Virgin Australia yesterday announced an AUD$315 million loss for the 2018/19 financial year. It was the airline’s seventh consecutive year of losses. Cumulative losses to date are now AUD$1.9 billion. Yesterday’s loss was attributed to high fuel costs, foreign exchange costs, subdued market conditions and legacy costs incurred as the airline transitioned from a low-cost carrier to a full-service airline.
Yesterday’s announcement by Virgin Australia’s CEO, Paul Scurrah, was not a surprise. Observers and analysts consider Virgin Australia to be a “good” airline burdened by a complex ownership structure, high operating costs, and a lack of strategic focus.
Yesterday’s loss is an improvement on the 2017/18 loss of AUD$681 million.
What’s the CEO Saying?
Paul Scurrah, who has only held the top at Virgin Australia for a short time, has a formidable reputation and a background in transport logistics. After taking up the top in March 2019, he embarked on a cost-cutting program. At the time, Mr. Scurrah said nothing was off the table.
The Sydney Morning Herald is reporting that there will be a review into where the airline flies to, how often, and in what type of aircraft.
In a statement, Mr. Scurrah said;
“We are focused on getting the business into profit as soon as possible, which will take some further tough decisions. We do expect that we will make network changes on the back of that analysis. That could be a withdrawal from a market or a reduction in frequency or a combination of both.”
Yesterday’s loss might bring some of this tough decision making forward.
750 jobs to be cut
Virgin Australia announced yesterday that it would retrench 750 employees or about 7% of its workforce. The majority of the jobs would be cut from Virgin Australia’s Brisbane head office and represent about one-third of all office roles. It is expected to save AUD$75 million per annum.
The Australian Broadcasting Commission is also reporting on Virgin’s back-office simplification program which will merge the discrete corporate and operational roles of Virgin’s domestic, regional and TigerAir operations
Paul Scurrah says he is acutely aware of the impact of job losses on people. He also says it is necessary.
Routes to be cut
Virgin Australia’s Hong Kong flights only started two years ago and have never made a profit. Despite having excellent hard and soft products on the route, the flights have never succeeded in the face of competition from Qantas and Cathay Pacific.
Virgin Australia recently entered into a codeshare agreement with Virgin Atlantic in an effort to improve poor passenger loads. Despite this, there has been speculation that the recent problems in Hong Kong would give Virgin Australia the perfect excuse to “suspend” the flights.
It has not yet done so but the money is on Paul Scurrah taking the axe to Hong Kong sooner rather than later.
Many observers of Virgin Australia question the wisdom of the airline’s international ambitions and the need for it to fly internationally. Some argue it is far better for Virgin Australia to stick to its knitting and offer a comprehensive domestic service.
And taking those A330’s off the Hong Kong route and redeploying them back onto the transcontinental route would prove hugely popular with frequent flyers.
Virgin Australia’s domestic routes are likely to see some capacity cuts. On many routes, Virgin Australia already offers less capacity and frequency than competitors Jetstar and Qantas. More cuts may further undermine Virgin Australia’s market share.
Australia’s second airline is in a tough spot. It has lots of fans and offers a good service. But the continual losses cannot be sustained. Paul Scurrah is a tough operator. He faces some challenges but if anyone can point Virgin Australia towards the black, it’ll be someone like him.
Might not be so easy a job though.
What do you think Paul Scurrah will do next? Post a comment and let us know.