Virgin Australia : 315 Million Loss - How long can they survive?
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VA has become AN MKIII.
AN could not make money whilst QF kicked ass.
Over a short period of time, VA has managed to take an LCC and bring costs to a level equivalent to a legacy carrier. An astounding feat, by any measure. Whilst ultimately management own this problem, it is employees who will suffer the consequences. Why is it that employees at DJ and VA continued to demand superior T’s and C’s, despite their employers increasingly parlous financial position? The most recent example of this being TT pilots, whose most recent EA has them at a higher cost than Jetstar pilots......... How is this possible when their airline is haemorrhaging financially? How can any employee not see that this type of behaviour ultimately kills the golden goose.
All it would take now would be for a well funded third airline to enter the market and VA would be done, 2001 all over again.....
AN could not make money whilst QF kicked ass.
Over a short period of time, VA has managed to take an LCC and bring costs to a level equivalent to a legacy carrier. An astounding feat, by any measure. Whilst ultimately management own this problem, it is employees who will suffer the consequences. Why is it that employees at DJ and VA continued to demand superior T’s and C’s, despite their employers increasingly parlous financial position? The most recent example of this being TT pilots, whose most recent EA has them at a higher cost than Jetstar pilots......... How is this possible when their airline is haemorrhaging financially? How can any employee not see that this type of behaviour ultimately kills the golden goose.
All it would take now would be for a well funded third airline to enter the market and VA would be done, 2001 all over again.....
VA has become AN MKIII.
AN could not make money whilst QF kicked ass.
Over a short period of time, VA has managed to take an LCC and bring costs to a level equivalent to a legacy carrier. An astounding feat, by any measure. Whilst ultimately management own this problem, it is employees who will suffer the consequences. Why is it that employees at DJ and VA continued to demand superior T’s and C’s, despite their employers increasingly parlous financial position? The most recent example of this being TT pilots, whose most recent EA has them at a higher cost than Jetstar pilots......... How is this possible when their airline is haemorrhaging financially? How can any employee not see that this type of behaviour ultimately kills the golden goose.
All it would take now would be for a well funded third airline to enter the market and VA would be done, 2001 all over again.....
AN could not make money whilst QF kicked ass.
Over a short period of time, VA has managed to take an LCC and bring costs to a level equivalent to a legacy carrier. An astounding feat, by any measure. Whilst ultimately management own this problem, it is employees who will suffer the consequences. Why is it that employees at DJ and VA continued to demand superior T’s and C’s, despite their employers increasingly parlous financial position? The most recent example of this being TT pilots, whose most recent EA has them at a higher cost than Jetstar pilots......... How is this possible when their airline is haemorrhaging financially? How can any employee not see that this type of behaviour ultimately kills the golden goose.
All it would take now would be for a well funded third airline to enter the market and VA would be done, 2001 all over again.....
Here the CEO trying to broadcast, confidence in the Airline, with an A330 model in the back ground with a missing engine? And then also having huge spotlight highlighting the fact displaying the airline is in disrepair,just like an rudderless ship, an engineless aircraft how symbolic reflects just how poorly managed this airline is, especially from staff within the Virgin Australia headquarters.
First to be shown the door should be the CEO PA and PR department for Blatantly exhibiting such levels of incompetence and a poor corporate image.
How is this possible when their airline is haemorrhaging financially? How can any employee not see that this type of behaviour ultimately kills the golden goose.
All it would take now would be for a well funded third airline to enter the market and VA would be done, 2001 all over again.....
All it would take now would be for a well funded third airline to enter the market and VA would be done, 2001 all over again.....
Anyone voluntarily going to TT from their position in VA should have their head checked.
I can’t speak for all but there are a group of pilots that joined VB/A from about 2009-2012ish who haven’t had the career progression they expected. They joined VB/A and paid the 30k for the endorsement. Shortly after followed integration, purchase of Skywest, Tiger use of Alliance amongst a million other calculated manoeuvres by the Company to move flying away from VA metal to reduce costs (cheaper to hire Alliance than pay the lease costs for another B737). Obviously they did really need to reduce costs as the outgoings were/are no doubt very high.
Integration with Tiger came after GH handed Bali to TT as it was a “leisure” destination. A similar rationale was used regarding Skywest only doing mining work.
I’ll translate Bali “leisure”. After a few sherbets at the TT Bali party, a certain TT manager pointed out to a VA pilot that VA pilots aren’t flexible enough in that their EBA doesn’t allow a domestic sector after a redeye. In the end Indonesian government wasn’t worried about the second sector after the red eye and the rest is history.
