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KarelXWB
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Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 1:18 pm

Virgin Australia defers Boeing deliveries after profits drop.

Virgin Chief Executive John Borghetti said the capital cost of buying the new aircraft for Australia's second-largest airline "far outweighs" savings on offer from operating more fuel-efficient planes given the oil price was relatively low.

"The fuel business case isn't as good as it was," he told Reuters in a phone interview after the airline reported a 48 percent fall in first-half underlying pre-tax earnings to A$42.3 million ($32.56 million). "On balance we can push these back."


Source
http://uk.reuters.com/article/uk-virgin ... KKBN15W06W

Interesting that VA believes new generation aircraft have no business case in today's oil environment.
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Natflyer
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 1:31 pm

Gonna see a lot more of deferrals to come. Dropping yields in a lot of markets, fuel prices relatively low... what is the rush?
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 1:47 pm

KarelXWB wrote:
Interesting that VA believes new generation aircraft have no business case in today's oil environment.


If they were in better financial health overall - do you think that they would be doing the same? I can see pressure coming from the finances to not take on more capital at this time, however for VA, is that a good move right now? It would allow them to focus on costs - which is what they do need to do, and may be short-sighted as fuel will rise in future. That said, if they were in better financial health, and some of those pressures alleviated - would they have done the same? Not at all disagreeing with you - just fascinated by how they can/should work their way out. Just wondering if you can weigh in on what the threshold should/could be for a carrier like VA to take on new expenditures, and/or when they will chose to pick up those deferred frames? The article offers 'at least a year', but what's more likely an accurate date/time?
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 2:26 pm

Rajahdhani wrote:
KarelXWB wrote:
Interesting that VA believes new generation aircraft have no business case in today's oil environment.


If they were in better financial health overall - do you think that they would be doing the same? I can see pressure coming from the finances to not take on more capital at this time, however for VA, is that a good move right now? It would allow them to focus on costs - which is what they do need to do, and may be short-sighted as fuel will rise in future. That said, if they were in better financial health, and some of those pressures alleviated - would they have done the same? Not at all disagreeing with you - just fascinated by how they can/should work their way out. Just wondering if you can weigh in on what the threshold should/could be for a carrier like VA to take on new expenditures, and/or when they will chose to pick up those deferred frames? The article offers 'at least a year', but what's more likely an accurate date/time?



False assumption. We do not know oil will rise in the future. In fact, it's likely that it won't rise very much in the future and if it does spike, it won't last long because as we saw in approx 2008, demand for fuel will drop heavily when prices go through the roof, thus leading to another collapse in oil prices.

With our very pro-business President, along with more and more alternative fuel sources, the likelihood of oil reaching $100+ per barrel decreases each year. The current oil price (in the $40-$75/barrel range) is very nice place for it to be and don't see it going much over that, at least for any significant length of time. At these prices, oil companies are making money and consumers are able to absorb/pay the price for fuel. It's a sweet spot, really.
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 2:40 pm

FriscoHeavy wrote:
False assumption. We do not know oil will rise in the future. In fact, it's likely that it won't rise very much in the future and if it does spike, it won't last long because as we saw in approx 2008, demand for fuel will drop heavily when prices go through the roof, thus leading to another collapse in oil prices.

With our very pro-business President, along with more and more alternative fuel sources, the likelihood of oil reaching $100+ per barrel decreases each year. The current oil price (in the $40-$75/barrel range) is very nice place for it to be and don't see it going much over that, at least for any significant length of time. At these prices, oil companies are making money and consumers are able to absorb/pay the price for fuel. It's a sweet spot, really.


So, what kind of effect do you see that having on airlines and their aircraft? More carriers deferring deliveries, aircraft staying on longer, less of a focus on fuel efficiency? If fuel remains stable for some time, and at these lows - there might not, reasonably - be a need for jumping to more fuel efficient aircraft. A decently/fully amortized aircraft and low fuel costs should be a decent place for VA to be, in order to make some money. Well, I would think...
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 2:49 pm

FriscoHeavy wrote:
With our very pro-business President, along with more and more alternative fuel sources, the likelihood of oil reaching $100+ per barrel decreases each year. The current oil price (in the $40-$75/barrel range) is very nice place for it to be and don't see it going much over that, at least for any significant length of time. At these prices, oil companies are making money and consumers are able to absorb/pay the price for fuel. It's a sweet spot, really.
$40-75, while much lower than $100 is still a huge range. What makes sense at $40/barrel is much different than what makes sense at $75/barrel.
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 4:29 pm

cledaybuck wrote:
FriscoHeavy wrote:
With our very pro-business President, along with more and more alternative fuel sources, the likelihood of oil reaching $100+ per barrel decreases each year. The current oil price (in the $40-$75/barrel range) is very nice place for it to be and don't see it going much over that, at least for any significant length of time. At these prices, oil companies are making money and consumers are able to absorb/pay the price for fuel. It's a sweet spot, really.
$40-75, while much lower than $100 is still a huge range. What makes sense at $40/barrel is much different than what makes sense at $75/barrel.



