Virgin Blue To Cut Domestic + International Routes
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Virgin Blue To Cut Domestic + International Routes
NEW Virgin Blue boss John Borghetti hopes a redesign of the airline's networks, service and seating will double its share of the corporate market.
Less than a week after the airline shocked the market by cutting its profit guidance by up to 75 per cent, Mr Borghetti has confirmed the airline has an extensive review under way that includes shelving or streamlining low-fare domestic routes, and throws the spotlight on loss-making New Zealand operations and a possible revamp of V Australia.
The centrepiece of Mr Borghetti's strategy is a reduction in the airline's exposure to the leisure market and aiming to grab a bigger share of the corporate market.
Mr Borghetti told analysts from Macquarie Equities Research that he wanted to boost Virgin's share of the domestic corporate market from about 10 per cent to at least 15 per cent over the next 12 to 24 months.
However, The Australian understands the real target is closer to 20 per cent.
The new chief executive, who was instrumental in securing Qantas's massive market dominance in the corporate market, has already hinted at changes that would give premium customers better seating, revamped lounges and improved service on the ground and in the air.
He told the Macquarie analysts he believed efforts to date had been only marginally successful and loyalty would be a key focus.
For example, Virgin's reservations system, due to come online in November, would recognise and reward loyal passengers.
Other potential changes included a move to bring the four brands under one umbrella -- something difficult to achieve because of Singapore Airlines' veto over the use of the Virgin brand on international flights -- and the expansion of the group's patchwork of international alliances. The analysts suggested a major alliance with Singapore could be on the cards, or a closer relationship with Virgin Atlantic over Hong Kong.
International carrier V Australia, which was losing money and was not likely to break even this year, was also under a network review, the analysts said.
Virgin has indicated it is likely to at least delay the delivery of V Australia's final two Boeing 777s, and Macquarie speculated that leisure routes such as Fiji and Phuket were likely to be axed, while flights could be switched from Sydney to Melbourne or Brisbane.
The analysts expected the review of the Virgin network to be concluded by the end of this month but said it would take at least six months to assess Mr Borghetti's "clear strategy of restructuring and repositioning".
"Given his in-depth knowledge of Qantas from his previous role, Borghetti is ideally suited to lead VBA's strategy of attacking QAN's lucrative domestic business market and reducing exposure to the leisure market," they said.
"Clearly, however, there will be some execution risk."
Less than a week after the airline shocked the market by cutting its profit guidance by up to 75 per cent, Mr Borghetti has confirmed the airline has an extensive review under way that includes shelving or streamlining low-fare domestic routes, and throws the spotlight on loss-making New Zealand operations and a possible revamp of V Australia.
The centrepiece of Mr Borghetti's strategy is a reduction in the airline's exposure to the leisure market and aiming to grab a bigger share of the corporate market.
Mr Borghetti told analysts from Macquarie Equities Research that he wanted to boost Virgin's share of the domestic corporate market from about 10 per cent to at least 15 per cent over the next 12 to 24 months.
However, The Australian understands the real target is closer to 20 per cent.
The new chief executive, who was instrumental in securing Qantas's massive market dominance in the corporate market, has already hinted at changes that would give premium customers better seating, revamped lounges and improved service on the ground and in the air.
He told the Macquarie analysts he believed efforts to date had been only marginally successful and loyalty would be a key focus.
For example, Virgin's reservations system, due to come online in November, would recognise and reward loyal passengers.
Other potential changes included a move to bring the four brands under one umbrella -- something difficult to achieve because of Singapore Airlines' veto over the use of the Virgin brand on international flights -- and the expansion of the group's patchwork of international alliances. The analysts suggested a major alliance with Singapore could be on the cards, or a closer relationship with Virgin Atlantic over Hong Kong.
International carrier V Australia, which was losing money and was not likely to break even this year, was also under a network review, the analysts said.
Virgin has indicated it is likely to at least delay the delivery of V Australia's final two Boeing 777s, and Macquarie speculated that leisure routes such as Fiji and Phuket were likely to be axed, while flights could be switched from Sydney to Melbourne or Brisbane.
The analysts expected the review of the Virgin network to be concluded by the end of this month but said it would take at least six months to assess Mr Borghetti's "clear strategy of restructuring and repositioning".
