Virgin Australia Financials 2019/20

[justinbrett]

And with respect to @TheInsider. The codeshare arrangement between QF and NZ is clearly to the detriment of VA even if competition on the Tasman still exists. With the exit of EK, the duopoly have combined and it's absolutely anti-competitive behaviour to a degree, even if dressed up otherwise.

Legally speaking it's not - they don't have a JV like VA/NZ did - just a vanilla codeshare which doesn't require regulatory approval. As Virgin is finding out, business is business, it doesn't have to be fair - it just has to be legal.

From what I understand VA and NZ still have an interline agreement, so it's up to Virgin to decide what connections it will allow. From what I can see it blocks any domestic connections to the big 4 (AKL, WLG, CHC, ZQN) but will allow others.

 

[williamsf1]

Was quite a strange decision considering Virgin International used to use Amadeus anyway. Domestically they used Navitare. Obviously they needed to move to a new system domestically, but sabre was a really odd choice.

EY was very influential with this decision, along with JBs "hate" of 1A .... Navitare/ new skys is also owned by 1A , along with the loyalty core system Velocity use.

They were sold a lemon with 1S .. the old management never acknowledged this ... hopefully, the new ones will see the errors of the past

 

[Stealthflyer]

There’s a lot of discussion in Tasmania about the potential axing of flights in and out of Hobart because it’s considered a “leisure route”. As a Tasmanian though, it’s my main route off the island, leisure or not. Like many Tasmanians, I work for an organisation that both attracts tourists to the state and benefits from them, so it’s disappointing to hear these rumours.

If they do cut routes, it’ll be after the summer rush. Only last month, Qantas announced it would add extra flights to Tasmania for the summer, so I’m guessing there are enough bums on seats on these routes. It’s just that they don’t attract the big business $$$ that the Syd-Mel route does I guess.

I can’t imagine they’d be able to cut that many services though. Many international airlines rely on the domestic codeshare, Singapore and Etihad in particular. At the moment there are fairly good connections between Virgin and these international flights (when VA is on time, that is). If VA cancel flights there’s going to be a lot more waiting time in transit for me and my fellow Tasmanian travellers (but hey, at least I get to use my lounge access on the mainland!)

 

[ja1]

you can use virgin pts on likes of Delta(huge), Etihad(pretty big) etc.

Not so long ago, Qantas were in trouble. I still don't think Qantas are making any money internationally, but how would anyone know for sure, with a bit of creative accounting. Qantas domestic does very well, which keeps the whole Qantas group afloat. Virgin only seems to have a small minority of the business market domestically. Business types pay a fortune to fly last minute, often 3-5 times or even more, than leisure travellers that book ahead, FOR THE SAME SEATS !!!

There's a few inaccuracies and FUD here. To address them:

1) Yes, QAN don't make money on their international arm (yet) and haven't for years and it's not clear it will ever make money as it's so dependent on fuel pricing
2) You would know for 'sure' as they do release audited accounts being a public company
3) Creative accounting is picked up - as a ASX200 company they have actual people following them from multiple firms - not just reading the annual accounts or half yearly statements. So this statement is neither factual or relevant. How about sticking to the facts - both from QAN and the analysts following, which do agree with you: QFi loses money but QAN makes money.
4) Yes QAN domestic does well (as in, it makes a profit in its own right)
5) No it doesn't keep the group afloat all by itself. QAN make approx 10% margin on Qd. They make 21% on QFF. QAN makes a profit as a whole because Joyce and the team have got all the parts of QAN aligned pretty well at the moment (there's about 6 major parts and about a thousand minor ones!)
6) Not all business pays more as many organizations have a BFOD and/or cheapest fare policy - but you're right, a lot of business pays extra for the flexibility (e.g flex fares - full price). A very small proportion of business pays for actual business class seats (look at any SYD-CBR or SYD-MEL and all the men and women in business suits are in rows 1-8..)

QAN will take years (if ever) to make money from QFi but their business model works really well to feed many of those QFi pax into QFd, not to mention all the QFF revenue that accrues largely based on marketing from QFi.

