Category Archives: Virgin Australia Holdings

Virgin Australia to shift its Bali flights to Tigerair Australia

Virgin Australia Holdings Limited (Virgin Australia Group) (Virgin Australia Airlines and Tigerair Australia) (Brisbane) is making moves after it continues to reduce its losses overall.

Virgin Australia is dropping its leisure routes to Bali and Thailand and will replace the service with its lower-cost subsidiary Tigerair (Australia). The company is making this move in order to reduce its international losses that widened in the fiscal year to $69 million (AU).

Virgin Australia will cease flying from Adelaide, Melbourne and Perth to Denpasar, (Bali, Indonesia) in March 2016 and will instead use its no-frills Tigerair subsidiary on those routes.

Virgin Australia on February 1, 2016 is also canceling service to Thailand, where it currently operates the Perth – Phuket route five days a week

Virgin Australia outlined the route changes with this press release:

Virgin Australia logo-2The Virgin Australia Group has announced plans to optimize its international network to deliver improved fleet utilization and meet customer demand on key trans-Tasman and short-haul international routes.

Tigerair Australia:

The Tigerair Australia brand will launch in the short-haul international market with Denpasar (Bali) as its first international destination to enable the Group to better cater to the changing dynamics in the region.

From March 23, 2016, Tigerair Australia will use three all economy configured Boeing 737-800 aircraft to offer the following services to Denpasar (Bali), subject to relevant regulatory and operational approvals being secured:

Adelaide-Denpasar: five return services per week
Melbourne-Denpasar: daily return services
Perth-Denpasar: daily return services
Members of Virgin Australia’s loyalty program Velocity Frequent Flyer will be able to redeem Velocity Points for seats on Tigerair Australia services to Denpasar.

Virgin Australia route withdrawals:

From March 23, 2016, Virgin Australia will withdraw from the following routes:

Adelaide-Denpasar: five return services per week
Melbourne-Denpasar: daily return services
Perth-Denpasar: eight return services per week

The last flights on these routes will operate on March 22, 2016.

From February 1, 2016, Virgin Australia will withdraw from the Perth-Phuket route, with the last flight operating on January 31, 2016.

Virgin Australia will continue to operate to Denpasar from Sydney, Brisbane and Port Hedland.

Virgin Australia route increases:

From October 25, 2015 onwards, Virgin Australia will increase capacity into New Zealand, in conjunction with our alliance partner Air New Zealand. Virgin Australia will also increase capacity to Fiji and the Solomon Islands to meet customer demand.

These increases represent more than 52,000 additional seats on trans-Tasman and Pacific routes during the 2016 financial year.

Additional capacity to be operated by Virgin Australia:

  • Sydney-Christchurch: addition of two return services per week from October 25, 2015
  • Melbourne-Christchurch: addition of one return service per week from November 6, 2015
    Additional seasonal capacity to be operated by Virgin Australia:
  • Brisbane-Auckland: addition of one return service per week between October 26, 2015 and  December 13, 2015, two return services per week between December 14, 2015 and January 24, 2016, and one return service per week between February 29, 2016 and March 27, 2016
  • Brisbane-Dunedin: addition of one service per week from December 18, 2015 to January 22, 2016
  • Brisbane-Wellington: addition of one service per week from December 14, 2015 to January 24, 2016
  • Brisbane-Apia: addition of one service per week from December16,  2015 to January 13, 2016
  • Brisbane-Honiara: addition of one service per week from  June 22, 2015 to January 25, 2016
  • Brisbane-Nadi: addition of one service per week between December 12, 2015 and  January 23, 2016
  • Sydney-Nadi: upgrade of Saturday Boeing 737-800 services to Airbus A330 services from  June 20, 2015 to October 24, 2015 and from December 12, 2015 to January 23, 2016.
  • An additional Boeing 737-800 service will also operate on Saturday December 26, 2015 and Saturday January 3, 2016

These decisions came as the company reported its fiscal year results:

Virgin Australia logo-2

Virgin Australia Holdings Limited (Virgin Australia today reported an Underlying Loss Before Tax of $49.0 million (all dollar amounts are in Australian dollars) for the 2015 financial year, including the impact of 100 per cent consolidated Tiger Airways Australia Pty Limited (Tigerair Australia) performance from October 17, 2014.

Virgin Australia Group Chief Executive Officer John Borghetti said: “The Virgin Australia Group has delivered a significant improvement in performance for the 2015 financial year, which reflects the positive trajectory of the overall business”.

“Over the past financial year, the Group’s Return on Invested Capital has increased from 1.4 to 6.1 per cent. Improving our Return on Invested Capital will continue to remain a strong focus for the Group. I’m pleased to confirm that based on current market conditions, all fundamental business metrics are on track for the Group to return to profitability and report a Return on Invested Capital in line with its cost of capital for the 2016 financial year. The Virgin Australia Group’s current cost of capital is approximately 10 per cent.

“Unit revenue is increasing, unit costs are decreasing and operational performance and customer satisfaction continue to improve.

“Unit cost declines are a result of the Group’s disciplined execution of our $1 billion cost reduction program. The Group has continued to decrease Underlying CASK while investing in the customer experience. Additionally, the full acquisition of Tigerair Australia has given us further capability to lower the Group’s unit costs.