"Given his in-depth knowledge of Qantas from his previous role, Borghetti is ideally suited to lead VBA's strategy of attacking QAN's lucrative domestic business market and reducing exposure to the leisure market," they said.
"Clearly, however, there will be some execution risk."
and Macquarie speculated that leisure routes such as Fiji and Phuket were likely to be axed, while flights could be switched from Sydney to Melbourne or Brisbane.
Here's the Age's version
Virgin launches rescue mission
DANNY JOHN AND SCOTT ROCHFORT
June 3, 2010
The new Virgin Blue chief executive, John Borghetti, is working on an overhaul of the airline's operations that could see several of its routes dropped and the number of brands it flies under cut from three to one.
Barely a month after taking the helm, Mr Borghetti has signalled the airline no longer has any desire to slug it out with Qantas's Jetstar and Singapore Airlines-backed Tiger over the bottom end of the market.
His intention, say analysts, is to turn Virgin into more of a business-focused carrier which will see improvements to its premium economy service, refurbished lounges and an upgraded loyalty program.
Mr Borghetti has also targeted the airline's loss-making V Australia network. The Fiji and Phuket routes are set to be cut in favour of boosting US services through its proposed tie-up with Delta Airlines and the recently launched South African operation.
The airline's short-haul network is under the microscope as Mr Borghetti, the former Qantas executive, seeks to shore up Virgin's battered revenues.
The route review is expected to be completed by the end of the month which will allow Virgin to cut capacity between July and December before the busy domestic summer holiday season kicks in.
Mr Borghetti has also hinted the group would be better served by using one brand rather than the three it uses in and out of Australia.
The airline is prevented by an agreement between Sir Richard Branson's Virgin Atlantic and its 49 per cent shareholder, Singapore Airlines, from using the Virgin name for international flights.
This has resulted in it flying under the Virgin Blue brand within Australia, Pacific Blue in New Zealand, across the Tasman and to Fiji, Tonga and Vanuatu, and V Australia.
One suggestion would be to use the name Virgin Australia Airlines which was registered several years before the launch of V Australia in 2008.
''It's silly to have three brands when you have 80 aircraft,'' an airline industry source said.
It is believed the airline is pushing for a deal with Virgin Group and Singapore Airlines to allow it to use the Virgin tag internationally.
Mr Borghetti led the rebranding of the Qantas livery three years ago before the airline received its first Airbus A380.
The Virgin boss is also keen to beef up the company's loyalty program to lure more corporate passengers.
There is speculation Virgin could ultimately join a global airline alliance, such as SkyTeam or Star Alliance, to boost its loyalty offering.
Analysts said Mr Borghetti had a clear strategy to restructure and reposition Virgin Blue but he faced challenges in making it work in the current market conditions.
''It will take at least six months to determine whether this approach is likely to be successful,'' said Macquarie Equities.
DANNY JOHN AND SCOTT ROCHFORT
June 3, 2010
The new Virgin Blue chief executive, John Borghetti, is working on an overhaul of the airline's operations that could see several of its routes dropped and the number of brands it flies under cut from three to one.
Barely a month after taking the helm, Mr Borghetti has signalled the airline no longer has any desire to slug it out with Qantas's Jetstar and Singapore Airlines-backed Tiger over the bottom end of the market.
His intention, say analysts, is to turn Virgin into more of a business-focused carrier which will see improvements to its premium economy service, refurbished lounges and an upgraded loyalty program.
Mr Borghetti has also targeted the airline's loss-making V Australia network. The Fiji and Phuket routes are set to be cut in favour of boosting US services through its proposed tie-up with Delta Airlines and the recently launched South African operation.
The airline's short-haul network is under the microscope as Mr Borghetti, the former Qantas executive, seeks to shore up Virgin's battered revenues.
The route review is expected to be completed by the end of the month which will allow Virgin to cut capacity between July and December before the busy domestic summer holiday season kicks in.
Mr Borghetti has also hinted the group would be better served by using one brand rather than the three it uses in and out of Australia.
The airline is prevented by an agreement between Sir Richard Branson's Virgin Atlantic and its 49 per cent shareholder, Singapore Airlines, from using the Virgin name for international flights.
