up that, that, you know, because you can only do so much so fast. And so, uh, it is, it is going to be continued innovation, continued transformation, and, uh, and we just want to keep lifting the bar.

Oriel Morrison:So I know this is a management consultant term, but is this a continuous transformation, or do you have an endgame in 4 years' time if you're halfway through?

Dave Emerson:Look, I think you could say that, that There might be an endpoint for the things that we can see now, right? So that when we look at this business model, we look in it and we might get more towards continuous improvement in 3 or 4 years. However, I will say my experience is by the time you get there, everything's changed.

Oriel Morrison:Mm-hmm.

Dave Emerson:And so there'll be a whole new set of things that you gotta, you know, so who knows where AI will take us, but there'll be a whole different set of, The way we distribute, the way we interact with our customers, the way we run our operations. And so that'll just be a new transformation that'll come along. And so I just think if you don't like change, if you don't like transformation, you know, you're in the wrong industry because it just never sits still here.

Oriel Morrison:I think pretty much every industry is in that case at the moment. Yeah, that's right. Ladies and gentlemen, please give a big round of applause to the CEO of Virgin, Dave Emerson.

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