Anyway I digress, the aforementioned pilots (09-12) have realised that if they want to progress their career at all, transferring to Tiger rather than jumping up and down on the spot will be their only means.
Ironically, all the scheming and planning to move flying away from VB/A metal in nearly all cases has proved to be extremely expensive. One of the big problems has also been hiring people that see VA B737 flight crew costs and at one stage passenger meals as their main means to reduce costs (economy of scale). Some of them enjoyed subtlety poking the bear (VA B737 pilot group). This has turned a previously flexible, happy group into a jaded, cynical, angry and inflexible mob. I’ve watched it happen first hand. The saddest thing is some of these pilots are so angry that even when someone (SA or PS) is genuinely trying to do the right thing by them (return morale) they haven’t the ability to see it for what it is, thinking rather that it’s some twisted plan to shaft them and their families. They battle on day by day with hate which in the end is unhealthy for all parties.
I hope the new chief can turn it around. Plenty of top people work at VA group from head office to the cockpit. You won’t meet a better bunch of people I swear. No doubt some tough times ahead.
On a side note, despite all of the above facts most of the aforementioned VA pilots still welcomed Tiger pilots when they were recently training on VA metal. The same would happen for VARA crew. There are high levels of professionalism on display of you look beyond the bar talk.
Last edited by Berealgetreal; 30th Aug 2019 at 22:30.
All it would take now would be for a well funded third airline to enter the market and VA would be done, 2001 all over again.....
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It's not all doom and gloom for Virgin. While its domestic EBIT has almost halved, largely because of the 2nd half of FY19 which saw an EBIT loss of A$43.3m, it is still trending in the right direction and it is still positive over the full year.
The big problem with the VA results was international EBIT, which was a loss of A$75.6m over FY19. Over the past 9 years, international EBIT has been positive on just 3 occasions, which compares to 6 for domestic. If we look at the FY19 loss at the PBT line, which was A$295.3m, over half of this was due to impairment losses on cash-generating units. You often see new CEOs declare these impairment losses in their first year as a one-off, leaving a cleaner slate for the following year. They usually come about because the written down value of aircraft assets on the balance sheet don't align with the market value of those assets with the difference requiring a write-off. Qantas did exactly the same thing in FY14 with a A$2.56b impairment.
The fuel cost per ASK outcomes are an interesting comparison between QF and VA. Virgin's fuel cost per ASK has increased by around 0.80 cents over the past 2 years while QF's has increased by just 0.50 cents. That is a big difference, perhaps reflecting different approaches to fuel and FX hedging.
The big problem with the VA results was international EBIT, which was a loss of A$75.6m over FY19. Over the past 9 years, international EBIT has been positive on just 3 occasions, which compares to 6 for domestic. If we look at the FY19 loss at the PBT line, which was A$295.3m, over half of this was due to impairment losses on cash-generating units. You often see new CEOs declare these impairment losses in their first year as a one-off, leaving a cleaner slate for the following year. They usually come about because the written down value of aircraft assets on the balance sheet don't align with the market value of those assets with the difference requiring a write-off. Qantas did exactly the same thing in FY14 with a A$2.56b impairment.
The fuel cost per ASK outcomes are an interesting comparison between QF and VA. Virgin's fuel cost per ASK has increased by around 0.80 cents over the past 2 years while QF's has increased by just 0.50 cents. That is a big difference, perhaps reflecting different approaches to fuel and FX hedging.
No matter how you twist it QF know boats when it comes to hedging fuel.
As for International it’s easy to sit in a money machine 737 between ML and SY and say “just cut it” whilst imagining more fortunate senior colleagues having a heart attack the moment they get the email (twisted but true). Reality is a lot of business connections and on carriage depend on it. Cutting it would have some impact on domestic.
Often loss making parts of the business can be covered by the domestic operation, flyer scheme/catering or other ventures like at QF. Unfortunately, in either total desperation or incredible naivety a portion of Velocity was sold off to Afinity Partners. Velocity is truely the Golden Goose.
I think previous CEO’s might have had the horse or ego before the cart when it came to 777/330. Would have been better to have built upon the VB 737’s and at the right moment (B787 announcement) paid a fraction for one of these new generation widebodies (Airbus or Boeing). I’d say the way forward would have been 737-900 with layflat business and double the frequency on the transcon. Interestingly enough that’s what the Max 10 will be no doubt doing. The question will be if the travelling public will trust it? Finally did the new CEO strike a massive discount for B787’s in the renegotiation a few months back? Hope so.
