The Virgin Australia Group will cut capacity and accelerate the retirement of aircraft, it announced on Wednesday as it revealed a $100 million loss in the first half of the 2019-20 financial year. Much of the cost-cutting is focused on Tigerair, which is 100% owned by Virgin Australia.
Here is a summary of the key Virgin Australia Group news from this week…
Tigerair withdraws from 5 routes, closes Brisbane base
As the Virgin Australia Group’s review of its network and supplier costs continues, it was announced on Wednesday that Tigerair will withdraw from five loss-making routes by the end of April. The following Tigerair routes are affected:
- Melbourne-Coffs Harbour
- Sydney-Coffs Harbour
- Hobart-Gold Coast
These route cuts are in addition to those announced in November 2019. Virgin Australia will take over the flying on some of these Tigerair routes, but Coffs Harbour will be particularly worse-off as it loses its only services on a low-cost carrier.
Further, Tigerair will accelerate the exit of the remaining seven Airbus A320s in its fleet. All A320s will be gone from the Tigerair fleet by October 2020. Tigerair will also close its Brisbane base. Two Boeing 737-800s will be transferred from Virgin Australia’s international short-haul fleet to Tigerair, resulting in a net loss of five Tigerair aircraft.
Operating a single fleet type is more efficient and will help Tigerair to reduce costs.
“I’m pleased we can accelerate the transition of Tigerair to an all Boeing 737 fleet which will help get the business into a better financial position moving forward,” Virgin Australia CEO Paul Scurrah said.
Reduction in Virgin Australia capacity
As coronavirus continues to impact travel demand, Virgin Australia will slightly reduce its flying to New Zealand between April and June 2020. The Qantas Group announced similar changes to its trans-Tasman schedules last week. (Given the weak demand, flights to New Zealand are currently at record low prices.)
The Virgin Australia Group currently estimates the total financial impact of coronavirus to be around $50-75 million during the current financial year.
Virgin Australia will operate its last flight to Hong Kong next Monday, following the announcement earlier this month that it would exit the Sydney-Hong Kong route. Virgin Australia revealed this week that it has lost a total of $130 million on the Hong Kong route since it began flying there. Hopefully the new Brisbane-Tokyo route, which launches at the end of March, will have more success.
Velocity Frequent Flyer buyback
In some good news for the airline, Virgin has started realising the financial benefits of buying back full ownership of the Velocity Frequent Flyer loyalty program. Despite the $26.8 million one-off cost of the acquisition, Velocity will benefit in the long term from keeping 100% of the cashflow generated by Velocity, as well as various cost savings resulting from new synergies.
Virgin Australia considering a new international aircraft purchase
Reuters has also reported this week that Virgin Australia is considering purchasing new wide body aircraft to replace its current international long-haul fleet of five Boeing 777s and six Airbus A330s.
This could see Virgin Australia place an order for new Boeing 787 or Airbus A350 aircraft, which would be used to fly to places like Los Angeles and Tokyo. The current leases on Virgin’s existing long-haul aircraft will begin to expire in 2024.
Join the discussion on the Australian Frequent Flyer forum: Virgin Australia Financially Secure?