“The Group is ahead of our target of $1 billion of cumulative cost savings by the end of financial year 2017. We are now on track to achieve in excess of $1.2 billion in cumulative cost savings by this date, excluding fuel pricing and hedging benefits.

“The Group’s balance sheet is also in a much stronger position, with the highest ever full year unrestricted cash balance, a $225.8 million improvement in Operating Cash Flow and a 20 per cent improvement in financial leverage on the 2014 financial year.

“I’m pleased to report that we are seeing strong results from the transformation of Virgin Australia Domestic. The business reported an Underlying EBIT of $111.1 million for the 2015 financial year, an improvement of $210.1 million on the prior corresponding period.

“Over the 2015 financial year Virgin Australia Domestic has continued to drive positive yield growth, led the major carriers in On Time Performance and achieved record customer satisfaction with the end-to-end customer experience . Based on results reported to date since financial year 2013 , Virgin Australia Domestic has narrowed the Revenue per Available Seat Kilometre differential versus our major competitor and retained our strong cost advantage. The business is well positioned for future growth.

“Whilst there are challenges on the international front, we are confident with our improvement plan.

“The Group’s unit revenue gains combined with our continued leadership on cost will drive earnings growth going forward. We now have a strong balance sheet from which to execute our strategy and a powerful portfolio of growth businesses in Velocity Frequent Flyer, Charter, Cargo and Tigerair Australia, that will support the Group’s ongoing earnings development and diversification.

“Our people have demonstrated enormous skill and dedication in their disciplined execution of the Virgin Vision strategy”, Mr Borghetti said.

Group Financial Performance

The Group reported an Underlying Loss Before Tax of $49.0 million for the 2015 financial year, an improvement of $162.7 million on the 2014 financial year. Taking into account 100 per cent of Tigerair Australia performance on a like-for-like basis, the 2015 financial year underlying performance represents a $213.0 million improvement over the prior corresponding year.
The Statutory Loss After Tax for the 2015 financial year was $93.8 million, an improvement of $260.0 million on the prior corresponding period.

Return on Invested Capital for the 2015 financial year was 6.1 per cent, an improvement of 4.7 percentage points on the prior corresponding period.

Total Group Revenue and Income increased 10.3 per cent to $4,749.2 million compared to the 2014 financial year, inclusive of $284.1 million of Tigerair Australia revenue since 17 October 2014.

Group Underlying Cost per Available Seat Kilometre (CASK) reduced 6.4 per cent excluding fuel and foreign exchange for the 2015 financial year compared with the prior corresponding period. Virgin Australia CASK reduced 4.6 per cent excluding fuel and foreign exchange over the same period.

Several major cost reduction initiatives contributed to this result, including Airbus A330 fleet rationalisation, sales channel optimisation, insourced line maintenance, major fuel consumption initiatives and savings in procurement.

The decline in oil prices led to a benefit of approximately $60 million for the Virgin Australia Group, compared with the same period in the 2014 financial year, however this was partly offset by the approximately $35 million negative impact of a weaker Australian Dollar on operating costs. The Group derived a hedging benefit of approximately $31 million in the prior corresponding period which impacted the year on year gain. Based on the Virgin Australia Group’s current hedging position and market rates, the Group expects a fuel pricing net benefit of approximately $162 million in the 2016 financial year. However this is expected to be offset by the approximately $99 million adverse impact of a weaker Australian Dollar, resulting in a total expected net benefit of approximately $63 million in the 2016 financial year.

The Group incurred $70.2 million of restructuring and transaction costs during the 2015 financial year as a result of fleet initiatives, costs associated with various transactions and other transformation initiatives. The business also incurred $27.4 million in hedging ineffectiveness costs and time value movement on cash flow hedges.

The Virgin Australia Group finished the year with a total cash balance of $1,028.5 million and an unrestricted cash balance of $718.9 million, up $244.7 million and $177.9 million respectively on 30 June 2014. The Group’s financial leverage ratio improved from 7.5x in June 2014 to 5.9x in June 2015 and is on track to achieve a further 25 to 30 per cent reduction by the end of financial year 2017.

The Group continues to invest in the latest generation of aircraft to support fuel efficiency, operational performance and customer satisfaction. During the 2015 financial year, the Group converted four Boeing 737-800 deliveries for 2016 into Boeing 737-MAX aircraft. Consequently the Virgin Australia Group will now receive 40 deliveries of Boeing 737-MAX aircraft from 2018 onwards.

Segment Performance

Virgin Australia Domestic

Virgin Australia Domestic reported Underlying EBIT of $111.1 million for the 2015 financial year, an improvement of $210.1 million on the prior corresponding period. Operating margins improved from -3.1 per cent to +3.4 per cent.

Revenue increased by 4.8 per cent on the 2014 financial year on capacity growth of 1.3 per cent, driven by growth in the Corporate and Government, Charter, Interline and Codeshare segments. The business remains on track to reach its target of 30 per cent of revenue from the Corporate and Government segment by 30 June 2017.

Virgin Australia Domestic Yield increased by 5.2 per cent compared to the 2014 financial year; driven by success in attracting increased share of higher-yielding market segments.

Virgin Australia Domestic led the major carriers in On Time Performance for the 2015 financial year, achieving 87.9 per cent of flights on time.