How does VA go about doing the same thing ? Lets face it - there's no alternate business model to pursue and JB@VA saw that a long time ago. Before QAN had JQ, there was perhaps an opportunity but QAN picked up on that, Joyce ran JQ and that was the end of a profitable LCC model in AU for anyone, once QAN worked it out.

The only domestic model other than QAN/VA now is specific routes that are subsidised by government or the local communities (or businesses!) that need the service.

In other news, not a single person (that I managed to read or pickup) has said they would actively try to fly more with VA or get more people to fly with VA. A number of posts all point in the other direction - at this stage so many people keep equating VA with Ansett and what happened 20 years ago..

In motorcycle riding this is called target fixation and it never ends well..

 

[eastwest101]

EY was very influential with this decision, along with JBs "hate" of 1A .... Navitare/ new skys is also owned by 1A , along with the loyalty core system Velocity use.

They were sold a lemon with 1S .. the old management never acknowledged this ... hopefully, the new ones will see the errors of the past

To be fair though - I am not sure of all the details, but the Navitaire system that VAd used in the past was extremely unreliable, and I distinctly remember many chaotic scenes in domestic terminals when VA's check-in systems went down, not sure if it was the version or configuration of Navitaire that they used or not? Not that Sabre completely solved the issue, as I also remember a few worldwide Sabre outages hitting VA along with every other Sabre user in the past. I think JQ still use Navitaire and they don't seem to have too many problems with it? Possibly the problem was more to do with VA's own IT department/staff rather than the software itself?


With the other discussion about possible route cuts or reductions in frequency - they have already decided to cut management staff at head office, the next logical step is to decide if they want to persist with Tigerair (or some other rebranded version of a LCC) or not. If they do then they can consider "Tigeriz-ing" the low yield routes just like Qantas tried to do with Jetstar - with the inevitable backlash but it may save the business. If they do decide to kill off Tiger completely, then its a completely different discussion about fleet rationalization before they can even consider which routes to kill off or reduce frequency.

Remember that killing off a route completely, opens up that route for monopoly pricing by Qantas, which only adds to the bottom line for Qantas. If Qantas has enough monopoly high yield routes it can then use these yields to undercut predatory price any competitor on routes where it does have competition. Reduction of frequency means you still have to have the staff/contractors and infrastructure present but spread these costs out over fewer available seats/flights, and once you lose some frequency that makes your connecting pax experience less convenient which then drives customers away. thus getting into self perpetuating capacity/frequency cutting passenger losing and economy of scale death spiral.

For VA having a mono-culture fleet of B738's without anything slightly bigger or smaller means you don't have the capacity/fleet flexibility that Qantas has with its larger fleet of B737's, B717s and A332s. Too late now obviously but probably a mixture of B737-700s -800s and -900s or a mix of A319s/320/321s would have been a much smarter choice in that you get all the fleet, pilot, parts commonality benefits, and you get some capacity flexibility so you can be flexible with your capacity. Other people made the E190/ATR72 work and make money - is it more the VA management and leasing conditions that ended their service, rather than anything particularly wrong with the airplanes themselves? If so - there is a cultural/management problem that needs fixing in the airline before you introduce any new types.

In other things that fall into the category of hindsight and "can't unscramble an egg" - Losing NZ as a partner was a massive loss and it was unfortunate timing/personal ego's that has probably destroyed a lot of value in the VA business. Letting Qantas sneak off with a 20% stake in Alliance was also very unfortunate and a strategic blunder.

Paul Scurrah sure has some tough decisions to make...

Edited to add: I have asked my travel arranger to try to send some business towards VA (they are already BFOD Y only and more schedule sensitive than price sensitive and are about 50% split between QF and VA) with the rationale being that the loss of the only competitor (VA) just gives Qantas free reign to price gouge and Jetsarize the domestic market, as they inevitably would do if VA didn't exist.

 

[Melburnian1]

...In other news, not a single person (that I managed to read or pickup) has said they would actively try to fly more with VA or get more people to fly with VA. A number of posts all point in the other direction - at this stage so many people keep equating VA with Ansett and what happened 20 years ago..