I agree it's a fairly large range, but very manageable for everyone nonetheless with proper planning. I'm not saying that at $75 no route will be cut that could make it at $40, but it's still not terribly expensive at $75 and overall, airlines would be able to make money.


Below $40 and oil companies really start to struggle and over $75-ish, the consumer (airlines and people driving cars) start to feel it a little more to a point where it may start affecting some budgetary decisions.

Overall, this approximate range is pretty healthy for everyone.
Last edited by FriscoHeavy on Fri Feb 17, 2017 4:36 pm, edited 1 time in total.
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 4:34 pm

Rajahdhani wrote:
FriscoHeavy wrote:
False assumption. We do not know oil will rise in the future. In fact, it's likely that it won't rise very much in the future and if it does spike, it won't last long because as we saw in approx 2008, demand for fuel will drop heavily when prices go through the roof, thus leading to another collapse in oil prices.

With our very pro-business President, along with more and more alternative fuel sources, the likelihood of oil reaching $100+ per barrel decreases each year. The current oil price (in the $40-$75/barrel range) is very nice place for it to be and don't see it going much over that, at least for any significant length of time. At these prices, oil companies are making money and consumers are able to absorb/pay the price for fuel. It's a sweet spot, really.


So, what kind of effect do you see that having on airlines and their aircraft? More carriers deferring deliveries, aircraft staying on longer, less of a focus on fuel efficiency? If fuel remains stable for some time, and at these lows - there might not, reasonably - be a need for jumping to more fuel efficient aircraft. A decently/fully amortized aircraft and low fuel costs should be a decent place for VA to be, in order to make some money. Well, I would think...



I can't say for sure what effect it will have on airlines. I was just pointing out the misconception that 'fuel will rise in the future'. Maybe some, but we won't see the $100+/barrel sustained for any length of time if it does reach that level.

While it may slow down aircraft replacement, it can only do that for so long. Just like with any electronic or motor driven device, eventually, it has to be replaced.
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 4:43 pm

You also have to consider VA was an early customer for the MAX, ordering it July 2012. While that traditionally early customer=great launch discounts, with the A320neo/737Max those early years are also when fuel prices were at its highest and showed no signs of lowering anytime soon, so demand for new reengined jets with better fuel efficiency was at a frenzy which has an effect on the price sold. Airbus/Boeing both sold about a quarter of all their Neo/MAX sales so far in 2011(Airbus)/2012(Boeing), their respective first full years on the market. That frenzy has died down some as fuel prices have stabilized.
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 5:17 pm

Virgin Chief Executive John Borghetti said the capital cost of buying the new aircraft for Australia's second-largest airline "far outweighs" savings on offer from operating more fuel-efficient planes given the oil price was relatively low.


I fully realize that an airline CEO doubtless knows far more than I do, sitting here in front of my ancient Model M keyboard, but I'm going to ask a couple of questions in the hopes that someone can slowly explain things to my ancient, senile mind...

Do we know what will happen to oil prices in the future? Wouldn't it be prudent to "stock up" on fuel efficient jetliners now, rather than waiting for another high oil price peak to attempt to do so when every other airline will be doing the same, clogging up delivery slots? In addition, wouldn't saving fuel costs in the long run by acquiring and using more fuel efficient aircraft now more than amortize the capital acquisition costs? I mean, perhaps use the monies saved on fuel to pay down the capital costs and then just bank the rest for the future?

Just mumbling aloud. Thank you for any fresh analyses and ideas on this.

Robert
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 5:36 pm

The short answer is no. It takes a large leap in fuel efficiency to make up the difference of the extra fuel used on a paid off plane (just like a car). In fact, better fuel efficiency isn't what really drives the replacement of a paid off plane, but rather maintenance cost. Unless fuel went to some astronomical amount (which it likely won't, at least for very long), it will nearly always be cheaper to run a used, paid for aircraft that is slightly less fuel efficient.

