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Sydscott
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Virgin Australia Reports $211 Million Loss

Thu Aug 28, 2014 11:09 pm

Virgin Australia has this morning announced its results

http://www.smh.com.au/business/aviat...flyer-program-20140829-109th2.html

- Underlying loss of $211 million
- Tiger Australia lost $76 million
- Sale of 35% of Velocity Frequent Flyer to Affinity Capital Partners for $336 million

Considering this year included a $350 million capital injection from shareholders Air New Zealand, SQ and NZ, to have only $541 million cash on hand is not a particularly awe inspiring result!
 
Sydscott
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RE: Virgin Australia Reports $211 Million Loss

Thu Aug 28, 2014 11:16 pm

ASX Release

http://www.asx.com.au/asxpdf/20140829/pdf/42rvf4zlb96vxk.pdf

Investor Presentation

http://www.asx.com.au/asxpdf/20140829/pdf/42rvf8cppr4xym.pdf

Sale of Velocity Frequent Flyer

http://www.asx.com.au/asxpdf/20140829/pdf/42rvfffwptmkvl.pdf

- VA have decided to bring forward deliveries of the 737 max from 2019 to 2018.
- VA domestic lost $59.2 million
- VA International lost $66.8 million
 
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RyanairGuru
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RE: Virgin Australia Reports $211 Million Loss

Thu Aug 28, 2014 11:22 pm

Quoting Sydscott (Reply 1):
VA domestic lost $59.2 million

That is possibly the most damning figure. Given that QFd still made a (small) profit, it is very concerning if VA still aren't able to translate their advances in the domestic market into profit. Hopefully with the coming capacity discipline they will be able to break-even in the domestic market in FY15.

Quoting Sydscott (Thread starter):
Considering this year included a $350 million capital injection from shareholders Air New Zealand, SQ and NZ, to have only $541 million cash on hand is not a particularly awe inspiring result!

That is a very concerning figure.

Overall, QFd outperformed VAd and Jetstar Australia outperformed Tigerair Australia. VAi made a smaller loss than QFi, but given the vastly different network and scope of the two operators that is almost a meaningless comparison.
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RE: Virgin Australia Reports $211 Million Loss

Thu Aug 28, 2014 11:27 pm

Maybe I and others that were hammering on QF were a bit over the top. There are things going on in the Aus market that aren't the same as here in North America or in Europe.

Fuel prices are a big issue and the competition down there is intense enough that it looks like yields are being heavily pressured in that market.
 
vhebb
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RE: Virgin Australia Reports $211 Million Loss

Thu Aug 28, 2014 11:43 pm

Not a good result....

VA domestic are seeing yield and load growth but still making a loss.

QF domestic are seeing yield and loads fall rapidly but still managed a profit.

Interesting, I think QF domestic profits will rocket when the recovery happens.
 
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RE: Virgin Australia Reports $211 Million Loss

Thu Aug 28, 2014 11:56 pm

Quoting vhebb (Reply 4):
I think QF domestic profits will rocket when the recovery happens.

  

Even just in FY15, with the capacity discipline I expect QFd to report double-digit improvement YOY
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 12:02 am

Of interest according to one of the media releases;

- Virgin Australia will begin offering Business Class on Trans Tasman and Fiji flights from February 2015. The current offering on these flights is Premium Economy (i.e. the old VA Domestic product)
- New Darwin Lounge to open in March 2015
- Major announcement in the coming weeks regarding product
 
BA0197
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 12:13 am

At the end of the day, I only have one question- What is happening in Australia to make airlines submit to these miserable results. This is not similar to the rest of the Western world, and I for one cannot figure it out. Surely it cannot completely be the fault of the ME3. After all, it is the domestic market in which Virgin Australia are loosing money.
 
benjjk
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 12:23 am

Quoting BA0197 (Reply 7):

At the end of the day, I only have one question- What is happening in Australia to make airlines submit to these miserable results. This is not similar to the rest of the Western world, and I for one cannot figure it out. Surely it cannot completely be the fault of the ME3. After all, it is the domestic market in which Virgin Australia are loosing money.

Ego.

Qantas maintaining it's "line in the sand" of 65% market share and Virgin with a grow at all costs sort of strategy. The result being way too much capacity for the market.

Thankfully both have shelved these plans recently so the results should improve next year.

Someone mentioned yesterday that the QF results prove that Borghetti has won this little war. I beg to differ.
 
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yellowtail
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 12:24 am

Quoting BA0197 (Reply 7):
What is happening in Australia to make airlines submit to these miserable results. This is not similar to the rest of the Western world, and I for one cannot figure it out.

USA went thru it….some part of Europe's carriers went thru it.
Capacity discipline should go a long way to fixing it.
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 12:52 am

Hows the economy in Australia? Any relation to these huge loses?
 
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 1:08 am

Tiger Airways Australia will be profitable in FY17 according to JB.