This has resulted in it flying under the Virgin Blue brand within Australia, Pacific Blue in New Zealand, across the Tasman and to Fiji, Tonga and Vanuatu, and V Australia.
One suggestion would be to use the name Virgin Australia Airlines which was registered several years before the launch of V Australia in 2008.
''It's silly to have three brands when you have 80 aircraft,'' an airline industry source said.
It is believed the airline is pushing for a deal with Virgin Group and Singapore Airlines to allow it to use the Virgin tag internationally.
Mr Borghetti led the rebranding of the Qantas livery three years ago before the airline received its first Airbus A380.
The Virgin boss is also keen to beef up the company's loyalty program to lure more corporate passengers.
There is speculation Virgin could ultimately join a global airline alliance, such as SkyTeam or Star Alliance, to boost its loyalty offering.
Analysts said Mr Borghetti had a clear strategy to restructure and reposition Virgin Blue but he faced challenges in making it work in the current market conditions.
''It will take at least six months to determine whether this approach is likely to be successful,'' said Macquarie Equities.
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Well, if the proposed codeshare agreement with Air NZ goes ahead.. why would you bother staying in the NZ Domestic market...
I think it's a safe bet that PB Domestic ops in NZ days are numbered....
I think it's a safe bet that PB Domestic ops in NZ days are numbered....
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If anyone is spooked by JB's frank assessment of the state of affairs at Virgin, I'm not one of them. On the contrary, I think it's a positive sign that we now have someone at the helm who is telling it how it really is (and what many of us already knew) - instead of spinning the usual PR bulls**t that we've been subjected to for so long under previous leadership. 
That said, I'm not suggesting for a moment that I welcome any job losses (of which I'm as much at risk as anyone else in the group - because NO-ONE is indispensable), but at least we're finally seeing some acknowledgement of reality from the big chair.
That said, I'm not suggesting for a moment that I welcome any job losses (of which I'm as much at risk as anyone else in the group - because NO-ONE is indispensable), but at least we're finally seeing some acknowledgement of reality from the big chair.
Last edited by The Bunglerat; 3rd Jun 2010 at 13:40.
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How many times does it have to be said?
How much profit does it take to be dwindled away?
How much do you continue to expose a very sound business?
Before you bite the bullet and admit that launching V-Aus was a wrong decision. It shouldn't be so hard to admit now, just get in and shut it down before it drags down the whole ship.
There, it shouldn't be so hard.
Whilst it will never be a "swift" decision, someone above has to make it.
Do what you have to do please, before we all bleed to death.
How much profit does it take to be dwindled away?
How much do you continue to expose a very sound business?
Before you bite the bullet and admit that launching V-Aus was a wrong decision. It shouldn't be so hard to admit now, just get in and shut it down before it drags down the whole ship.
There, it shouldn't be so hard.
Whilst it will never be a "swift" decision, someone above has to make it.
Do what you have to do please, before we all bleed to death.
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A bit more
Virgin Blue reviews its entire network
The airline says it has no plans yet to cut services.
Virgin Blue is reviewing its entire airline network, including New Zealand domestic operations rumoured to be losing money.The company is undertaking a wide-ranging review covering all its airline businesses, including the seats on offer and services on the ground and in the air.
Australian stock exchange listed Virgin Blue Airlines Group's operations include Pacific Blue, which flies transtasman, domestically in New Zealand, around the Pacific and to Bali and Thailand.
First NZ Capital analyst Jason Familton said with a new chief executive on board it was no surprise Virgin Blue was reviewing all its operations.
"I would suggest probably you wouldn't rule anything out of that including I guess domestic here in New Zealand would be up for discussion," Familton said.
"There have been rumours for some time ... that it's not sustainable having three [airline] players in the New Zealand market."
Virgin was rumoured to be losing $20-$30 million a year on its New Zealand domestic routes, Familton said.
"It's quite hard to do that because you say, 'Well what about the feed in to their other Pacific Blue flights' ... it's quite hard to segregate it that way but that's the number I've heard around the market."
Virgin Blue Group general manager of public affairs Danielle Keighery did not comment on reports the company lost money in its New Zealand business.