External research confirmed that Virgin Australia Domestic achieved record levels of satisfaction with the end to end customer experience, Domestic Business Class service and the lounge experience. The business also won a number of prestigious awards during the period, including Best Airline Staff Service Australia/Pacific by the Skytrax World Airline Awards for the fifth consecutive year.

In the 2015 financial year Virgin Australia Domestic completed the transition to a contemporary full service airline, including:

  • The rollout of complimentary food, baggage and entertainment across the mainline domestic network;
  • Completion of wireless in-flight entertainment roll-out across the entire Boeing 737-800 and Embraer 190 fleets;
  • Launch of Darwin and Alice Springs lounges, expansion of Brisbane lounge and launch of Premium Exit at Melbourne Airport;
  • A new international standard Business Class service on the Airbus A330s; and
  • The painting of the last red Virgin Blue aircraft in the new Virgin Australia livery.

Virgin Australia International

Virgin Australia International reported an Underlying EBIT of -$68.9 million for the 2015 financial year, a decline of $22.8 million on the prior corresponding period.

Virgin Australia International revenue decreased by 3.3 per cent compared to the 2014 financial year on a capacity decline of 0.4 per cent.

Increased competitive pressure, particularly in the South East Asian and long-haul markets, constrained yield recovery during the financial year.

In recent months, the Virgin Australia Group has put into place the first phase of initiatives to improve the performance of the international business, including introducing Business Class on the Tasman and Pacific Islands routes to drive further unit revenue growth; integrating the management of the New Zealand operations into the rest of the international business; consolidating its Los Angeles flying from three to two Australian hubs; and announcing the introduction of new Business Class suites on the fleet of long-haul Boeing 777 aircraft to drive further yield growth.

As a result, Virgin Australia International has begun to show improvement, with Underlying EBIT improving by $2.4 million in the second half of the 2015 financial year compared to the prior corresponding period.

Today Virgin Australia has announced the second part of the plan to improve performance. This involves launching the Tigerair Australia brand in the short-haul international market, to enable the Group to better cater to the changing dynamics in the region.

It also enables Virgin Australia International to redeploy some capacity to meet increased customer demand on strong-performing routes and to withdraw Virgin Australia International from routes where market structures have changed.

Charter and Cargo

Virgin Australia Charter continued to deliver revenue growth during the 2015 financial year.

Despite the slowdown in the resources industry, demand from Virgin Australia Charter’s existing blue chip client base continued to grow during the 2015 financial year and the business won several significant new resources contracts from competitors. This growth has been supported by the addition of four Fokker 100 aircraft, expanding the charter fleet from 20 to 24 aircraft.

The charter customer experience was also further aligned with Virgin Australia’s mainline operations, including the installation of check-in kiosks and gate scanners at three of its largest charter airports.

Virgin Australia Cargo is the Group’s newest business division. During the 2015 financial year, the Group’s dedicated cargo team implemented a state-of-the-art IT system, which will enable the division to optimise cargo capacity and provide tracking and customised reporting to customers.

The business officially launched on 1 July 2015, providing services for major freight distributors, corporate shippers and individuals. Virgin Australia Cargo has already signed several major clients.

Velocity Frequent Flyer

Velocity Frequent Flyer reported an 18.5 per cent increase in revenue and an 8.0 per cent increase in Underlying EBIT to $81.2 million for the 2015 financial year.

Revenue and earnings growth were driven by record annual growth in members, strong member engagement and new partnerships. Velocity invested significantly in people and systems in the 2015 financial year which will drive stronger earnings growth going forward, with a minimum of 15 per cent earnings growth per annum expected in the 2016 financial year and the 2017 financial year.

During the 2015 financial year, Velocity added the highest number of members since the program’s launch, with an average daily join rate of more than 2,400 per day, up from around 1,900 during the 2014 financial year. This significant increase was supported by Velocity’s Australian-first partnership with one of the country’s largest fuel retailers, BP, with an average of more than 4,300 people joining the program per day during the last quarter of the 2015 financial year.

Velocity continued to achieve numerous awards during the 2015 financial year, including winning three prestigious accolades at the Freddie Awards, in which Velocity has been recognised as having Best Redemption Ability in the Asia-Pacific region for three consecutive years. The program also ranked as number two globally for Seat Availability in the Ideaworks SwitchFly Survey.

In July 2015, Velocity acquired a leader in the data and analytics field, Torque Data, enabling the business to significantly expand its capabilities in this field and support its ongoing growth.

Tigerair logo

Tigerair Australia

Tigerair Australia recorded an EBIT loss of -$8.6 million from 17 October 2014 to 30 June 2015. On a standalone basis, it recorded an improvement of $42.7 million on the prior corresponding period.

The business achieved significant progress in driving incremental revenue growth and delivering cost synergies, with approximately $7 million in benefits achieved as a result of the completion of the Group’s full acquisition of Tigerair Australia.

During the 2015 financial year Tigerair Australia’s average load factors improved by 1.8 percentage points to 86.1 per cent, on capacity growth of 9.6 per cent.

The business introduced a number of initiatives to improve the customer experience while streamlining costs, including check-in kiosks at major airports and an iPad-based mobile app that makes the check-in and boarding process more efficient while enabling additional revenue opportunities. The most recent external survey results show customers were 75 per cent satisfied overall with their Tigerair Australia experience, up 11 percentage points since October 2014.