Same idea with a car. If you have a 7 year old car that is fully paid for, it will in no way make more sense to purchase and finance a new vehicle just to get an extra "X" miles to the gallon. Only when maintenance becomes a costly endeavor will it begin making financial sense.
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 6:11 pm

Oil is not going up in any great amount, any time soon, short of some apocalyptic event that would ground planes anyway. American frackers are in charge now and demonstrating that they can make money at $50-55/bbl - and dropping.
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 6:31 pm

So the shareholders credit lines are now closed? hence they can't afford to take them in there current state.

NZ used to guy them an very reasonable loan, but now they are an share holder they don't have too.
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 6:45 pm

In the good old days, Boeing would have allowed deliveries to be delayed, at no cost. Or for the orders to be sold on to their shareholders, or even a wider group. Not anymore, without penalty.

The airline is being prudent. There are a lot more prudent airlines in discussions with Boeing and Airbus. Ask the 777X sales team.
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 6:46 pm

One thing that is always missing in these discussions is the cost of money, everyone knows about the cost of fuel going down, we now need to start focusing on why the cost of money or the ability to obtain financing is so difficult / high.
In our current low cost of oil environment, if we are to have another buying spree, it will have to be as a result of cheaper money, banks have built up a lot of funds to be compliant with the mass of regulations, lending has in some area's slowed to a crawl.
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 7:05 pm

Planesmart wrote:
In the good old days, Boeing would have allowed deliveries to be delayed, at no cost. Or for the orders to be sold on to their shareholders, or even a wider group. Not anymore, without penalty.

The airline is being prudent. There are a lot more prudent airlines in discussions with Boeing and Airbus. Ask the 777X sales team.


The airline doesn't have a lot of choice - it's drowning in debt, it has only survived by calling on its airline investors for more money. This is why Air New Zealand wanted out of its shareholding and sold at a loss to get out.

The chart of its stock price since CEO Borghetti took over in 2010 is pretty depressing and it's only getting worse. Air NZ had originally paid (about) 45 cents a share in 2012 snd sold its holding in June 2016 for 33 cents a share.

The Virgin Australia stock is now down to 19 cents per share. I wish I had Borghetti's golden tongue - LOL - with his constant promises of jam tomorrow.

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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 7:49 pm

FriscoHeavy wrote:
Rajahdhani wrote:
FriscoHeavy wrote:
False assumption. We do not know oil will rise in the future. In fact, it's likely that it won't rise very much in the future and if it does spike, it won't last long because as we saw in approx 2008, demand for fuel will drop heavily when prices go through the roof, thus leading to another collapse in oil prices.

With our very pro-business President, along with more and more alternative fuel sources, the likelihood of oil reaching $100+ per barrel decreases each year. The current oil price (in the $40-$75/barrel range) is very nice place for it to be and don't see it going much over that, at least for any significant length of time. At these prices, oil companies are making money and consumers are able to absorb/pay the price for fuel. It's a sweet spot, really.


So, what kind of effect do you see that having on airlines and their aircraft? More carriers deferring deliveries, aircraft staying on longer, less of a focus on fuel efficiency? If fuel remains stable for some time, and at these lows - there might not, reasonably - be a need for jumping to more fuel efficient aircraft. A decently/fully amortized aircraft and low fuel costs should be a decent place for VA to be, in order to make some money. Well, I would think...



I can't say for sure what effect it will have on airlines. I was just pointing out the misconception that 'fuel will rise in the future'. Maybe some, but we won't see the $100+/barrel sustained for any length of time if it does reach that level.

While it may slow down aircraft replacement, it can only do that for so long. Just like with any electronic or motor driven device, eventually, it has to be replaced.

The NEO was designed to have a business case at $30/bbl. So your range of $40 to $75 would result in lower per flight costs and some added range which should open a few routes.

This is cash conservation by VA.

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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 9:15 pm

FriscoHeavy wrote:
Rajahdhani wrote:
KarelXWB wrote:
Interesting that VA believes new generation aircraft have no business case in today's oil environment.


If they were in better financial health overall - do you think that they would be doing the same? I can see pressure coming from the finances to not take on more capital at this time, however for VA, is that a good move right now? It would allow them to focus on costs - which is what they do need to do, and may be short-sighted as fuel will rise in future. That said, if they were in better financial health, and some of those pressures alleviated - would they have done the same? Not at all disagreeing with you - just fascinated by how they can/should work their way out. Just wondering if you can weigh in on what the threshold should/could be for a carrier like VA to take on new expenditures, and/or when they will chose to pick up those deferred frames? The article offers 'at least a year', but what's more likely an accurate date/time?