Only taken 10 years!
 
eaglefarm4
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 1:17 am

Tell me this, why are QF delaying orders on more fuel efficient aircraft such as A320 neos and 787's yet Virgin are bringing forward their 737 MAX.Surely VA are making the right decision here and Qantas not.
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Sydscott
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 1:56 am

Quoting eaglefarm4 (Reply 12):
Tell me this, why are QF delaying orders on more fuel efficient aircraft such as A320 neos and 787's yet Virgin are bringing forward their 737 MAX.Surely VA are making the right decision here and Qantas not.

Actually the A320NEO order hasn't been touched and the remaining A320CEO order has been convereted into NEO's.

Quoting QF175 (Reply 6):
- Virgin Australia will begin offering Business Class on Trans Tasman and Fiji flights from February 2015. The current offering on these flights is Premium Economy (i.e. the old VA Domestic product)

Interesting because NZ doesn't offer business on its narrowbody flights across the Tasman.

Quoting QF175 (Reply 6):
- Major announcement in the coming weeks regarding product

Their response to the QF A330 flatbeds no doubt.

Quoting BA0197 (Reply 7):
At the end of the day, I only have one question- What is happening in Australia to make airlines submit to these miserable results. This is not similar to the rest of the Western world, and I for one cannot figure it out. Surely it cannot completely be the fault of the ME3. After all, it is the domestic market in which Virgin Australia are loosing money.

That's easy to answer, the only reason Virgin has been able to do this has been because Etihad, Air New Zealand and Singapore Airlines have bankrolled it. If they hadn't had access to all of the capital from these airlines the airlines in Australia would be in a totally different position. (Note that Virgin is majority foreign owned, something like 75% now)

Quoting Yellowtail (Reply 9):
USA went thru it….some part of Europe's carriers went thru it.
Capacity discipline should go a long way to fixing it.

The US and Europe don't allow foreign airlines to own 100% of a domestic carrier. In Australia you can do that. That's how Virgin Australia started, that's how Tiger started. Virgin, and JB, have been bankrolled by the 3 airlines I mentioned above in basically a war of attrition with QF. That has now, hopefully, come to an end.

And before the naysayers jump in I think it's a good thing that a domestic airline can be 100% foreign owned and don't have an issue with it. (It's been good for Australia to have the liberal aviaton policy that we do) But there does come a time when you have to say things have gone to far and the results by both Virgin and Qantas prove that they have.
 
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 2:02 am

Quoting slcdeltarumd11 (Reply 10):

Hows the economy in Australia? Any relation to these huge loses?

We're sheltered from the worst of it overseas. Generally the economy has been pretty stable in the last few years, OK but not great, despite much hysteria to the contrary.

Quoting eaglefarm4 (Reply 12):
Tell me this, why are QF delaying orders on more fuel efficient aircraft such as A320 neos and 787's yet Virgin are bringing forward their 737 MAX.Surely VA are making the right decision here and Qantas not.

You can't make a blanket generalisation on matters like this. Different approaches work for different airlines. Some of the factors to consider are discussed here: Why Are The MD-82s/83s/717 Still Flying? (by Chamonix Aug 19 2014 in Civil Aviation)

VA have a lot of leased aircraft which they will need to return soon anyway, whereas Qantas owns outright most, if not all of their fleet. It could very well be cheaper for them to hold on to what they've got for a bit longer before the huge expenditure of buying or leasing a brand new aircraft. Again that would depend on their plans for expansion and the future.
 
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mariner
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 2:05 am

Quoting Sydscott (Reply 13):
And before the naysayers jump in I think it's a good thing that a domestic airline can be 100% foreign owned and don't have an issue with it.

I wish you - or anyone - could explain it to me, because I can't make sense of it.

I'd be fine with it if it was bilateral, if Australian airlines got reciprocal domestic rights in another country, but presently it looks to me like giving away the farm.

Or, as in this case, three foreign airlines subsidising a money-losing airline that is only local in name and place of operations.

I should stress that I have no problem with liberal aviation policies - I wish more countries had signed on to MALIAT - but I believe it should be a two-way street.

mariner

[Edited 2014-08-28 19:07:13]
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 2:08 am

Quoting BA0197 (Reply 7):

At the end of the day, I only have one question- What is happening in Australia to make airlines submit to these miserable results. This is not similar to the rest of the Western world, and I for one cannot figure it out. Surely it cannot completely be the fault of the ME3.

Ultimately the impact of the ME3 on the current situation in Australia, at least as far as it relates to the QF and VA financial results, is overblown. This is not to deny that EK (really ME1 for the purposes of this market until quite recently) has had a phenomenal impact on the performance and viability of the Kangaroo Route, and that played a significant part in the losses of Qantas International in the past. At the time it was scrapped, Qantas said that the FRA route had lost (IIRC) $300mn in the previous 12 months. Now, however, we are seeing almost no impact of the ME3 in the financial performance of QF and VA. That is because they have both stopped competing with them. EK (and later EY, and more recently QR) were so effective at destabilising the competitive situation to Europe that both carriers have either given up (QF) or never bothered (VA). This started with the EY-VA partnership (and the subsequent expansion of the EY-SQ partnership to encompass SIN-Europe flights), which guaranteed that VA would never have to fly to Europe with their own metal, an exercise which would almost certainly bleed them dry. After hanging out a bit longer, QF did the same with EK. The EK-QF JBA is often represented by some posters as having failed miserably, but if you consider why QF did what they did it has been a runaway success. The EK partnership was never about "saving" Qantas' routes to Europe, it was about QF entirely giving up on the European market as it was no longer in a position to compete. Basically QF took the "get out of jail free" card, and made a tactical retreat while still expanding choice and convenience for their FFs and corporate customers. All the talk about flying 787s to FCO, CDG, MAN etc was irrelevant by 2010 - doing so would probably have bankrupted QF. By partnering with EK, Qantas was able to provide these expanded options (and many more) to their customers* and never have to incur the certain financial penalty of flying their own metal.