Tigerair Australia delivered a significant improvement in On Time Performance, with average departures On Time Performance increasing by more than six percentage points during 2015 financial year, finishing the year with 89.0 per cent of flights on time in June and outperforming its major competitor in five of the first six months of the 2015 calendar year .

Conclusion and Outlook

Virgin Australia Group Chief Executive Officer John Borghetti said: “Our people and their dedication to going above and beyond in their day-to-day roles is central to our success in delivering on our Virgin Vision strategy. I would like to thank all of our team members for their commitment to our customers and their tireless efforts in bringing to life the Virgin Vision.

“As a result of the progress on our strategy to date, we are now on a positive trajectory and on track to significantly improve financial performance again for the 2016 financial year.

“Based on current market conditions, all fundamental business metrics are on track for the Group to return to profitability and report a Return on Invested Capital in line with its cost of capital for the 2016 financial year. The Virgin Australia Group’s current cost of capital is approximately 10 per cent”, Mr Borghetti said.

Copyright Photo: John Adlard/AirlinersGallery.com. Tigerair’s Airbus A320-232 VH-VNQ (msn 5218) taxies at Sydney in the new 2013 livery.

Virgin Australia aircraft slide show: AG Airline Slide Show

Tigerair Australia aircraft slide show: AG Airline Slide Show

Tigerair (Australia) route map. The lower-cost Tigerair subsidiary is likely to grow with its lower cost basis.

Tigerair (Australia) 8.2015 Route Map

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Virgin Australia proposes to buy the remaining 40% shares of Tigerair Australia for one dollar

Virgin Australia Holdings Limited (Virgin Australia) (Brisbane) issued this proposal today.

Virgin Australia Holdings Limited (Virgin Australia) today (October 17) announced a transaction which would see Virgin Australia acquire the remaining 40 percent of shares in Tiger Australia Airways Pty Ltd (Tigerair Australia) from Tiger Airways Holdings Limited (Tiger Holdings) for a price of A$1.

The transaction, once completed, will see Virgin Australia secure 100 per cent ownership and full control of Tigerair Australia and brings to a conclusion the joint venture between Virgin Australia and Tiger Holdings which commenced on July 8, 2013.

As part of the proposed acquisition, Virgin Australia will secure the brand rights to fly Tigerair Australia to a number of short-haul international destinations, providing new growth opportunities for the business.

Virgin Australia Chief Executive Officer, John Borghetti said: “This proposed transaction marks an important milestone for Tigerair Australia and forms part of the Virgin Australia Group’s Virgin Vision strategy to 2017.

“Given the ongoing subdued consumer demand in the Australian domestic market, the growth of the Tigerair Australia domestic fleet is likely to be reduced. Under this proposed transaction, we will benefit from the economies of scale and achieve profitability ahead of schedule by the end of 2016, by leveraging the resources of the wider Virgin Australia Group.

“Tiger Holdings and Virgin Australia have worked well together over the past 14 months on building a strong operating platform for Tigerair Australia. The joint venture has strengthened systems and processes, increased aircraft utilisation, established a Brisbane base and leveraged synergies across a range of areas.

“We remain committed to maintaining the airline’s low cost business model and the separate Tigerair brand, ensuring that we can continue to deliver the most competitive pricing in Australian budget travel”, Mr Borghetti said.

The partnership between Virgin Australia and Tiger Holdings will continue into the future through brand licencing and certain services which will continue to be provided by Tiger Holdings direct to Tiger Australia.

The transaction is also subject to conditions precedent, including Foreign Investment Review Board approval, Tiger Holdings shareholder approval and entering into long-form licensing agreements, services agreements and other ancillary transaction documents. It is expected that Virgin Australia will consolidate Tigerair Australia’s financial results going forward as result of the transaction.

Virgin Australia anticipates that completion will occur by the end of 2014 and will keep the market updated on the timing of completion of the transaction.

Copyright Photo: Jacques Guillem Collection/AirlinersGallery.com. Virgin Australia will retain the Tigerair brand but the Airbus A320 fleet clashes with Virgin Australia’s Boeing 737s and the pictured Embraer 190s.

Virgin Australia Aircraft Slide Show: AG Slide Show

Tigerair Australia Aircraft Slide Show: AG Slide Show

 

Etihad Airways to buy five Boeing 777-200 LRs from Air India, will fly to Los Angeles

Etihad Airways (Abu Dhabi) has announced its plans to acquire the five Boeing 777-200 LRs (Longer Range) from Air India (Mumbai). The airline issued this statement:

The two carriers signed a Letter of Intent (LOI) in Mumbai earlier this week paving the way for the deal.

The 777-200 LRs will be used on the airline’s new route between Abu Dhabi and Los Angeles, which starts on June 1, 2014.

Etihad Airways currently flies to New York (JFK), Chicago (O’Hare), Washington (Dulles), DC and Toronto (Pearson) in North America, and to São Paulo in Brazil, and has stated its ambition to add new services to both continents.

Subject to approvals, the aircraft will be delivered to Etihad Airways from the beginning of 2014 and each will be re-fitted in a three class cabin configuration consistent with similar aircraft in the Etihad Airways fleet.  It is expected the first aircraft will enter service in April 2014.