False assumption. We do not know oil will rise in the future. In fact, it's likely that it won't rise very much in the future and if it does spike, it won't last long because as we saw in approx 2008, demand for fuel will drop heavily when prices go through the roof, thus leading to another collapse in oil prices.

With our very pro-business President, along with more and more alternative fuel sources, the likelihood of oil reaching $100+ per barrel decreases each year. The current oil price (in the $40-$75/barrel range) is very nice place for it to be and don't see it going much over that, at least for any significant length of time. At these prices, oil companies are making money and consumers are able to absorb/pay the price for fuel. It's a sweet spot, really.



You realize the price of oil in Australia can be quit different than in the US.
 
airzona11
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 10:04 pm

I think VA is following a trend in other regions and by other airlines. The higher operating costs will never equal the new planes coming off the assembly line, but the flexibility, cash conservation etc will give airlines a lot more flexibility. All these startup airlines with hundreds of NEOs and MAXs can't cheaply park those planes or even reduce their flying. They are going to be stuck with high fixed costs that will really burden them.

Low interest rates have no doubt created a "bubble" in assets. The cycle will down turn, it always does, you want max flexibility when it happens, conserving cash helps tremendously.

@RBAVFAN is it that that different? http://www.iata.org/publications/econom ... lysis.aspx
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 10:36 pm

These aircraft were for VA's domestic Australian operations!

This market is currently in decline and as such it would be prudent to not add new aircraft.

VA have already committed to a simplified 737 and A330 fleet and as such bringing another type into the equation would only re-complicate their operations over the shorter term.

There is evidence VA are reducing the overall number of aircraft they fly. It could be argued a lot of their current flying is unprofitable and as such it could make economic sense to become a smaller airline.

If we consider VA's subsidiary TigerAir was suppose to transition to an all 737 fleet (VA hand me downs) by mid 2019, it does look like VA will be smaller by about 15 aircraft in 2-3 years time.

In this type of environment, regardless of the cost of oil, I can't see the sense in bringing new expensive aircraft into an already financially stretched business!
 
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Re: Virgin Australia defers 737 MAX deliveries

Fri Feb 17, 2017 11:31 pm

mariner wrote:
Planesmart wrote:
In the good old days, Boeing would have allowed deliveries to be delayed, at no cost. Or for the orders to be sold on to their shareholders, or even a wider group. Not anymore, without penalty.

The airline is being prudent. There are a lot more prudent airlines in discussions with Boeing and Airbus. Ask the 777X sales team.


The airline doesn't have a lot of choice - it's drowning in debt, it has only survived by calling on its airline investors for more money. This is why Air New Zealand wanted out of its shareholding and sold at a loss to get out.

The chart of its stock price since CEO Borghetti took over in 2010 is pretty depressing and it's only getting worse. Air NZ had originally paid (about) 45 cents a share in 2012 snd sold its holding in June 2016 for 33 cents a share.

The Virgin Australia stock is now down to 19 cents per share. I wish I had Borghetti's golden tongue - LOL - with his constant promises of jam tomorrow.

mariner


Yes, without wishing to turn this post into a QF v VA argument, it's amazing how some still shout out how great JB is, yet at the same time the business he is running has constantly underperformed. Reminds me of a recent manager I worked with.... Great at doing company breakfasts and outings and ensuring the team was happy, yet ignoring economic reality of a failing business.

On the same day VA announced the startup of A330 services SYD to HKG, means one less widebody on the SYD to PER trans con services... Which could hurt their domestic operation.

Deferring the 737Max to me is another indication of the poor performance of Virgin Australia. QF are suddenly bringing in new 787s, and potentially new 737Max/320Neo, and VA is deferring deliveries. The difference is staggering.
 
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Re: Virgin Australia defers 737 MAX deliveries

Sat Feb 18, 2017 1:28 am

UKtoOzFlyer wrote:
mariner wrote:
Planesmart wrote:
In the good old days, Boeing would have allowed deliveries to be delayed, at no cost. Or for the orders to be sold on to their shareholders, or even a wider group. Not anymore, without penalty.

The airline is being prudent. There are a lot more prudent airlines in discussions with Boeing and Airbus. Ask the 777X sales team.


The airline doesn't have a lot of choice - it's drowning in debt, it has only survived by calling on its airline investors for more money. This is why Air New Zealand wanted out of its shareholding and sold at a loss to get out.

