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Friday, August 29, 2014

VA joins in with red ink

Virgin Australia rounds out the Australasian Aviation finical reporting week with a statutory after tax loss of $355.6m ($AUD) however their underlying loss before tax was $211.7m ($AUD)

Virgin attributes this loss across the group as follows;
- Virgin Australia International (including VA NZ) loss of $66.8m
- Virgin Australia Domestic (including Skywest) loss of $59.2m
- Virgin Samoa (49% holding) loss of $2.6m 
- TigerAir (60% holding) loss of $46.1m
With restructuring and balance sheet costs, fuel, taxes etc also heavily contributing.

Virgin Australia has now completed its "Game Change Program Strategy" and has introduced Virgin Vision 2017 as its new focus.

Virgin Vision 2017
We can expect to see some change with this new vision which has wide scope throughout the entirety of the Virgin group.

The first change has seen Affinity Equity Partners buy a 35% stake in the Velocity Frequent Flyer program, giving the program an enterprise value of $960m ($AUD)  This will see the program remain under the control of Virgin Australia but with a separate board of directors.  Virgin Australia will maintain 65% voting rights and will appoint the chairman to the board. 

There will be some change in the fleet with the retirement of the two ex Emirates Airbus A330s an increased utilisation of the Boeing 737-800 fleet and the introduction of the new Boeing 737MAX fleet being brought forward from 2018 to 2017.

Virgin's charter operation, which have been built on the base afforded by the acquisition of Skywest has had a successful first year and Virgin are looking to grow it into a $200m ($AUD) operation by 2017.

Virgin will launch a new freight business in FY15 to leverage off their current RPT and Charter operations.

Virgin are looking to make $1b ($AUD) in cumulative productivity gains, this will be achieved through 3 steps;
1. Enhancing procurement
2. Improved productivity (including the above mentioned fleet changes and utilisation)
3. Streamlining of operations (see below)

As part of the streamlining of operations Virgin will reduce its long-haul international bases to two (SYD & BNE - with the already announced end of MEL-LAX flights)  it will  also  integrate Virgin Australia (NZ) operations back into its international division.

Virgin have announced they will also introduce business class onto all flights across the Tasman and to Fiji, which will be seen through the standardisation of the on board offering through the integration of VA(NZ) back into VA.  Currently VA(NZ) aircraft which operate on these routes do not have  business class seating.  

The biggest list of change/improvement is with the TigerAir LCC brand. 
1. Further improve customer satisfaction - something that has plagued TigerAir
2. Drive incremental revenue growth - through new revenue management and initiatives
3. Deliver cost synergies - via network, operational and finical synergies as well as a new Brisbane base and cooperation with VA on procurement of fuel
4. Development of an efficient operating platform and network footprint - new enhancements to drive operational efficiency including the new Brisbane base, new maintenance provider in BAE Systems and reaching agreement with Sydney Airport about infrastructure constraints at SYD

Read the full whack of documents supplied to the ASX including final report, press release, presentation and Velocity announcement HERE

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