Results from the company's broad network review might start being heard in the next few months, although there were no decisions at this stage, Keighery said. "The network review is to definitely help us understand what's working and what's not, basically," she said. "There's been no indications of us cutting services at this stage."
Virgin Blue last week cut its forecast profit before tax and exceptional items for the 2010 financial year from A$80 million to A$20-$30 million.
A company statement at that time said: "Since the guidance given earlier this month, we have continued to see rapid deterioration and increased volatility in the operating environment, particularly in respect of the leisure segment both domestically and internationally."
Keighery said Virgin Blue wanted to reduce its exposure to the leisure sector, although maintain its market share.
"The leisure sector is still a very important sector to us and we're certainly not going to be forgetting our leisure traveller but we will definitely be going after the corporate market and John [Borghetti, chief executive] has highlighted that a number of times before," she said.
Virgin Blue wanted to grow its domestic corporate market share from about 10 per cent to 15 per cent in the next 12 to 24 months.
The company review did not have implications for a proposed code share agreement with Air New Zealand, Keighery said.
"No this is a totally separate thing altogether, Keighery said.
The airline says it has no plans yet to cut services.
Virgin Blue is reviewing its entire airline network, including New Zealand domestic operations rumoured to be losing money.The company is undertaking a wide-ranging review covering all its airline businesses, including the seats on offer and services on the ground and in the air.
Australian stock exchange listed Virgin Blue Airlines Group's operations include Pacific Blue, which flies transtasman, domestically in New Zealand, around the Pacific and to Bali and Thailand.
First NZ Capital analyst Jason Familton said with a new chief executive on board it was no surprise Virgin Blue was reviewing all its operations.
"I would suggest probably you wouldn't rule anything out of that including I guess domestic here in New Zealand would be up for discussion," Familton said.
"There have been rumours for some time ... that it's not sustainable having three [airline] players in the New Zealand market."
Virgin was rumoured to be losing $20-$30 million a year on its New Zealand domestic routes, Familton said.
"It's quite hard to do that because you say, 'Well what about the feed in to their other Pacific Blue flights' ... it's quite hard to segregate it that way but that's the number I've heard around the market."
Virgin Blue Group general manager of public affairs Danielle Keighery did not comment on reports the company lost money in its New Zealand business.
Results from the company's broad network review might start being heard in the next few months, although there were no decisions at this stage, Keighery said. "The network review is to definitely help us understand what's working and what's not, basically," she said. "There's been no indications of us cutting services at this stage."
Virgin Blue last week cut its forecast profit before tax and exceptional items for the 2010 financial year from A$80 million to A$20-$30 million.
A company statement at that time said: "Since the guidance given earlier this month, we have continued to see rapid deterioration and increased volatility in the operating environment, particularly in respect of the leisure segment both domestically and internationally."
Keighery said Virgin Blue wanted to reduce its exposure to the leisure sector, although maintain its market share.
"The leisure sector is still a very important sector to us and we're certainly not going to be forgetting our leisure traveller but we will definitely be going after the corporate market and John [Borghetti, chief executive] has highlighted that a number of times before," she said.
Virgin Blue wanted to grow its domestic corporate market share from about 10 per cent to 15 per cent in the next 12 to 24 months.
The company review did not have implications for a proposed code share agreement with Air New Zealand, Keighery said.
"No this is a totally separate thing altogether, Keighery said.
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VBA Engineer,
I can't see them plainly shutting down VA. Even though its not profitable at the moment, its accounting for the profit in VB domestic with all the flow on effect of int'l passengers. I think the rebranding / restructure will be announced a lot sooner than people expect with the share price sitting lower than Gary Coleman.
I can't see them plainly shutting down VA. Even though its not profitable at the moment, its accounting for the profit in VB domestic with all the flow on effect of int'l passengers. I think the rebranding / restructure will be announced a lot sooner than people expect with the share price sitting lower than Gary Coleman.
Even though its not profitable at the moment, its accounting for the profit in VB domestic
It would also depend on how you account for all the paxing that the V crew do to
Who is paying for that and how do they account for the lost revenue in VB?
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The question is, what is ASIC going to do about the previous CEO? He obviously talked up the situation which was totally incorrect and he left with a golden parachute. Investors deserve to be treated better and the previous CEO needs to answer.