The chart of its stock price since CEO Borghetti took over in 2010 is pretty depressing and it's only getting worse. Air NZ had originally paid (about) 45 cents a share in 2012 snd sold its holding in June 2016 for 33 cents a share.

The Virgin Australia stock is now down to 19 cents per share. I wish I had Borghetti's golden tongue - LOL - with his constant promises of jam tomorrow.

mariner


Yes, without wishing to turn this post into a QF v VA argument, it's amazing how some still shout out how great JB is, yet at the same time the business he is running has constantly underperformed. Reminds me of a recent manager I worked with.... Great at doing company breakfasts and outings and ensuring the team was happy, yet ignoring economic reality of a failing business.

On the same day VA announced the startup of A330 services SYD to HKG, means one less widebody on the SYD to PER trans con services... Which could hurt their domestic operation.

Deferring the 737Max to me is another indication of the poor performance of Virgin Australia. QF are suddenly bringing in new 787s, and potentially new 737Max/320Neo, and VA is deferring deliveries. The difference is staggering.


QF were in a similar situation not too many years ago, so every dog has its day!

The reality is the competitive landscape changed in Australia once QF restructured its business. For VA there was always going to be a time of adjustment.

With QF's main competitors (CX &SQ) in the Asian market being quite aggresive with expansion, parts of QF's international businesses could also be in a similar position to what VA is today. I

I wouldn't be laughing too loud.
 
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Re: Virgin Australia defers 737 MAX deliveries

Sat Feb 18, 2017 2:33 am

travelhound wrote:
I wouldn't be laughing too loud.


I'm not laughing. I think it's really rather sad.

I used to love Virgin Blue and it saddens me that JB has taken what was a thriving airline and turned it into a consistent loss maker. What astonishes me that is that JB has completely escaped the kind of criticism - even anger - that was directed at AJ in the down days of Qantas.

I very much hope that being a subsidiary of China Pty. Ltd. will give Virgin the financial clout that JB has so far failed to find.

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travelhound
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Re: Virgin Australia defers 737 MAX deliveries

Sat Feb 18, 2017 4:20 am

mariner wrote:
travelhound wrote:
I wouldn't be laughing too loud.


I'm not laughing. I think it's really rather sad.

I used to love Virgin Blue and it saddens me that JB has taken what was a thriving airline and turned it into a consistent loss maker. What astonishes me that is that JB has completely escaped the kind of criticism - even anger - that was directed at AJ in the down days of Qantas.

I very much hope that being a subsidiary of China Pty. Ltd. will give Virgin the financial clout that JB has so far failed to find.

mariner


Yeah, I am not arguing with you!

From all acounts the Virgin Australia experiment has been a failure (for shareholders)....but, I wouldn't place all of the blame at JB's feet. I suspect SRB and the way he operates as a significant contributing factor in he non performance of the airline.

At least the flying public are far better off.
 
Aptivaboy
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Re: Virgin Australia defers 737 MAX deliveries

Sat Feb 18, 2017 5:41 pm

Thanks, FriscoHeavy and others, that makes a lot of sense. I guess I'm stuck in the "more efficiency is ALWAYS better," mentality when there are a lot of other factors to consider. Still, it will be sad to not see more MAXes out there as soon as possible. I'm not a big 737 fan (talk to me about being scrunched inside that narrow tube with narrower seats!) but I do believe the MAX is the prettiest iteration of the family and I'd like to see more of them out there if only for selfish aesthetic reasons.

Bob
 
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Re: Virgin Australia defers 737 MAX deliveries

Sat Feb 18, 2017 10:02 pm

Virgin Australia's relaunch has been a complete failure and the full blame stops at JB's feet.

They rushed into A330s and leased 2 birds from ex-EK. They were in shocking condition and were quickly put in the desert when the new birds arrived. They are still paying for them. (wasted money)

In 5 years they have been through 2 business class products (wasted money)

They bought SkyWest at the top of the boom and have now exited the market.

They have gone from operating 737 only to A320, 737, ATR, 777, 330, 195 (did i miss anything). They are now winding this back.

They exited the budget market, went up market to compete with QF and now have bought Tiger to compete at the budget end again.

I could go on. They have rushed into everything and spend money like a drunk sailor. And for what? Virgin makes no more money today than it did before JBs time!!!

I really wish Virgin would work.
 
sevenair
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 12:05 am

They should have stuck to what worked and what they were good at and that was being a rather average, yet solid low cost airline. It was simple, it worked.