The practical upshot of all this is that, presuming QF flights to LHR break-even, and according to what we have heard they do, then ME3 is basically irrelevant to the current financial performance of Australian airlines.

*customers here refers specifically to Australians. We have benefitted immensely through expanded options on "Qantas". Obviously European customers have had the opposite happen, with the effective elimination of one option, but that was determined to be acceptable collateral damage given that European-originating customers accounted for such a tiny part of Qantas' profit outside of the BA-QF JBA.

If we accept that the Pacific routes (to both North and South America) are profitable, and ignore the Tasman market (which is a unique situation given the NZ/VA and QF/JQ/EK duopoly), then we are left with two gaping black holes: Domestic and Asia. It just so happens that these are the two largest markets for Australian travel.

Let's start with Domestic. Benjik summed it up perfectly in one word: ego. Neither QF nor VA was prepared to concede defeat in a war that neither could win. Between VA aggressively pursuing Qantas on the Golden Triangle and Premium Transcon routes, and QF steadfastly standing by their somewhat artificial and totally arbitrary position of 65% market share, we have seen a mind-blowing amount of capacity thrown into the Australian domestic market over the past 24-36 months. Especially given that this coincided with the end of the Mining Boom, this had a very predictable outcome: yields were trashed. We have seen a competitive situation marked by vast amounts of unnecessary excess capacity and historically low fares as each undercuts the other to try and fill their planes. This, in a nutshell, is why QF and VA are both loosing money. If you read back over the past 10 years of financial results you will see that International is always loss making and that Domestic makes bumper profits. Those Domestic profits dried up, and the whole facade fell like a house of cards. Note this applies equally to both carriers, not just QF, as let's not forget that Virgin Blue was very profitable in their time.

And then there is Asia, and more specifically South East Asia. Basically we have seen the same over-capacity situation as in the Domestic market, but whereas in the Domestic market both players are equally guilty, there is no clear antagonist in the SE Asia market. Air Asia and Scoot both dumped new routes into Australia with little or no rational basis underlying their existence other than grabbing market share, Garuda have staged a very aggressive growth strategy in the Australian market, SQ, QF, and TG were flying around aircraft such as A380s and 747s that were larger than demand warranted, I could go on... There was so much capacity that it is basically a joke if it wasn't so real. Once again the results were predictable: yields down the toilet.

Thankfully things are starting to change, and that's why I am confident that both QF and VA will post improvements in FY15. Both QF and VA have finally signalled that they intended a phased disciplining of capacity in the domestic market as they both finally accepted what was abundantly clear to everyone else at least 12 months ago. This truce is going to benefit both of them. In the SE Asia market we are also seeing phased reductions in capacity, such as SQ announcing that almost all A380 services are going to be replaced by 77Ws, and just this morning TG announcing they are pulling the 747s out of Australia. Again, hopefully this starts to turn things around.

Hopefully that explains things, I have tried to be as detailed as possible  
Quoting benjjk (Reply 8):
Qantas maintaining it's "line in the sand" of 65% market share and Virgin with a grow at all costs sort of strategy. The result being way too much capacity for the market.

Thankfully both have shelved these plans recently so the results should improve next year.

  

Quoting benjjk (Reply 8):
Someone mentioned yesterday that the QF results prove that Borghetti has won this little war. I beg to differ.

I agree, ultimately both lost, and certainly nobody won, but the fact that VAd is perennially loss making is a concern.

Quoting slcdeltarumd11 (Reply 10):
Hows the economy in Australia?

The economy is still showing positive growth, but is largely sluggish following the end of the mining boom. Business confidence and consumer confidence are both low, and that is impacting on investment.

Quoting slcdeltarumd11 (Reply 10):
Any relation to these huge loses?

It's having a bit of an impact in the corporate market, but that plays second fiddle to the structural challenges that the airlines created for themselves.

Quoting eaglefarm4 (Reply 12):
Tell me this, why are QF delaying orders on more fuel efficient aircraft such as A320 neos and 787's yet Virgin are bringing forward their 737 MAX

Capital, and access to it. QF are delaying capital intensive acquisitions at the moment due their existing operations not covering ROI and because the terms on which they can access capital at the moment are inferior to what they have enjoyed in the past (read higher interest rates). VA don't need to rely on the capital markets to the same extent because they are enjoying almost unlimited equity investment from their three cornerstone investors. That makes a huge difference in their ability to acquire new aircraft.