I again spoke with a friend who runs a business and suggested that if VA folded or had to (further) cut its frequencies, even on the 'golden triangle', inevitably it would give QFd the OK to further raise fares (and VA might follow, at a slightly lower level for each fare type.)

My entreaties had nil effect, even though my friend is no fan of AJ for other reasons. He said he and his colleagues wouldn't swap to VA, but couldn't (or didn't want to) explain why. They fly on the major east coast routes (and to ADL) so normally VA has flights at business-friendly times.

All I can assume is that business (and government) is/are so bloated with profits/revenue that they don't care if fares rise more.

And yet in some sectors in Australia there's already a recession.

Some VA Group staff at the front line (pilots, flight crew, bag drop/check in staff, baggage handlers) must be wondering how long they'll have a job or their contractor will have a contract with the VA Group...

 

[clipped_wings]

"ouch".....glad all our points/miles are banked with QF / SQ / AMEX

This is a particularly poignant observation @amaroo. And one that sadly - is most likely indicative of the majority of Australian frequent flyers. But I offer a perspective from my laymans view:

The lifespan of VA may well be an exercise in futility, stemmed from a history of mismanagement, but more recently compounded by a dreadful stalemate between the US and China. But it's also tantamount to all those European and Asian car owners in Australia, who stood on the sidelines and said "ouch" as Holden went the way of the dodo. We have the capacity to support 2 major Aussie airlines. We just choose not to.

Are we fooling ourselves in analyzing why it's going downhill?

 

[SeaWolf]

He said he and his colleagues wouldn't swap to VA, but couldn't (or didn't want to) explain why. They fly on the major east coast routes (and to ADL) so normally VA has flights at business-friendly times.

All I can assume is that business (and government) is/are so bloated with profits/revenue that they don't care if fares rise more.

"They" absolutely do care, however the individual booking the flights cares a lot less about that big picture. They care about the flight they're booking now and how it fits their circumstances at that time. Also, it's easy to forget about the cost when someone else is paying (hence BFOD policies).

For me, I fly VA a lot and QF almost never (as evidenced by my status levels) but I can understand how people end up going to QF for totally legitimate reasons. For work I'm usually flying the SYD-CBR route and on any given day QF will usually have double to triple the number of services on offer from VA. For a lot of my colleagues, that seals the deal, it just fits in better with their schedules. They spend less time waiting around at airports and even though the flight might have cost $20 more, we've saved on a meal allowance or same-day travel allowance because of the reduced time travelling. There's real benefits to QF's larger scale.

Does this help VA? Not really, they could pile on extra flights on that route but I think a lot of people are also just entrenched with QF and so VA would end up flying mostly empty planes. This is the trap VA is caught in. Business and Government wants VA to fly more routes, more often to compete with QF and keep prices low, but they struggle to actually drive employees and customers onto those flights. I don't have concrete numbers but I suspect VA does better on the much more price-sensitive leisure routes.

 

[moa999]

1) Yes, QAN don't make money on their international arm (yet) and haven't for years and it's not clear it will ever make money as it's so dependent on fuel pricing
2) You would know for 'sure' as they do release audited accounts being a public company
3) Creative accounting is picked up
4) Yes QAN domestic does well (as in, it makes a profit in its own right)
5) No it doesn't keep the group afloat all by itself. QAN make approx 10% margin on Qd. They make 21% on QFF.

Suggest you take a look at the QAN FY19 presentation.
International has made (EBIT) $285m / 398m at margins of 3.8% / 5.7% over the last few years
About the same amount as Loyalty over the past couple of years
Qantas Domestic is the most profitable segment by some margin At $740 / 765m EBIT last two years 12.1/12.9%

While the accounts are audited there is always some flex in policies and attribution but it's at the margins. Remember also that various managers of each divisions bonuses depend on division results so they will fight to ensure the figures are right (eg. The usual PPrune stuff that QFi pays for all of Jetstars costs etc).

Yes Qantas took big write-offs in 2014, particularly to aircraft values, but I suspect they'd depreciated too little in prior years, and as has been borne out there isn't much value in a 2nd hand A380, but even a $1bn over write-off in one year, probably only helps you by say $100m in subsequent years

 

[Must...Fly!]