Look to Europe. easyJet did not complete by trying to be British Airways. It kept it simple, kept costs down and made money. Now, British Airways short haul are trying to become easyJet. Virgin tried to beat QF by trying to become QF with dire consequences.
 
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 5:26 am

@sevenair +1
 
zkncj
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 8:20 am

redroo wrote:
Virgin Australia's relaunch has been a complete failure and the full blame stops at JB's feet.

They rushed into A330s and leased 2 birds from ex-EK. They were in shocking condition and were quickly put in the desert when the new birds arrived. They are still paying for them. (wasted money)

In 5 years they have been through 2 business class products (wasted money)

They bought SkyWest at the top of the boom and have now exited the market.

They have gone from operating 737 only to A320, 737, ATR, 777, 330, 195 (did i miss anything). They are now winding this back.


You forgot the F100s, and the phased out F50s and E170s.

You can see why NZ left, they must of purely got sick of investing into an airline that has no direction and keeps making major loses.


I don't get how VA can stugle to make the ATR work, yet its one of NZ's most profitable aircarft.
 
BAeRJ100
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 8:43 am

redroo wrote:
They rushed into A330s and leased 2 birds from ex-EK. They were in shocking condition and were quickly put in the desert when the new birds arrived. They are still paying for them. (wasted money).


Both of the ex-EK A330s (XFA and XFB) found homes with new airlines very quickly after leaving the VA fleet, so I'm not completely sure if your statement is supposed to be literal or not.
B738-9/744ER/752/752/763/77L/77W/788/789
A320/321/332/333/388
MD82/MD88/717/F100/RJ85/RJ100/146-100/200/300
E175/190/CRJ700/900
 
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 9:30 am

zkncj wrote:
redroo wrote:
Virgin Australia's relaunch has been a complete failure and the full blame stops at JB's feet.

They rushed into A330s and leased 2 birds from ex-EK. They were in shocking condition and were quickly put in the desert when the new birds arrived. They are still paying for them. (wasted money)

In 5 years they have been through 2 business class products (wasted money)

They bought SkyWest at the top of the boom and have now exited the market.

They have gone from operating 737 only to A320, 737, ATR, 777, 330, 195 (did i miss anything). They are now winding this back.


You forgot the F100s, and the phased out F50s and E170s.

You can see why NZ left, they must of purely got sick of investing into an airline that has no direction and keeps making major loses.


I don't get how VA can stugle to make the ATR work, yet its one of NZ's most profitable aircarft.


Could be high lease costs at the time the leases were signed for the aircraft, and the fact the NZ run theirs on historically monopoly routes vs VA where a significant number of routes have competition.

QF got in a lot of those routes first (obviously) so will have corporate contracts signed up on them, where as VA were taking a lot of the overflow, hence lower yields.
 
getluv
Posts: 84
Joined: Thu Jun 11, 2015 12:11 pm

Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 12:41 pm

It's worth remembering Virgin Blue also had a rotating door of big investors/owners and had issues of profitability. Nothing as bad as this though.

VA should have remained a B737 domestic airline with token SE Asia, NZ and Pacific Islands flight with a small complementary regional subsidiary.

Since starting in the role, JB has tried to make VA into QF 2.0. He could have "classed" up Virgin Blue incrementally whilst maintaining its "fun" image. While he thinks he has caught up to QF now, it's going to sit back for the next few years to save some money and now its QF to be well ahead. He says Virgin hasn't lost market share, I assume he means "VA/TT" together. VA will be much smaller than it is now in the next few years.

The announcement of this route to HKG is just a reiteration of what VA announced last May. Ie they've already announced it. The biggest issue is 'viable' slots at HKG. The fact that the HKG announcement was the 2nd dot point on the key highlights so far for FY16/17 means they've had no highlights.
...
 
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vhtje
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 1:16 pm

Wow, I never knew things were so bad at VA. Is it in danger of collapse?
I only turn left when boarding aircraft. Well, mostly. All right, sometimes. OH OKAY - rarely.
 
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mariner
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 7:52 pm

vhtje wrote:
Wow, I never knew things were so bad at VA. Is it in danger of collapse?


Nope. It has had a succession of sugar-daddy airline investors who, for various reasons, mostly access to the Australian market, have kept it afloat sinking hundreds of millions into the airline.

Things came to ahead last year when CEO Luxon of Air New Zealand challenged the business model - and lost. So he pulled Air NZ out of Virgin Australia, losing money on the investment.

