Virgin Australia Group has announced further changes as part of its fleet and network review to help manage costs, improve financial performance and respond to current conditions.
The changes come as the coronavirus outbreak is weakening international and domestic demand, with Virgin expecting to take a $50 million to $75 million earnings hit this financial year.
The aviation group will reduce overall network capacity by three per cent in the second half of FY20, which includes a three per cent reduction in domestic capacity and short-term capacity reductions on the Tasman in the fourth quarter to manage current conditions.
The changes focus largely on leisure destinations where demand is weaker, and where Virgin Australia and Tigerair both operate.
Tigerair will exit the Melbourne-Coffs Harbour, Sydney-Coffs Harbour, Adelaide-Sydney, and Sydney-Cairns routes from 27 April 2020, as well as the Hobart-Gold Coast route from 28 April 2020. These cuts are in addition to frequency reductions on existing routes.
Passengers with bookings impacted by these changes will be proactively communicated with and re-accommodated onto other services, according to Virgin.
Tigerair customers impacted by the above route exits will be re-accommodated onto other Tigerair flights where possible, or onto Virgin Australia services.
Seven A320 aircraft are scheduled to exit Tigerair’s fleet in addition to two A320 aircraft exits from Tigerair previously announced in November 2019, making a total of nine A320s to cease flying by October 2020.
Two Boeing 737 aircraft will be transferred from Virgin Australia’s fleet into the Tigerair fleet.
Virgin said the impact of the current fleet reduction initiative is equivalent to approximately a five per cent capacity reduction in FY21.
Virgin Australia Group CEO and managing director Paul Scurrah said: “There’s no doubt we are operating in a tough market, and we need to make sure our capacity deployment is disciplined to ensure our routes are profitable for our business.
“Coronavirus is having a significant impact on the travel industry and these changes will help us manage the changes we’re seeing in demand.
“We maintain a very strong network of more than 450 destinations between us and our partners and, whilst we have made some announcements to manage costs today, we are as focused as ever on continuing to deliver a great experience for our customers.
“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.”
Earlier this month, Virgin announced the withdrawal of its services between Australia and Hong Kong following a comprehensive review of the route.
Record revenue, but first-half loss widens
In more bad news for Virgin, the group suffered an $88.6 loss in the first six months of FY20, compared to the $73.9 million profit it posted in the prior corresponding period.
Virgin blamed the negative turnaround on its current workforce reduction program, fleet simplification, one-off costs as a result of the Velocity Frequent Flyer acquisition, and write-offs associated with property, plant and equipment no longer in use, totalling $113.1 million.
The group’s earnings before interest, taxes, depreciation, amortisation, and restructuring fell 8.4 per cent in the first half of FY20 to $513.2 million. However, overall revenue rose 1.5 per cent to a record $3.1 billion.
Virgin Australia’s international operations saw an earnings loss of $48.9 million from $15.2 million in the first half of FY19, while revenue grew three per cent to $686.4 million.
Domestic operations for Virgin Australia experienced an earnings drop of 36.6 per cent to $112.9 million, but revenue growth of 1.5 per cent to $2.1 billion.
Tigerair’s half-yearly earnings swung from a $6.6 million loss to $2 million, and revenue rose 0.9 per cent to $305.4 million.
Unsurprisingly, Velocity Frequent Flyer was nothing but positive in the first half of FY20, with earnings growth of 16.8 per cent to $68.9 million and revenue growth of 3.1 per cent to $215.4 million.