I think it's also worth taking a step back to appreciate that even with the ridiculously small free float available on the ASX, the one benefit (albeit also a distraction) of remaining on the exchange as VAH is that we get to discuss and peruse all the financial details - which we certainly would not be able to do if the company got taken privately. Then we would have absolutely no idea as to the financial performance of the airline or how safe we think we may be (i.e. chances of collapse - to me, almost zero right now)

 

[Nathant123]

Reading all of this has made me cough myself a little. Is it a good idea to convert all my points over to Krisflyer including the ~280k flybuys points? What are others who have collected a large amount of points doing? Krisflyer would probably be a safe bet considering the strength of the airline however they do expire. Maybe I'm just being a little too nervous? Would suck to wake up one morning to find that Velocity has been massively devalued or wiped out completely in an effort to further cut costs.

 

[eastwest101]

I think it's also worth taking a step back to appreciate that even with the ridiculously small free float available on the ASX, the one benefit (albeit also a distraction) of remaining on the exchange as VAH is that we get to discuss and peruse all the financial details - which we certainly would not be able to do if the company got taken privately. Then we would have absolutely no idea as to the financial performance of the airline or how safe we think we may be (i.e. chances of collapse - to me, almost zero right now)

Indeed - maybe some brave souls will be buying VAH shares on market today in the hope/expectation that Scurrah can turn things around? Or in the hope that it does go private then VAH shareholders will have to be mopped up (but at what price?).

If Virgin Australia does go completely privately owned we would only be finding out about whats happening from mabe DL or SQ airlines stock exchange releases, assuming that VA gets folded into a division of another overseas parent airline.

 

[Melburnian1]

Reading all of this has made me **** myself a little. Is it a good idea to convert all my points over to Krisflyer including the ~280k flybuys points? What are others who have collected a large amount of points doing? Krisflyer would probably be a safe bet considering the strength of the airline however they do expire. Maybe I'm just being a little too nervous? Would suck to wake up one morning to find that Velocity has been massively devalued or wiped out completely in an effort to further cut costs.

Irrespective as to how often one flies, past events - devaluations as recently with QF FF, or airline failures like Ansett of c.2001 - demonstrate that it isn't wise to accumulate millions of points (or even perhaps the high hundred thousands.

Planning 353 days in advance is tricky, because lives can change in that timeframe, but my humble suggestion would be to (if your balance allows) book that dream trip to Europe or elsewhere using whichever scheme is most 'rewarding.'

You and I have no 'power' in the relationship with an airline's FF program. The latter hold all the aces.

 

[HS-TQE]

It's been reported by 'insiders' on other forums that SQ and EY 'supposedly' has 'veto power' over VA's partnerships that has been around since they acquired a stake in VA. The exceptions were the legacy 'long term' partnerships pre-EY/SQ/NZ (e.g DL and VX), and the codeshare arrangement between VS and VA.

Some theories has since arose, with one pointing out that SQ was the "real reason" that VA has been kept at arms length from the major Alliances (with JB just being a 'mouthpiece' for the shareholders when it comes to major Alliances).

Air Canada also was reported to say how difficult it was to deal with SQ to get a partnership between them and VA going.

Edit: While personally I can understand why SQ and EY wanted 'to control' who VA partnered with, even keep them away from their Alliance partners (and keep the Australian traffic for themselves). I think personally that decision may had come back to bite them later on. Also to add, I suspect that's the reason why EY are keeping their stake in VA for now, if they sold out and SQ still kept theirs, what's stopping SQ from "abruptly" ending the EY/VA partnership once that expires.

It's also no surprise those two had let VA kept the DL partnership for TransPacific, SQ and UA aren't the best of friends either.

 

[Must...Fly!]

VA partnership is important for EY to keep their aircraft, the EK/QF arrangement has increased the importance of the relationship.

I'm not sure I believe the SQ veto, if that was the case why would they have allowed partnership in to HKG and with the Chinese, knowing that it would directly hit SQ's bottom line?

 

[Must...Fly!]