Virgin did a deal with the Chinese HNA Group (who own Hainan Airlines) for equity and Air NZ sold its shares to the Chinese Nanshan Group, meaning that Virgin is now more than 40% owned by very wealthy Chinese investors, who will use the airline for their purposes.

Like the other owners - Singapore Airlines, Etihad and Branson/Virgin Group - the new Chinese investors will gain access to the lucrative Australian market which may be more important to them than Virgin Australia actually making money.

If I worked at Virgin I'd start learning one of the Chinese languages. Image

mariner
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Planesmart
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 8:27 pm

mariner wrote:
vhtje wrote:
Wow, I never knew things were so bad at VA. Is it in danger of collapse?


Nope. It has had a succession of sugar-daddy airline investors who, for various reasons, mostly access to the Australian market, have kept it afloat sinking hundreds of millions into the airline.

Things came to ahead last year when CEO Luxon of Air New Zealand challenged the business model - and lost. So he pulled Air NZ out of Virgin Australia, losing money on the investment.

Virgin did a deal with the Chinese HNA Group (who own Hainan Airlines) for equity and Air NZ sold its shares to the Chinese Nanshan Group, meaning that Virgin is now more than 40% owned by very wealthy Chinese investors, who will use the airline for their purposes.

Like the other owners - Singapore Airlines, Etihad and Branson/Virgin Group - the new Chinese investors will gain access to the lucrative Australian market which may be more important to them than Virgin Australia actually making money.

If I worked at Virgin I'd start learning one of the Chinese languages. Image

mariner

Mix of investors with different credit ratings and track records of supporting investments when called upon. Where funding and leases have been partly or fully guaranteed by significant investors, financiers generally apply risk margins based on the lowest, rather than pro rata, or the highest.

Wonder if any NZ contingent liability remains, even though they have exited as an investor?

Everyone should learn Mandarin or Cantonese, yesterday. However, when Chinese investors gain control of a business, a Chinese speaking Aussie will rank much lower down the employment preferences ladder than a Chinese citizen who can speak English.
 
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mariner
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 9:37 pm

Planesmart wrote:
Everyone should learn Mandarin or Cantonese, yesterday. However, when Chinese investors gain control of a business, a Chinese speaking Aussie will rank much lower down the employment preferences ladder than a Chinese citizen who can speak English.


In that circumstance, an Aussie who does speak Chinese may rank higher up the ladder than an Aussie who doesn't speak Chinese.

My Aussie god-daughter in Melbourne can speak fluent Mandarin and Cantonese and she can pretty much name her price.

mariner
aeternum nauta
 
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vhtje
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 10:14 pm

mariner wrote:
the new Chinese investors will gain access to the lucrative Australian market which may be more important to them than Virgin Australia actually making money.


Thank you fir the detailed response.

But what does "access to the Australian market" actually mean in this context? Have the Chinese set up codeshares with VA and now funnel VA passengers onto their international routes to/from Australia and China and points onwards?
I only turn left when boarding aircraft. Well, mostly. All right, sometimes. OH OKAY - rarely.
 
mham001
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 10:48 pm

mariner wrote:
Things came to ahead last year when CEO Luxon of Air New Zealand challenged the business model - and lost. So he pulled Air NZ out of Virgin Australia, losing money on the investment.


Curious, where would that investment stand today if they had not pulled out?

mariner wrote:

Like the other owners - Singapore Airlines, Etihad and Branson/Virgin Group - the new Chinese investors will gain access to the lucrative Australian market which may be more important to them than Virgin Australia actually making money.


If it were all that lucrative, we wouldn't be having this conversation.
 
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mariner
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 10:58 pm

vhtje wrote:
But what does "access to the Australian market" actually mean in this context? Have the Chinese set up codeshares with VA and now funnel VA passengers onto their international routes to/from Australia and China and points onwards?


I don't think the deals are set up, or at least approved, yet - Virgin Australia has just applied for the first of them, with the new proposed HKG services:

http://www.traveldailynews.asia/news/ar ... flights-to

"Virgin Australia announces flights to Hong Kong and landmark alliance agreement

Virgin Australia announced details of its alliance agreement with HNA Aviation, Hong Kong Airlines and HK Express, with the airlines submitting an application for authorisation of the proposed alliance to the Australian Competition and Consumer Commission.

Subject to authorisation, the airlines plan to:

Introduce new direct services between Australia and the Hong Kong Special Administrative Region of the People's Republic of China (Hong Kong), as well as Australia and The People's Republic of China (mainland China) operated by Virgin Australia;
Codeshare on each other's flights between Australia and Hong Kong, between Australia and mainland China and on each other's domestic networks; and
Co-operate in relation to route planning, sales, distribution and marketing, frequent flyer programs, lounge access and other activities.


