28 Aug 2019

Virgin Australia to cut 750 management jobs after $349m loss

6:30 pm on 28 August 2019

By ABC Business Reporter Michael Janda

Virgin Australia is planning to cut 750 head office and corporate roles to slash $75 million a year in costs, as it seeks to rebound from a $349m full-year loss.

Virgin Australia fleet at Sydney Domestic Airport.

Photo: 123rf

The company reduced its net loss from an even-bigger $681m last year, however, its underlying performance excluding one-off costs and gains - of $71.2m before tax - was a big drop from a profit of $64.4m the year before.

The airline's new boss, Paul Scurrah, attributed the rapid descent in profits to subdued trading conditions in the second half of the financial year, combined with rising fuel and foreign exchange costs and increased operational costs.

Virgin said it faced $159m in fuel and foreign exchange "headwinds", but has now hedged in excess of 90 percent of its forecast 2019-20 financial year fuel consumption against price increases and extended hedging into 2021.

The airline is also engaging in a substantial cost-cutting program, with a back-office "simplification" to merge the corporate and operational functions of its domestic, regional and Tigerair operations.

This will facilitate a 750-staff reduction in its corporate and head office workforce, with expected savings of $75m per annum.

'We will be reviewing all routes in detail'

Virgin is also reviewing its fleet, network and capacity levels in order to manage costs and meet weaker market demand.

"We intend to further reduce flying across elements of our short-haul international and our domestic network to match our strategic positioning and the market conditions as well as to maximise route profitability," Mr Scurrah said.

"This may involve potential withdrawals from certain markets which are uneconomical for us, however we will be reviewing all routes in detail."

The airline already reduced capacity (the number of seats available) by 1.5 percent over May and June and expects a further reduction in the first half of the current 2020 financial year.

Virgin has also paused fleet renewal, with no new aircraft arriving in financial year 2019 and no further new aircraft due until July 2021.

The delay in new aircraft was triggered by the airline's deferral of its Boeing 737MAX orders, after the plane was involved in two separate fatal accidents with other airlines.

Virgin will also try to squeeze other suppliers to extract a further $50m in cost savings.

All this cost reduction is in anticipation of a further $100m in extra fuel and foreign exchange costs during the current financial year compared with the last.

Virgin capacity climbed

The move to cut costs comes after a financial year where increased capacity and revenue only led to falling profits.

Total domestic revenue was up by 6.3 percent to $3.9bn, even though it was adversely affected by weak market conditions in both the corporate and leisure sectors in the second half of the financial year.

However, domestic earnings of $133.4m were dented by the costs associated with a 2.3 percent increase in capacity, and the group is already cutting back some of that increase in flights.

The airline's international operations also took a hit from expanded capacity, with a 13.7 percent increase in available seats, driven mainly by the launch of Sydney-Hong Kong and new trans-Tasman services.

Even though total revenue increased 16.5 percent to $1.3bn, pre-tax and interest earnings for this segment of the business plunged to a loss of nearly $76m, almost four times worse than last year's result.

Virgin's low-cost offshoot, Tigerair, also saw its loss worsen to $45m, as it took a $10.7m hit from protected industrial action taken by its staff.

The only part of the business that recorded an improvement in profit was the Velocity frequent flyer division, where earnings rose to $122.2m, up from $110.1m the year before, as the program added more members.

Virgin also reaffirmed it intended to remain the majority shareholder in Velocity, despite its minority partner Affinity exploring options to offload its 35 percent stake.


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