The purchase comes as Etihad Airways finalizes details on a new fleet order which will meet its organic growth and expansion requirements to 2025 in line with its rolling network plan.

The Boeing 777-200 LR, of which less than 60 were manufactured, has a design range of 17,370 km, allowing it to connect almost any city in the world from Etihad Airways’ hub at Abu Dhabi International Airport.

The five Air India 777-200 LR aircraft, which Etihad Airways is purchasing, are on average, six years old, helping the airline to maintain its overall position of having one of the most modern fleets in the industry.

Etihad Airways’ current fleet will reach 87 aircraft by year end, with 14 new deliveries from aircraft manufacturers during 2013.

In other news, Etihad has announced it will increase its share in Virgin Australia Holdings to 19.9 percent. At 19.9 percent, Etihad Airways has reached the threshold approved by Australia’s Foreign Investment Review Board in June 2013.

Etihad Airways and Virgin Australia Airlines (Brisbane) signed a 10-year strategic partnership agreement in August 2010 that includes code-sharing on flights, joint sales and marketing activities, and reciprocal earn-and-burn on their respective frequent flyer programs.

For more information, please see: CLICK HERE

Finally, Etihad Airways and airBaltic (Riga) have announced a new Abu Dhabi-Riga joint route which will start on December 16, 2013.

The announcement follows the signing of a codeshare agreement between the two airlines.  Subject to regulatory approvals, airBaltic will operate the new four weekly return flights using a 116 seat Airbus A319 aircraft.

With seating capacity for 14 Business class and 102 Economy class passengers, the flights will operate on a split schedule, ensuring optimal connectivity over each airline’s respective hubs in Abu Dhabi and Riga.

Copyright Photo: Michael B. Ing/AirlinersGallery.com. Air India’s Boeing 777-237 LR VT-ALD (msn 36303) prepares to touch down at London’s Heathrow Airport.

Air India: AG Slide Show

Etihad Airways: AG Slide Show

Virgin Australia Holdings loses A$98.1 million for its fiscal year

Virgin Australia Holdings (Virgin Australia Airlines) (Brisbane) reported a statutory loss after taxes of A$98.1 million ($88.3 million) for its fiscal year ending on June 30, 2013. The airline issued this full financial statement for its past fiscal year:

Financial Highlights

Results in line with guidance:

  • Statutory Loss After Tax of $98.1 million – in line with previous guidance of a loss of $95 to $110 million
  • Pre-tax loss (excl. one-off transformation costs and Skywest1 loss) of $35.2 million – in line with previous guidance of a loss of $30 to $50 million
  • Outperformed main competitor on Group Yield growth
  • Strong underlying cost performance – underlying CASK2 (excl. fuel) approximately equal to FY12, inclusive of major product and service enhancements
  • Total cash position of $580.5 million and positive operating cash flows – several initiatives identified and in progress to supplement and diversify the Company’s liquidity position

Operational Highlights

Completed major restructuring and transformation as part of Game Change Program:

  • Managed critical transition to global ticketed environment and single airline designator, with SabreSonic system implemented and delivering benefits
  • Completed acquisition of 100% of Skywest and 60% of Tigerair Australia3, enabling repositioning of business across all key aviation market segments, creating new competitive landscape

Delivered on key targets of the next phase of the Game Change Program:

  • Business efficiency project generated sustainable efficiency gains of more than $60 million4 for FY13
  • Velocity Frequent Flyer membership of approx. 3.7 million, up by approx. 500,000 on FY12
  • Improved access to global markets – interline and codeshare revenue increased 45% on FY12 and forward domestic bookings approx. 6% higher than PCP5, on a capacity increase of less than 4%
  • Significant enhancements to customer experience – upgrade program for major lounges and airport terminals, business class roll-out complete and new in-flight entertainment installed in 30 aircraft
  • Leading airline in Roy Morgan’s Domestic Airline Business Satisfaction for FY136

Virgin Australia Holdings Limited (ASX: VAH) reported a Statutory Loss After Tax of $98.1 million, consistent with previous guidance. A number of factors impacted the financial performance for the 2013 financial year, including the difficult economic and competitive environment, significant one-off pre-tax restructuring and transformation costs and the carbon tax.

Virgin Australia Chief Executive Officer John Borghetti said: “While the financial results clearly did not meet our initial expectations, the 2013 financial year was a pivotal year for Virgin Australia, in which we completed our major restructuring and transformation program and reshaped the competitive landscape of the Australian aviation market, despite a very difficult economic environment and intense competition.

“As part of this program, we secured access to the growing budget, charter and regional market segments, we successfully executed the crucial transition from a ticketless to a global ticketed airline environment with the implementation of the our new booking and check-in system, SabreSonic, and we further enhanced the Virgin Australia customer experience. Each of these initiatives is critical to our success going forward.

“Furthermore, we exceeded our business efficiency program target of $60 million in sustainable efficiency gains, we expanded Velocity Frequent Flyer and improved its value proposition, increased our access to global markets and further developed the most important part of our airline, our people.

“We continued our strong focus on yield, with consistent yield growth in each month of the last quarter of the financial year. This reflects our success in attracting higher-yielding customers, while ensuring we are well-positioned in the market as we enter the 2014 financial year.