Regarding the A320noes in particular, don't forget that those are for Jetstar. Given that the growth projections for the Asian franchises have been re-vised downwards due to the overcapacity situation in South East Asia and the ongoing travails of the Hong Kong franchise, Jetstar need fewer A320s than originally expected.
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Sydscott
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 2:30 am

Quoting mariner (Reply 15):
I wish you - or anyone - could explain it to me, because I can't make sense of it.

I'd be fine with it if it was bilateral, if Australian airlines got reciprocal domestic rights in another country, but presently it looks to me like giving away the farm.

Or, as in this case, three foreign airlines subsidising a money-losing airline that is only local in name and place of operations.

I should stress that I have no problem with liberal aviation policies - I wish more countries had signed on to MALIAT - but I believe it should be a two-way street.

Note I said domestic airline. I quite firmly believe that the structure Virgin International is in should be ruled to not comply with the requirements of the Air Navigation Act because it is effectively a scheme. So Virgin should be confined to being a domestic airline only given its current shareholding.

But, more to the point, if 3 foreign airlines want to do their dough in Australia let them. I don't have an issue with that and realistically I don't have a problem with SQ owning part of VA given their favourable treatment of 3K nor with NZ have an ownership stake due to QF having reciprocal rights there.
 
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mariner
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 3:40 am

Quoting Sydscott (Reply 17):
Note I said domestic airline. I quite firmly believe that the structure Virgin International is in should be ruled to not comply with the requirements of the Air Navigation Act because it is effectively a scheme. So Virgin should be confined to being a domestic airline only given its current shareholding.

It's the domestic part that I don't understand.

I understand it in the case of New Zealand - the Single Aviation Market - but otherwise I see it as giving away (not even selling) the farm.

I think the Virgin Australia set-up is nonsensical, but I think (original) Tiger was greater nonsense.

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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 3:45 am

I'm no Australia expert, but if you ask me, it seems like Australia's airline market is over-saturated. QF and Jetstar seem to be out maneuvering Virgin Australia here....

Quoting Sydscott (Thread starter):
- Tiger Australia lost $76 million

That's a pretty glaring failure right there.
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Sydscott
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 4:40 am

Quoting mariner (Reply 18):
It's the domestic part that I don't understand.

I understand it in the case of New Zealand - the Single Aviation Market - but otherwise I see it as giving away (not even selling) the farm.

As I said, I don't have an issue with SQ owning part of an Australian domestic airline or even controlling one in the same manner 3K is controlled by QF but that's only because of the long standing openness of the markets between our 2 countries. I seriously doubt any major LCC group would seek to setup an Australian domestic airline and, realistically, there are plenty of ways for CASA to stop them not to mention the fact that places like BNE and SYD are basically full at the times most airlines want to fly.
 
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mariner
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 4:45 am

Quoting Sydscott (Reply 20):
. I seriously doubt any major LCC group would seek to setup an Australian domestic airline and, realistically, there are plenty of ways for CASA to stop them not to mention the fact that places like BNE and SYD are basically full at the times most airlines want to fly.

Hopefully, they all learned from recent experience, but the point is that anyone still could set up a domestic airline, and that fries my brain.

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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 5:04 am

Is ANZ still 50+% government owned? If so, are NZ taxpayers fine with de facto subsidizing Australia domestic travel?
This obviously is not illegal, but is it ethical? Sounds to me like a zero-sum game. They are not making money and they are not going to gain market share in the foreseeable future but likely having it shrink further with all the asian LCCs with a foot in the door. I am saying this because last I heard the NZ govt still owned 53% of the airline. My apologies if that is no longer the case.
 
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mariner
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 5:26 am

Quoting VCEflyboy (Reply 22):
Is ANZ still 50+% government owned?

53% - yes.

Quoting VCEflyboy (Reply 22):
If so, are NZ taxpayers fine with de facto subsidizing Australia domestic travel

I doubt most people even think about it, they're too busy complaining about their own high (they say) domestic airfares.

I think it's fine that Air NZ owns 25% of Virgin. The issue is that the foreign airline holdings collectively are the majority holding, and I don't think that's ethical at all.

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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 5:30 am

Quoting Sydscott (Reply 13):
Quoting QF175 (Reply 6):- Virgin Australia will begin offering Business Class on Trans Tasman and Fiji flights from February 2015. The current offering on these flights is Premium Economy (i.e. the old VA Domestic product)
Interesting because NZ doesn't offer business on its narrowbody flights across the Tasman.

But keep in mind NZ could easily add business class to its recently ordered A320/321 international fleet, in fact NZ have expressed an interest in re-adding business class
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 5:37 am

Quoting mariner (Reply 18):
It's the domestic part that I don't understand.

mariner, I have huge amount of respect for you, and I am aware that your knowledge of the aviation industry far exceeds mine.

But I find your statement here puzzling. What's wrong with letting foreign companies operate a domestic airline in Australia? If we accept that competition in general is good, that an airline creates jobs and growth, etc, what difference does it make whether a company is Australian owned or foreign owned?

For the record, I agree with Sydscott, and I think Virgin Australia, with its current shareholding structure, should not be allowed to use Australia's rights for international flights. But when it comes to domestic flying, I absolutely don't see any basis for the protectionist policies that are in effect in most (other) Western countries.
 