Reading all of this has made me **** myself a little. Is it a good idea to convert all my points over to Krisflyer including the ~280k flybuys points? What are others who have collected a large amount of points doing? Krisflyer would probably be a safe bet considering the strength of the airline however they do expire. Maybe I'm just being a little too nervous? Would suck to wake up one morning to find that Velocity has been massively devalued or wiped out completely in an effort to further cut costs.

I have around 300,000 Velocity points. I'm not worried in the slightest.

 

[HS-TQE]

VA partnership is important for EY to keep their aircraft, the EK/QF arrangement has increased the importance of the relationship.

I'm not sure I believe the SQ veto, if that was the case why would they have allowed partnership in to HKG and with the Chinese, knowing that it would directly hit SQ's bottom line?

I suspect HNA buying VA shares via new issuing (instead of purchasing the NZ stake - which went to Nanshan instead) may have gotten around that veto.

 

[jakeseven7]

There's a few inaccuracies and FUD here. To address them:

1) Yes, QAN don't make money on their international arm (yet) and haven't for years and it's not clear it will ever make money as it's so dependent on fuel pricing
2) You would know for 'sure' as they do release audited accounts being a public company
3) Creative accounting is picked up - as a ASX200 company they have actual people following them from multiple firms - not just reading the annual accounts or half yearly statements. So this statement is neither factual or relevant. How about sticking to the facts - both from QAN and the analysts following, which do agree with you: QFi loses money but QAN makes money.
4) Yes QAN domestic does well (as in, it makes a profit in its own right)
5) No it doesn't keep the group afloat all by itself. QAN make approx 10% margin on Qd. They make 21% on QFF. QAN makes a profit as a whole because Joyce and the team have got all the parts of QAN aligned pretty well at the moment (there's about 6 major parts and about a thousand minor ones!)
6) Not all business pays more as many organizations have a BFOD and/or cheapest fare policy - but you're right, a lot of business pays extra for the flexibility (e.g flex fares - full price). A very small proportion of business pays for actual business class seats (look at any SYD-CBR or SYD-MEL and all the men and women in business suits are in rows 1-8..)

I think you need to check your own post for inaccuracies as well....!!

 

[Must...Fly!]

I suspect HNA buying VA shares via new issuing (instead of purchasing the NZ stake - which went to Nanshan instead) may have gotten around that veto.

I must admit these matters are nowhere near my area of expertise. But the board would have had to approve the new issue? In which case the existing members would have had a say.

 

[eastwest101]

It's been reported by 'insiders' on other forums that SQ and EY 'supposedly' has 'veto power' over VA's partnerships that has been around since they acquired a stake in VA. The exceptions were the legacy 'long term' partnerships pre-EY/SQ/NZ (e.g DL and VX), and the codeshare arrangement between VS and VA.

Some theories has since arose, with one pointing out that SQ was the "real reason" that VA has been kept at arms length from the major Alliances (with JB just being a 'mouthpiece' for the shareholders when it comes to major Alliances).

Air Canada also was reported to say how difficult it was to deal with SQ to get a partnership between them and VA going.

Edit: While personally I can understand why SQ and EY wanted 'to control' who VA partnered with, even keep them away from their Alliance partners (and keep the Australian traffic for themselves). I think personally that decision may had come back to bite them later on. Also to add, I suspect that's the reason why EY are keeping their stake in VA for now, if they sold out and SQ still kept theirs, what's stopping SQ from "abruptly" ending the EY/VA partnership once that expires.

It's also no surprise those two had let VA kept the DL partnership for TransPacific, SQ and UA aren't the best of friends either.

If true - its a case of too many cooks in the kitchen. And if true that SQ and EY have been an impediment to good decision making might explain why Luxon/Air NZ threw their toys out of the cot and left as well? Funny to think that both EY and SQ are trapped in their ownership structure/ marriage of convenience in owning a money losing proposition that VA is. Those "veto's" alluded to will be somewhat worthless in the unlikely event of the administrators being called in to VA and/or the airline being grounded.

Scurrah will have an interesting time handling this dysfunctional ownership structure, while trying to turn the operation around. Might be a valid point though, that the nature of the ownership structure is itself an impediment to the business being successful. At the moment it looks and runs like a share house that is jointly owned by a bunch of people who hate each other.