“We maintained a disciplined approach to cost management, with underlying CASK growth (excluding fuel) for the 2013 financial year approximately equal to last year, notwithstanding the significant investment in product enhancements.

“The 2014 financial year represents the fourth year of our five-year Game Change Program strategy in which we will focus on consolidating our market positioning in order to drive earnings growth.

“As we move into the new financial year, we continue to grow yield and build loads, supported by our improved access to global distribution channels, through SabreSonic. Preliminary operating statistics for July 2013 indicate positive yield7 growth and domestic loads of 79.6 per cent.

“We now have the right structure in place to compete vigorously in all key market segments and achieve sustainable performance in the future”, Mr Borghetti said.

Financial and Operating Performance

“Revenue and income increased 2.6 per cent on the 2012 financial year, following growth of 19.8 per cent on the 2011 financial year. This reflects the weaker trading conditions experienced during the 2013 financial year and the impact of the introduction ofSabreSonic, which includes approximately $25 million from the waiving of ancillary fees in order to protect the customer experience, as well as forgone revenue due to the scheduled cutover of the booking system.

“Excluding Skywest and not adjusting for approximately $25 million of waived ancillary fees, the underlying loss before tax for Virgin Australia is $72.8 million8.

“Due to our strengthening relationships with international airline partners, interline and codeshare revenue continued to grow strongly, with a 45 per cent increase on the prior corresponding period.

“Domestic Business Class passengers continue to increase, with passenger traffic in the Business Class cabin more than doubling compared to the 2012 financial year.

“The result includes the underlying pre-tax trading loss of $9.4 million for the recently acquired Skywest business, reflecting the investments being made to integrate and facilitate the growth of the business.

“Our international operations continue to perform well as a result of the network changes we made as part of the Game Change Program and our alliance partner strategy. International revenue increased by 6.4 per cent compared to the 2012 financial year, off capacity growth of 3.0 per cent, and the business continues to be EBIT positive.

“Virgin Australia outperformed our major competitor on Group Yield growth for the second year running, with relatively flat Group Yield9 growth for the 2013 financial year.

“We incurred $105.1 million of significant one-off pre-tax costs as a result of the major restructuring and transformation program. The transition to a global ticketed environment, a single airline designator code and new core IT systems (including a new data warehouse and a new revenue accounting system) comprised the majority of this cost, totalling $81.5 million. This incorporated a comprehensive 12 month staff training program, technical costs of the system cutover, resources for customer management and communications, and other costs associated with the transition. Other one-off restructuring and transformation costs include the restructure costs associated with the Skywest and Tigerair Australia transactions, the integration of Skywest and business transformation initiatives, totalling $17.3 million. The business also incurred $6.3 million of costs associated with accelerated depreciation on legacy assets.

“While significant one-off costs affected our profitability for the year, we maintained strong controls on costs, with underlying CASK10(excluding fuel) for the 2013 financial year approximately equal to that of the 2012 financial year, even with significant enhancements to product and service.

“The company was also impacted by the carbon tax during the 2013 financial year, with a $47.9 million cost of which we were unable to recover due to strong competition in the market.

“Importantly, we have made significant progress in our plan to streamline the ongoing costs of the business as it grows. In its first year, our business efficiency program has exceeded targets, delivering sustainable efficiency gains of over $60 million and is on track to deliver cumulative productivity gains of approximately $400 million over the three years to 30 June 2015.

“Our tiered hedging policy continues to be successful in providing short term certainty in a volatile environment, while enabling us to maintain flexibility in the longer term.

“In line with guidance11, we recorded capacity growth of 6.3 per cent across our domestic network for the 2013 financial year. As previously stated, we expect domestic capacity (excluding Tigerair Australia) to grow between 3 and 412 per cent in the first half of the 2014 financial year.

“On Time Performance for the Virgin Australia brand was roughly in line with that of our major competitor’s branded operations, at 81.1 per cent for the 2013 financial year13. This includes the impact of the transition to SabreSonic, which affected On Time Performance during the third quarter of the year”, Mr Borghetti said.

Liquidity and Cash Flow

“We finished the 2013 financial year with a total cash position of $580.5 million and an unrestricted cash position of $326.5 million as at 30 June 2013.
“Improved underlying cost disciplines across the business have supported positive cash flow generated from operations14 of $184.2 million across the 2013 financial year.

“We continue to review Virgin Australia’s assets to ensure we are utilising our resources in the best way possible. As part of this process, over the year we have executed the sale and lease-back of the Virgin Australia hangar at Brisbane Airport and several other initiatives have also been identified and are underway to supplement and diversify our liquidity position.

“This includes conditional commitments for a new term loan facility from Air New Zealand (NZX: AIR), Etihad Airways and Singapore Airlines (SGX: SIA) for an aggregate amount of AUD90 million, as part of our focus on supplementing and diversifying the Company’s liquidity position”, Mr Borghetti said.

Game Change Program Strategy Update

“We have concluded the first phase of the Game Change Program with the completion of significant restructuring and transformation initiatives, which are essential to ensure the Group can compete effectively in all market segments and to create a solid platform for growth”, Mr Borghetti said.

Systems and Processes

“Central to the Game Change Program is building a strong flexible operating platform, through strengthening our systems and processes.