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 5:56 am

Quoting QF175 (Reply 6):
Major announcement in the coming weeks regarding product

Maybe that they plan to introduce some consistency!? Haha no, probably not that...  
 
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 5:59 am

Quoting Sydscott (Reply 13):
Their response to the QF A330 flatbeds no doubt.

Let's not forget QF launched A330 flatbeds after VA launched flatbeds transcon. QF had just introduced that stupid 2x3x2 business class with the centre seat blocked out.

And as for this, it's just (a massive, damaging) lull. Way too many seats for the amount of people flying. Hopefully, with the plans that are being put in place by both carriers, we'll see them bounce back. Hopefully they're the right choices this time.
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mariner
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 6:15 am

Quoting aryonoco (Reply 25):
But I find your statement here puzzling. What's wrong with letting foreign companies operate a domestic airline in Australia?


Let's ignore the fact that the situation at Virgin Australia is the progeny of that foreign ownership, because as long as the law exists - ( foreign domestic airline) - there will be ways around it to create what Virgin has become.

So it is the idea of the law that offends me, and it's relationship with other laws - such as the Sales Act.

As long as Qantas is bound by the Sales Act, even the restructured Sales Act, it is giving a freedom to a foreign airline that Qantas does not enjoy. It's either a free market or it isn't and I find it bizarre that its open slather for foreigners and Qantas is shackled.

Eliminate the Sales Act, maybe I'd have a different opinion, but that's not going to happen in my lifetime.

I'd be fine with it if there was some sort of reciprocal deal, as with NZ, but otherwise, I know of very few countries in the world that allow open slather cabotage, and I can't think of any good reason for Australia to allow it. I can't think why it is so onerous to insist that any airline that wants to fly domestically in Oz should be 51% Oz owned.

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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 6:41 am

Quoting mariner (Reply 28):
Eliminate the Sales Act, maybe I'd have a different opinion, but that's not going to happen in my lifetime.

Wow, you actually don't think the Sales of Qantas Act will be repealed, sometime within the next few years?

It came bloody close this time. Surely it's only a matter of time, no?

Please don't tell me that populism wins out indefinitely!

Quoting mariner (Reply 28):
. I can't think why it is so onerous to insist that any airline that wants to fly domestically in Oz should be 51% Oz owned.

It's onerous because it dissuades much wanted, and needed investment in Australian aviation, and Australian economy.

I understand your objections to the current situation due to the existence of SoQA, and I wholeheartedly agree that that legislation needs to be scrapped immediately, but aside from that, I don't understand why a domestic airline in Australia needs to be Australian.
 
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 6:43 am

Quoting DexSwart (Reply 27):
Let's not forget QF launched A330 flatbeds after VA launched flatbeds transcon. QF had just introduced that stupid 2x3x2 business class with the centre seat blocked out.

Actually they didn't. QF already had A330's with Skybed Mark 1's flying domestically prior to VA launching their A330's with beds and all QF has done since it so publicise that fact and dedicate them to transcons. Though I agree the 2-3-2 Business Class was just stupid on QF's part.
 
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 6:54 am

I'm going to play the devil's advocate here, and say that if I was one of VA's owners, especially EY, SQ or NZ, I would totally double down on the opportunity and inject more money at VA and keep the capacity war going.

QF is down 25% on its liquidity in one year, it's bonds are rated as junk and it can't raise any capital. If VA was to pursue its strategy of significant market share grab while paying no attention to the bottom line, surely QF can only withstand for so long.

3-4 more years of this, and QF will either be bankrupt, or a significantly wounded and minor player in the Australian aviation industry. What would it cost VA's owners? If this year is any indication, just $350m a year. That's about $100m p.a for each of them. They can easily afford that, and then some.

By 2018-19 or so, when QF is basically gone or a marginal player, VA can start reaping rewards, for itself domestically, and for its partners internationally (wouldn't NZ love to have a monopoly on Trans Tasman?).

I know everyone is excited about the prospect of capacity reductions between the two in the near future, and I can understand that in terms of short term prospects, that is indeed good for both, but if I was in charge of VA and was thinking about the long term, that is exactly the opposite of what I would do.

I understand that this is not going to be a very popular position on this board.
 
1400mph
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 7:04 am

It's all just a great big mess if you ask me.

Australia only needs one home grown carrier and not only that but the market obviously and evidently can only support adequately one home grown carrier. ( of the QF/VA variety )

Maybe in the old days this scenario may have worked but there is now just too much overseas competition. ( it's similar to VS in the U.K trying to run itself as if it were still the 1980's )

Air New Zealand and SQ it must be said have done a pretty good job on QF by stealth.

VS was propped up by SQ now DL, VA is propped up by NZ and SQ. The wobbly non self supporting Virgin brand is great Trojan horse in the airline industry.
 
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mariner
Posts: 19473
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 7:08 am

Quoting aryonoco (Reply 29):
Wow, you actually don't think the Sales of Qantas Act will be repealed, sometime within the next few years?

I suppose it might happen if there was another crisis at least as bad as the one we're jut coming out of, but it would need a CEO like Ironballs Joyce to demand it.

Quoting aryonoco (Reply 29):
It's onerous because it dissuades much wanted, and needed investment in Australian aviation, and Australian economy.

It's really quite easy for the wealthy to find compliant shareholders, and there are numerous ways to structure a company giving the minority shareholder(s) majority control.

The Murdoch family exercised iron control over News Corp, with a minority shareholding:

http://www.theguardian.com/media/201...pert-murdoch-shareholder-news-corp

"Murdoch and his family own about 12% of the media giant but control 40% of the vote because of News Corp's dual class share structure.

It just needs a smart business brain.

Quoting aryonoco (Reply 29):
I understand your objections to the current situation due to the existence of SoQA, and I wholeheartedly agree that that legislation needs to be scrapped immediately, but aside from that, I don't understand why a domestic airline in Australia needs to be Australian.

I guess you don't live under the quite ruthless thumb of the Australian ownership of New Zealand's biggest supermarkets.

http://stream.aljazeera.com/story/201402102047-0023459

"NZ products locked out of Australian supermarkets"

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11208129

"Woolworths boss rejects 'outrageous' slurs on his reputation, and complains of Aussie-bashing"

There has to be foreign investment, of course, but why give away the farm?

mariner
aeternum nauta
 
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RyanairGuru
Posts: 8667
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 9:11 am

Quoting aryonoco (Reply 25):
I find your statement here puzzling. What's wrong with letting foreign companies operate a domestic airline in Australia? If we accept that competition in general is good, that an airline creates jobs and growth, etc, what difference does it make whether a company is Australian owned or foreign owned?

For the record, I agree with Sydscott, and I think Virgin Australia, with its current shareholding structure, should not be allowed to use Australia's rights for international flights. But when it comes to domestic flying, I absolutely don't see any basis for the protectionist policies that are in effect in most (other) Western countries.

  

Quoting mariner (Reply 28):
As long as Qantas is bound by the Sales Act, even the restructured Sales Act, it is giving a freedom to a foreign airline that Qantas does not enjoy. It's either a free market or it isn't and I find it bizarre that its open slather for foreigners and Qantas is shackled.

  

Quoting mariner (Reply 28):
Eliminate the Sales Act

  

Quoting aryonoco (Reply 31):

Don't give them any ideas  
Quoting DeltaB717 (Reply 26):
Maybe that they plan to introduce some consistency!? Haha no, probably not that

Thank you for the biggest laugh I've got out of this website for a very long time 
Worked Hard, Flew Right
 
sparklehorse12
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 9:23 am

Quoting PHX787 (Reply 19):

I'm no Australia expert, but if you ask me, it seems like Australia's airline market is over-saturated. QF and Jetstar seem to be out maneuvering Virgin Australia here....

I'd certainly expect that the short story is that QF are outmanoeuvring VA but VA have comprehensively outmanoeuvred QF in every way possible. The only CEO setting QF strategy is JB in his capacity as CEO of VA. If you track QF domestic profits since JB has been at VA they have shrunk.

The real reason both QF and VA have struggled to make money is the anti competitive behaviour by QF's stupid 65% "line in the sand" which is just utterly laughable.....

QF have cried foul to anyone who would listen then had the largest dummy spit in Australian corporate history trying to scab money off the government to maintain a monopoly.

I'd suggest VA have comprehensively given QF a thrashing......

*taps fingers waiting for Sydscott to get his pom poms out and start leading the Anet QF cheer squad* hahaha
Airlines Flown : QF,NW,AA, CX, AC, MH, SQ, DJ, NZ, TG, PG,US, FJ, J8, AN, DD, JQ
 
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RyanairGuru
Posts: 8667
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 9:28 am

Quoting sparklehorse12 (Reply 35):
*taps fingers waiting for Sydscott to get his pom poms out and start leading the Anet QF cheer squad* hahaha

taps fingers waiting for Spaklehorse to explain why VAd is perennially loss making.

(see how two can play at this game?)

Disclaimer: to those who aren't aware Sparklehorse is the cheerleader-in-chief for VA on this site. There's nothing wrong with that, and I appreciate his posts. I was just making sure we're all on the same page here.
Worked Hard, Flew Right
 
IndianicWorld
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 9:30 am

Hopefully this is the end of the ego trips that both AJ and JB have been playing at in recent years.

The faster we get back to a realistic, commercially sensible situation the better.
 
sparklehorse12
Posts: 512
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 9:41 am

Ryanair.....

1. VA is making a loss due to upgrading from a LCC to a full service airline - that is a highly costly exercise
2. Fighting the unfair advantage that QF has had requires chipping away at their business model - costly
3. VA added capacity to entice travellers to try them and hopefully retain them which means adding services during business peak periods - QF famously said "for each seat we will add two" costly for both wouldn't you say? poor discipline on QF's part and typical spoil sport QF behaviour

I am certainly no cheerleader for VA in fact, I think getting involved with TT was a really daft move but it was to satisfy SQ. All I am stating is VA's case which is rare on this board due to all the QF patriots who believe QF is somehow a good airline....

I am an ex QF staffer (recently) and left of my own accord and on very good terms, so I have no axe to grind. I know the airline very well, it's culture, it's strengths and it's weaknesses so I would say rather than being a VA cheerleader I am more of a realist. QF once was a great business but it's a victim of it's own stupid management culture. I worked in QCA so I believe I am qualified to comment without being classed as a cheerleader.
Airlines Flown : QF,NW,AA, CX, AC, MH, SQ, DJ, NZ, TG, PG,US, FJ, J8, AN, DD, JQ
 
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mariner
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 10:12 am

Quoting sparklehorse12 (Reply 38):
1. VA is making a loss due to upgrading from a LCC to a full service airline - that is a highly costly exercise
2. Fighting the unfair advantage that QF has had requires chipping away at their business model - costly
3. VA added capacity to entice travellers to try them and hopefully retain them which means adding services during business peak periods

All of which were Borghetti's choice. Virgin Blue was making money when he took over.

Quoting sparklehorse12 (Reply 38):
QF famously said "for each seat we will add two" costly for both wouldn't you say? poor discipline on QF's part and typical spoil sport QF behaviour

I'm not sure what anyone thought Qantas would do - roll over, play dead and say "Here, JB, have lots of our lovely premium passengers"?

Borghetti chose the war and was well-funded by his three foreign airline owners. What he did do - brilliantly - was present himself and his airline as the innocent underdog being bullied by the nasty Qantas.

Quoting sparklehorse12 (Reply 38):
I am certainly no cheerleader for VA in fact, I think getting involved with TT was a really daft move but it was to satisfy SQ

So you're saying that either the foreign part owner was calling the shots or that it was done to please the foreign part owner, at the expense of Virgin Australia.

I've always believed that, but I don't think it is very good business.

mariner

[Edited 2014-08-29 03:24:21]
aeternum nauta
 
sparklehorse12
Posts: 512
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 10:24 am

Quoting mariner (Reply 39):
All of which were Borghetti's choice. Virgin Blue was making money when he took over.

Incorrect Mariner - Virgin Blue lost 160M for fin year 09 - 10

Quoting mariner (Reply 39):
Quoting mariner (Reply 39):
I'm not sure what anyone thought Qantas would do - roll over, play dead and say "Here, JB, have lots of our lovely premium passengers"?

Mariner - So retaining customers through other means such as good product was off the table for QF.....lets just increase capacity and lose money - standard spoiler strategy which QF are famous for.......

Quoting mariner (Reply 39):
So you're saying that either the foreign part owner was calling the shots or that it was done to please the foreign part owner, at the expense of Virgin Australia.



I've always believed that, but I don't think it is very good business.

It's terrible business but JB may have weighed up what is more important in the long term - having SQ investment.
Airlines Flown : QF,NW,AA, CX, AC, MH, SQ, DJ, NZ, TG, PG,US, FJ, J8, AN, DD, JQ
 
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mariner
Posts: 19473
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 10:31 am

Quoting sparklehorse12 (Reply 40):
Incorrect Mariner - Virgin Blue lost 160M for fin year 09 - 10

And recovered before Godfrey left:

http://www.couriermail.com.au/busine...s-off/story-e6freqmx-1225834056717

"Virgin Blue profit soars as chief Brett Godfrey takes off

VIRGIN BLUE's Brett Godfrey is flying high ahead of his retirement, beating the profit result of arch rival Qantas with $62.5 million in net first-half earnings.


Quoting sparklehorse12 (Reply 40):
Mariner - So retaining customers through other means such as good product was off the table for QF.....lets just increase capacity and lose money - standard spoiler strategy which QF are famous for.......

Standard business practise when attacked, and Borghetti should have known it. But you haven't answered my question - did anyone really expect that Qantas would just hand over the passengers to Virgin without protest?

mariner

[Edited 2014-08-29 03:32:47]
aeternum nauta
 
81819
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RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 11:00 am

Quoting sparklehorse12 (Reply 38):
VA is making a loss due to upgrading from a LCC to a full service airline - that is a highly costly exercise

Sparklehorse,

From a pure business marketing perspective, I would have thought the VA transformation, including the very costly brand recognition strategy (that required aircraft to be painted, interiors replaced, lounges, check ins updated, etc) should have started showing dividends in the second or third years. Instead we have sustained and substantial losses that will probably continue into the 2015 year.

In reality VA tied up a lot of capital in this brand strategy. As per normal market dynamics, without continued investment the brand will start to become tired and ho hum in years 5 and onwards. At this stage (a guess on my part) VA aren't going to have the capital to complete the task (plenty of aircraft still to be upgraded), never mind keep re-inventing / refreshing the product, which is normally required for effective branding.

I have said this all along. The VA strategy has never been for the benefit of the retail (Mum's and Dad's) investors, who at the time had a far more substantial shareholding than they have today. I can not see the VA strategy, which in real terms wiped out the full value of the company (losses and costs of re-structure) and turned one of the most profitable markets in the world into a blood bath as acknowledgement of genius VA management strategy fait accompli.

In real terms the only investors who won from this strategy are the now cornerstone foreign airline investors. Considering they were not cornerstone at the time the VA transformation was announced, one can only wonder where the inspiration of genius came from.

On the same point and regardless of my loathing of VA, the market is probably in a better place. A stronger and more competitive VA can only be good for us as consumers. I suppose (and I have already accepted this) I will just have to learn to live with it!!
 
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par13del
Posts: 10819
Joined: Sun Dec 18, 2005 9:14 pm

RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 11:59 am

Quoting RyanairGuru (Reply 16):
Thankfully things are starting to change, and that's why I am confident that both QF and VA will post improvements in FY15. Both QF and VA have finally signalled that they intended a phased disciplining of capacity in the domestic market as they both finally accepted what was abundantly clear to everyone else at least 12 months ago.

Does bring their expertise into question if they could not see what all the "arm chair" players saw a couple years ago 
Quoting aryonoco (Reply 29):
It's onerous because it dissuades much wanted, and needed investment in Australian aviation, and Australian economy.

My take, if the market opportunity exist the investor ownership percentage split is irrelevant, the business will succeed, retrun on investment will be positive. Onerous in that context would mean that you are confident you can make money off the locals but you do not trust them to have any significant say in the business.

The other option is that you recoginize a business opportunity but you want to shape it in your image and for your benefit therefore you must have total control to implement your strategy, in which case having local input becomes onerous.

Now whether a government wants to ensure that its locals thrive and are involved in their national development is another story.
 
timtam
Posts: 314
Joined: Tue Nov 19, 2013 2:02 pm

RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 12:12 pm

Quoting BA0197 (Reply 7):
At the end of the day, I only have one question- What is happening in Australia to make airlines submit to these miserable results. This is not similar to the rest of the Western world, and I for one cannot figure it out. Surely it cannot completely be the fault of the ME3. After all, it is the domestic market in which Virgin Australia are loosing money.

It all stems from Borghetti being overlooked for the top job at Qantas that he thinks he deserved. He jumped ship to VA and has been trying to prove a point ever since.

VA's corporate strategy under Borghetti is a great case study of how not to behave in an oligopoly market. It has been a value destroying strategy. Everyone points the finger at Qantas but the root cause of the problems in the Australian domestic market are VA which has behaved non commercially.
 
timtam
Posts: 314
Joined: Tue Nov 19, 2013 2:02 pm

RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 12:15 pm

Quoting Airbusa322 (Reply 11):
Tiger Airways Australia will be profitable in FY17 according to JB.

Only taken 10 years!

He is dreaming. Tiger Airways will never be profitable in Australia. Its the 4th domestic carrier with a permanently tarnished safety reputation.
 
DeltaB717
Posts: 1730
Joined: Thu Jun 07, 2012 3:49 am

RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 12:17 pm

Quoting sparklehorse12 (Reply 38):

QF chose to start that war, but VA chose to fight back. It would've been far smarter for VA to focus on product (and consistency) rather than throw good money after bad on a petty squabble over who had how many bums on their seats. As I said in another thread today, both were undisciplined and somewhat irresponsible. What we need to see now is a little maturity or the whole bloody lot of them are stuffed...
 
timtam
Posts: 314
Joined: Tue Nov 19, 2013 2:02 pm

RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 12:36 pm

Quoting aryonoco (Reply 31):
I'm going to play the devil's advocate here, and say that if I was one of VA's owners, especially EY, SQ or NZ, I would totally double down on the opportunity and inject more money at VA and keep the capacity war going.

Because Qantas wont be allowed to fail. In the event that its problems became dire it would be nationalised.

It is probably a certainty that there would be informal discussions at a political level regarding what some consider to be a predatory strategy by VA to encourage the foreign shareholders to encourage VA to behave commercially in Australia.

The last thing the Australian Government would want to do is to be forced to nationalise Qantas and it would not be very pleased if this was the result of a predatory business strategy driven by a business controlled by instruments of foreign governments.
 
philvardon
Posts: 61
Joined: Sat Apr 28, 2007 7:54 pm

RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 1:34 pm

Quoting Sydscott (Thread starter):
only $541 million cash on hand is not a particularly awe inspiring result!

**Warning this is a joke and not intended to be taken seriously**

I wish I 'only' had $541million cash in hand..... 
 
aryonoco
Posts: 681
Joined: Fri May 11, 2012 1:51 am

RE: Virgin Australia Reports $211 Million Loss

Fri Aug 29, 2014 1:53 pm

Quoting sparklehorse12 (Reply 38):
2. Fighting the unfair advantage that QF has had requires chipping away at their business model - costly

Can I ask what these unfair advantages are that QF enjoys? Cause from where I am sitting, it's VA that has three shareholders that are willing to inject money into it with no restrictions while QF is shackled with the SoQA and can't do the same.

Quoting TimTam (Reply 47):
Because Qantas wont be allowed to fail. In the event that its problems became dire it would be nationalised.

Re-nationalise Qantas? I think that's very much more politically unpalatable than you might think.

Push comes to shove, presented with the choice of repealing SoQA or re-nationalising Qantas, I think any Australian government would take the first option. Which is perhaps why I wish VA continued its current strategy.

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