Former Virgin Australia chief executive John Borghetti (left) with new chief Paul Scurrah. Photo / Supplied
Former Virgin Australia chief executive John Borghetti (left) with new chief Paul Scurrah. Photo / Supplied
Virgin Australia is reviewing all its routes and products - including to New Zealand - as it looks to slash costs following losses for the seventh year running.
The review is part of a long overdue shake-up but the outcome could push up the cost of flying across The Ditch.
It may not seem like it when booking late or around holiday times, but the Tasman has long been a very competitive stretch in global terms. The presence of Virgin Australia with around 15 per cent of the market has been a big part of that.
Starting as Pacific Blue with modest flying out of Christchurch, the airline has been here for 16 years. Its transtasman operation accounts for only 5 per cent of its capacity so is vulnerable to cuts.
After a messy break-up with Air New Zealand last year it was forced to increase its own flying on the Tasman, started new routes and transformed itself to being a full service carrier, adding full meals with complimentary drinks and no charge for checked in bags.
Great for passengers but costly for the airline, which slumped to a full-year loss of A$349.1 million ($373m), taking losses during the past seven years north of $1 billion.
It suffered during a ''knock down drag em out'' Australian domestic capacity war with Qantas and has launched long-haul routes to Los Angeles and Hong Kong which had some puzzled at the time they started and have them scratching their heads even harder now.
New chief executive Paul Scurrah has landed in a financial storm that's been brewing for years and announced at its results briefing that he has underway a restructure and cost-cutting measures aimed at saving $75m a year.
Some in the airline business believe that to turn around the airline's financial position, it is too little. And too late.,
Around 750 head office and corporate staff - from a total headcount of 10,000 - face losing their jobs. The airline's three parts – Virgin Australia, Virgin Australia Regional Airlines and Tigerair – will have their operations merged in the shake-up.
There's a lot of talk of right-sizing the business - terms that are familiar to its competitors which have been doing this for years.
The Virgin group will reduce flying across elements of its short-haul international and domestic network to meet demand and maximise route profitability.
"This may involve potential withdrawals from certain markets which are uneconomical for us, however we will be reviewing all routes in detail," Scurrah says.
Short haul routes under the microscope include those to New Zealand, the Pacific Islands and those to Hamilton Island, Papua New Guinea, the Solomon Islands and Bali.
Scurrah has been holding a series of ''town hall'' style meetings across the company to field questions from staff, who are more accustomed to a spend up under former boss John Borghetti.
Borghetti transformed the airline from a budget operation set up to compete against the failed Ansett into a more serious rival for Qantas.
Decisions are expected by the end of the year, and across the Tasman routes such as the seasonal Auckland-Newcastle service and Wellington-Sydney will be vulnerable.
Latest seat utilisation figures from the Australian government paint a gloomy picture for Virgin Australia across the Tasman.
Has Virgin Australia's loss of 'spunk' played a role in the airline's downfall?
While something of a crude measure as they don't show what passengers pay for those seats — and Virgin insists it is happy with revenue performarnce on the sector — they are indicative of the hard slog the airline faces every day, especially into Sydney.
Seat utilisation or load factor in June sagged below that of its main competitors across the Tasman. Air New Zealand's planes were around 76 per cent full, Qantas close to 74 per cent, Jetstar 73 per cent while Virgin's were 66 per cent full, according to figures from the Department of Infrastructure, Transport, Cities and Regional Development.
Since the bust-up with Air New Zealand last October the Kiwi airline has grown its transtasman operation, particularly into Brisbane, and has about 40 per cent of capacity with more use of widebody planes, which are popular with passengers.
Qantas also has some twin aisle Airbus A330s across the Tasman, and Jetstar has around 35 per cent of the market. But a strong third player is crucial, airline pricing is very dynamic and if competition reduces, fares naturally go up.
And although Virgin uses only Boeing 737-800s, having a third airline with inclusive Economy Class products, a boutique-size Business Class with access to good lounges on both sides of the Tasman is especially welcome.
The drums were beating loudly last year for the entry of Virgin budget offshoot Tigerair Australia into the New Zealand market, especially after a request was approved by the Australian Government to transfer capacity on routes to New Zealand.
Virgin Australia Airlines are set to make significant changes under new leadership. Photo: Grant Bradley
But there is no sign of Tigeair yet and none on the horizon. All indications point to Virgin focusing on getting its Australian domestic operations in better shape rather than deploying Tiger here, which would come with the challenge of introducing an unfamiliar brand to the New Zealand marketplace.
Nothing is off the radar in the Virgin review and transtasman passengers may be hoping the focus will fall on its long-haul routes. While latest figures show its Sydney-Los Angeles flight is standing up to the competition, the same doesn't go for its Hong Kong flights.
In June 317 Cathay Pacific flights were 85 per cent full, 122 Qantas flights were 86 per cent full while 67 per cent of seats on Virgin's 57 flights were occupied.
Air New Zealand - whose profit came in at the top end of a revised down range - ended the Virgin code share deal because it was getting less from it than its former partner.
That's looking like an even better decision now. And in 2016 it had bailed out of an equity stake it had built for more than $400m. It took a heavy loss after selling most of its 25 per cent stake at A33c a share. It could have been worse - Virgin today is trading at under 16c.