“Thanks to the significant work undertaken internally we have now created this platform. Over the past three years we have implemented a new Treasury management framework, an improved group-wide procurement framework, improved operating and financial disciplines and a business efficiency program to drive better cost efficiencies and operational effectiveness.

“During the 2013 financial year, we completed one of the most significant initiatives in Virgin Australia’s thirteen year history. We transitioned from a ticketless environment to a global ticketed environment, moving from a low cost carrier system to become a full service airline with better access to global distribution channels and the ability to provide a more seamless customer experience. This involved moving from two booking and check-in systems and two airline designator codes to one globally-recognised system and one airline designator code, with the implementation of SabreSonic in January 2013.

“This new system is critical to our ability to continue to grow the business, increasing our exposure to the corporate and government market and to travel agents both in Australia and around the world. It was therefore crucial that we implemented the system as quickly as possible, with minimal disruption to the customer experience, even though that meant significant one-off costs for the business during the 2013 financial year.

“The new SabreSonic system is already supporting our ability to increase yield. For example, domestic bookings made within the final three weeks prior to departure have experienced a doubling of yield premium to 20 per cent, whilst the number of domestic bookings has improved by 15 per cent over the prior corresponding period15.

“The system will also make it easier for us to work with our current alliance partners and to add new alliance partners, as it aligns with industry standard practices and supports IATA protocols.

“SabreSonic is central to providing an improved travel experience, making it easier for customers to transfer between our flights and those of our partner airlines and offering customers more online self-service options and a greater choice of flights”, Mr Borghetti said.

Product and Service Enhancements

“One of the key aims of the Game Change Program is to establish a superior position in customer experience, while maintaining our cost advantage. This has been a priority during the 2013 financial year as we implemented the final initiatives of our major transformation program and continued to innovate in order to maintain our leadership in this area.

“During the year we completed the roll-out of business class to our domestic fleet, with new cabins on our Embraer 190 aircraft, giving travellers in Australia choice in business class for the first time in over a decade.

“We have expanded existing lounges in key capital cities to meet growing demand and we have launched a new 300 seat lounge in the nation’s capital, Canberra. The refurbishment and extension of our Sydney lounge is now complete. By the end of the 2013 calendar year, we will have completed the expansion of our Melbourne lounge and opened a new lounge in Cairns, with new lounges in Darwin and Perth to open in calendar year 2014.

“We also continued to enhance the airport terminal experience for our customers. In the 2013 financial year we launched Virgin Australia’s state-of-the-art terminal facilities in Canberra and completed the refurbishment of terminal facilities in Melbourne and our extended pier at Sydney Domestic Airport’s Terminal 2.

“In-flight entertainment is critical to customer satisfaction in the air and we have made substantial progress on the implementation of the wireless content streaming technology, with 30 aircraft fitted out and the rest of the domestic Boeing and Embraer fleet to be completed by the end of the year.

“Innovation will remain core to the Virgin Australia brand and we have a range of new product and service initiatives planned for the 2014 financial year to ensure we retain our leadership position, while maintaining a low cost base”, Mr Borghetti said.

Velocity Frequent Flyer

“Membership of the Velocity Frequent Flyer program has grown to approx. 3.7 million, an increase of approximately 500,000 members from the end of June 2012. We continue to see steady growth across all metrics of the business and we are confident that we are on track to achieve our target of 5 million members by the end of the 2015 financial year.

“Over the 2013 financial year we increased the number of hotel partners by 80 per cent and added a range of new partners, maintaining the widest retail offering of any loyalty program in Australia.

“We have launched a number of successful new initiatives aimed at engaging members. We were first to market with a new multi-currency pre-paid travel card, the Global Wallet, combining the Velocity membership card with a Visa pre-paid travel card capability. We also launched Australia’s first pet frequent flyer program and a Velocity Frequent Flyer Facebook presence.

“Going forward, we are focused on continuing to strengthen and mature the business to optimise Velocity Frequent Flyer for ongoing growth”, Mr Borghetti said.

Network and Alliances

“We have further expanded our extensive global network over the 2013 financial year, offering a range of benefits to travellers and providing access to more than 460 destinations across five continents, with the ability for our Velocity Frequent Flyer members to earn Points and Status Credits on all flights. This represents an increase of 27 destinations on the prior corresponding period.

“We are very pleased to have the support of our strong airline alliance partners, Air New Zealand, Delta Air Lines, Etihad Airways and Singapore Airlines, which is critical to the success of our business.

“We continue to work closely with these partners on improving our offering for customers and also on identifying other opportunities to create efficiencies and enhance the customer experience”, Mr Borghetti said.

Regional Operations

“In May 2013 we launched Virgin Australia’s regional operation, following the acquisition of the Western Australia based Skywest).

“We have made significant progress with the integration of Skywest into the Virgin Australia Group, including the roll out of Virgin Australia branding across the airline’s operations and the transition to the same SabreSonic system as Virgin Australia, aligning website and airline designator codes.

“Work is well advanced on integrating the networks of the two airlines to explore opportunities for growth and to enhance the customer proposition. For example, earlier this month we launched Virgin Australia’s two-class Embraer aircraft to the important mining hub of Kalgoorlie, as well as Fokker 100 services to the oil and gas port of Onslow.

“We are now well positioned to compete in the regional and charter markets in the 2014 financial year”, Mr Borghetti said.