Remembering that the actually flights are not where the real money is. Nanshan, for example, owns Qingdao Airlines, which is unlikely to fly to Australia in the foreseeable, but Nanshan has huge holdings in tourism, hotels, package tours, etc and the flights are simply the vehicles to get pax to those place - fill those hotels, take those tours - both in China and in Australia.

http://en.nanshan.com.cn/product.php?ca ... an+Tourism

It's similar (not quite the same) as what happened in the US with Apple Vacations, who used to have its own airline, USA3000 with 10 aircraft, to fly people to all the resorts, but ultimately found it cheaper to buy (in bulk - capacity purchase agreements) seats on regular airlines.

mariner
aeternum nauta
 
georgiabill
Posts: 912
Joined: Sat Mar 01, 2003 11:53 pm

Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 11:08 pm

I always wondered why VA never tried SYD-SFO-SYD after QF dropped the route for SYD-DFW-SYD. Has VA made any decisions about their 77W'S?
 
travelhound
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Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 11:17 pm

Over the next couple of years the China - Australia passenger market is expected to grow to 3 million passengers pa. With each passenger making on average two Australian domestic flights, Chinese carriers will need to develop a relationship with a local carrier to be successful. Considering QF is already in bed with China Southern and China Eastern VA is the only real option.

HNA invested approximately $250m in VA for its 20% share. If HNA can capture 20% of the market (600,000 passengers pa) the investment equates to approximately $425 per passenger flown (on a per year basis). If we consider this market will have exponential growth over the next ten years access to the Australian market is going to have far more value than the monies invested in VA. For example at an average $1,000.00 per international ticket sold, HNA could be valuing the Australian market above $6 billion over the next ten years. As such, the $250m investment in VA would only represent 4% of the Australian markets value.

To put this into further context, for HNA to service 600,000 passengers per year they would need approximately seven aircraft or an investment in aircraft of approximately $1 billion.

Whatever way you look at, HNA's investment in VA will probably be a good one! the $250 million is small fry in the scheme of things!
 
getluv
Posts: 84
Joined: Thu Jun 11, 2015 12:11 pm

Re: Virgin Australia defers 737 MAX deliveries

Sun Feb 19, 2017 11:53 pm

travelhound wrote:
Whatever way you look at, HNA's investment in VA will probably be a good one! the $250 million is small fry in the scheme of things!


If only HNA had a bigger presence in Oz.
...
 
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mariner
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Re: Virgin Australia defers 737 MAX deliveries

Mon Feb 20, 2017 12:42 am

mham001 wrote:
Curious, where would that investment stand today if they had not pulled out?


As above, Air NZ bought its share in the 40-45 cent range. They sold at 33 cents. The share price is now 19 cents.

mham001 wrote:
If it were all that lucrative, we wouldn't be having this conversation.


The market is very lucrative - look at the money that Qantas made last year. So it doesn't matter to Singapore or Etihad whether Virgin has been making money as long as they are getting the feed from Virgin to their own flights to/from Oz.

mariner
aeternum nauta
 
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LionelHutz
Posts: 78
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Re: Virgin Australia defers 737 MAX deliveries

Mon Feb 20, 2017 11:45 am

redroo wrote:
Virgin Australia's relaunch has been a complete failure and the full blame stops at JB's feet.

They rushed into A330s and leased 2 birds from ex-EK. They were in shocking condition and were quickly put in the desert when the new birds arrived. They are still paying for them. (wasted money)

In 5 years they have been through 2 business class products (wasted money)

They bought SkyWest at the top of the boom and have now exited the market.

They have gone from operating 737 only to A320, 737, ATR, 777, 330, 195 (did i miss anything). They are now winding this back.

They exited the budget market, went up market to compete with QF and now have bought Tiger to compete at the budget end again.

I could go on. They have rushed into everything and spend money like a drunk sailor. And for what? Virgin makes no more money today than it did before JBs time!!!

I really wish Virgin would work.


A pretty comprehensive summary I would agree with.
I would have though focusing on sitting below QF as the value proposition would have been the way to go. Perhaps as a solely 738 operator.
Trying to attract and retain the premium and business market doesn't really work when you make status too easily obtained and clog up lounges, priority screening, etc :roll:
JB talks a good game but it's been anything but on the financial management side...

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