As for International it’s easy to sit in a money machine 737 between ML and SY and say “just cut it” whilst imagining more fortunate senior colleagues having a heart attack the moment they get the email (twisted but true). Reality is a lot of business connections and on carriage depend on it. Cutting it would have some impact on domestic.
Often loss making parts of the business can be covered by the domestic operation, flyer scheme/catering or other ventures like at QF. Unfortunately, in either total desperation or incredible naivety a portion of Velocity was sold off to Afinity Partners. Velocity is truely the Golden Goose.
I think previous CEO’s might have had the horse or ego before the cart when it came to 777/330. Would have been better to have built upon the VB 737’s and at the right moment (B787 announcement) paid a fraction for one of these new generation widebodies (Airbus or Boeing). I’d say the way forward would have been 737-900 with layflat business and double the frequency on the transcon. Interestingly enough that’s what the Max 10 will be no doubt doing. The question will be if the travelling public will trust it? Finally did the new CEO strike a massive discount for B787’s in the renegotiation a few months back? Hope so.
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Too high a cost base
costs rising faster than yield
declining market share
no cash
weak / split board
questionable ownership / shareholders
Strong and growing competitor
further pull back on routes
regional ‘experimentation’
Loss making international
new inexperienced airline ceo
new inexperienced exec team (or worse)
sound familiar??
too many similarities
VA is AN MkIII
costs rising faster than yield
declining market share
no cash
weak / split board
questionable ownership / shareholders
Strong and growing competitor
further pull back on routes
regional ‘experimentation’
Loss making international
new inexperienced airline ceo
new inexperienced exec team (or worse)
sound familiar??
too many similarities
VA is AN MkIII
The numbers don’t look so great, ultimately Virgin will have to drop international to save it’s core.
The loss of on carriage flow / business accounts to domestic may be outweighed by the entire group going bust. There’s no investor riding in with deep pockets now. Tough times ahead
The loss of on carriage flow / business accounts to domestic may be outweighed by the entire group going bust. There’s no investor riding in with deep pockets now. Tough times ahead
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Virgin did generate positive free cash of A$53.9m and has increased its cash balance to A$1.7b. Also appreciate that non-cash statuatory numbers have no impact on their business. We will see what their Better Business II program can generate in additonal free cash.
You can refinance bonds either prior to, or at maturity. Virgin can meet its debt repayments.
What is worrying is that at the EBITDA level - VAI and TT are negative. This means they are loss making at the operating level, which isn't good. Without equity or debt financing - you're bankrupt. Virgin's overallEBITDA sits around 6-7%, which isn't great, and below their peer in Qantas.
What I did like seeking is with capacity growth, so too did rASK and yield for VAD and VAI. That's good. VAI marginally, but considering the large capacity growth, it is still impressive.
TT also saw yield and rASK growth - but that is likely the result of the reduction in capacity and not a good revenue / cost management strategy.
But, it has about $1b in bonds coming due in the near future.
What is worrying is that at the EBITDA level - VAI and TT are negative. This means they are loss making at the operating level, which isn't good. Without equity or debt financing - you're bankrupt. Virgin's overallEBITDA sits around 6-7%, which isn't great, and below their peer in Qantas.
What I did like seeking is with capacity growth, so too did rASK and yield for VAD and VAI. That's good. VAI marginally, but considering the large capacity growth, it is still impressive.
TT also saw yield and rASK growth - but that is likely the result of the reduction in capacity and not a good revenue / cost management strategy.
Last edited by PPRuNeUser0198; 31st Aug 2019 at 02:49.
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Too high a cost base
costs rising faster than yield
declining market share
no cash
weak / split board
questionable ownership / shareholders
Strong and growing competitor
further pull back on routes
regional ‘experimentation’
Loss making international
new inexperienced airline ceo
new inexperienced exec team (or worse)
sound familiar??
too many similarities
VA is AN MkIII
costs rising faster than yield
declining market share
no cash
weak / split board
questionable ownership / shareholders
Strong and growing competitor
further pull back on routes
regional ‘experimentation’
Loss making international
new inexperienced airline ceo
new inexperienced exec team (or worse)
sound familiar??
too many similarities
VA is AN MkIII
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I remember Gary Toomey crowing he had $1 Billion in cash..... and then it became $2 Billion ....... and then it became nothing.
As a public company, they can’t simply burn through shareholders cash in the vain hope of the weather changing......
As a public company, they can’t simply burn through shareholders cash in the vain hope of the weather changing......
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Aurthur - Virgin is cash flow positive. They're not burning through any cash stores. They don't need to. Depending on what they do for the bond that is maturing - they may either refinance it or use cash to fund it, but either way - the busines is generating free cash. They just need to increase that substantially.