Tigerair Australia

“We completed the acquisition of 60 per cent of Tigerair Australia in July 2013, enabling us to re-enter the high-growth budget market segment, which is a key part of our overall strategy.

“We have observed positive performance trends to date and we expect performance improvements to be driven by three key factors.

“Firstly, increasing the scale of the business by growing the fleet to 23 aircraft, with the potential to increase up to 35, which we believe will bring economies of scale and deliver a further cost advantage. Secondly, improving operational and service standards to enable the business to increase yields.

Recent performance indicators have been positive, with load factors for July 2013 at 92.0 per cent, an increase of 8.2 points on the same time last year.

Thirdly and finally, we believe margins will be improved by extracting synergies through leveraging off shareholders for certain functions such as procurement”, Mr Borghetti said.

Our People

“Our people and the service they deliver continue to be our main differentiator in the market. During the 2013 financial year we implemented an organisational change program designed to develop a more customer-centric culture in all aspects of our business.

“Virgin Australia has received a range of accolades over the year for its achievements in customer service, including our recognition at the Roy Morgan Customer Satisfaction Awards as Domestic Airline of the Year and at the World Airline Awards for ‘Best Airline Staff Service” in the Australia/Pacific region for the third consecutive year. The Roy Morgan Customer Satisfaction results for the 2013 financial year demonstrate that we are leader in Domestic Airline Business Satisfaction, with 81 per cent of customers very or fairly satisfied.

“I would like to express my sincere gratitude to all team members for their tireless dedication to Virgin Australia as we continue to progress our Game Change Program strategy. In a year of major restructuring and transformation, they have demonstrated great passion and tremendous skill and they will continue to be the drivers of our success going forward”, Mr Borghetti said.

Outlook

“Given the uncertain economic environment we are unable to provide guidance for the 2014 financial year at this time”, Mr Borghetti said.


11Refers to Skywest Airlines Pte Ltd (formerly known as Skywest Airlines Ltd). Acquisition was completed 19 April 2013
2Underlying CASK is a non-statutory measure and is defined on page 10 of this media release
3Refers to Tiger Airways Australia Pty Ltd. Acquisition was completed 8 July 2013
4This figure has not been audited or reviewed by KPMG
5As at 30 June 2013, compared to the prior corresponding period (PCP) of 30 June 2012
6Source: Roy Morgan Research, July 2012 – June 2013. Finished the 2013 financial year at 81.0% domestic business travellers very or fairly satisfied compared to Qantas at 78.8%
7For the purposes of comparison this excludes the Regular Passenger Traffic segment previously operated by Skywest
8Underlying Profit / (Loss) Before Tax (PBT) excludes Skywest and is a non-statutory measure used by Management and VAH’s Board as a primary measure to assess financial performance of Virgin Australia and individual segments. Refer to page 9 of the media release for a reconciliation of Statutory and Underlying PBT
9Group Yield excludes Skywest
10Underlying CASK is a non-statutory measure and is defined on page 10 of this media release
11Capacity growth includes Virgin Australia Regional (previously Skywest) for May and June FY13 figures
12FY14 growth target takes into account Virgin Australia Regional for the full prior comparable period, and excludes Tigerair Australia
13In accordance with the Bureau of Infrastructure, Transport & Regional Economics definitions, flight departure is counted as “on time” if it departs the gate within 15 minutes of the scheduled departure time shown in the carriers’ schedule. Compares the departure OTP results of Virgin Australia-branded operations (Virgin Australia and Virgin Australia Regional Airlines) with Qantas-branded operations (Qantas and QantasLink), which recorded a result of 81.9%
14Excludes business transformation and net finance costs
15Refers to domestic bookings made through all sources and compares the 4 trading weeks of July 2013 to 4 weeks of trading in July 2012

Copyright Photo: Ivan K. Nishimura/Blue Wave Group. Boeing 737-8FE VH-YIA (msn 37824) passes through Honolulu on its long delivery segment of flights.

Virgin Australia: AG Slide Show

Virgin Australia moves one step closer to acquiring 60% of Tiger Airways Australia

Virgin Australia Holdings Limited (Virgin Australia Airlines) (Brisbane) today (May 28) welcomed confirmation from the Foreign Investment Review Board that it has no objections to the proposed acquisition of 60 percent of the existing shares in Tiger Airways Australia Pty Ltd (Tiger Australia) (Melbourne).

This confirmation satisfies another condition for the proposed acquisition of Tiger Australia, which will enable Virgin Australia to access the budget market segment and expedite the growth of Tiger Australia.

The proposed transaction still remains subject to certain conditions and Virgin Australia expects the transaction to be completed by mid-July.

Top Copyright Photo: Ivan K. Nishimura/Blue Wave Group. Virgin Australia’s brand new Boeing 737-8FE WL VH-YFF (msn 40994) and crew pass through Honolulu on delivery.

Virgin Australia FAs (Virgin Australia)(LR)

Above Copyright Photo: Virgin Australia.

Virgin Australia: AG Slide Show

Tiger Airways (Australia): AG Slide Show

Bottom Copyright Photo: Peter Gates/AirlinersGallery.com. Tiger Airways’ Airbus A320-232 VH-VNH (msn 3734) stops at Brisbane.

Virgin Australia Romance is back (VA)(HR)

Romance is Back Video: