Contributor - Asia

Jennifer Meszaros

Virgin Australia Holdings announced a series of drastic cost-cutting measures that include axing nearly 8 percent of its workforce and merging three of its business divisions after reporting a seventh consecutive annual loss on Wednesday. CEO Paul Scurrah described the loss, even though it represented a 51 percent improvement over last year’s, as “disappointing” and stressed it underscored the need for change. The overhaul includes&nbsp;a fleet and network review that “will see a tight focus on capacity management going forward,” he said, while not excluding the withdrawal on certain markets deemed uneconomic. The review to improve operational efficiencies and increase aircraft utilization follow the decision, announced April 30, to restructure the group’s Boeing 737 Max&nbsp;order and a 1.5 percent capacity cut in May and June.

 


According to company financials, Virgin Australia Group recorded a net loss of $213 million for the financial year ended June 30 on the back of subdued trading conditions coupled with rising fuel costs, a weaker Australian dollar, and higher operational costs. Headwinds in foreign currency and fuel incurred losses of $107 million while Virgin Australia’s international operations cost the company $39.3 million following significant investments into new routes to New Zealand and Hong Kong. The airline’s domestic operations were profitable. Meanwhile, the group’s low-cost arm Tigerair posted a $30.3 million operating loss and saw a revenue drop of 8 percent. “Onerous” contract costs on ATR and Embraer E190 leased aircraft not in commercial service added $32 million to its expense bill.

 


The full-year loss came despite group revenues increasing by 7.5 percent to a record $3.9 billion. Seven years of cumulative losses for Australia’s second-largest airline now total nearly $1.3 billion.

 


In a bid to rein in costs, Virgin will slash 750 jobs across its corporate and head offices and form a new management team, marking Scurrah’s first major turnaround strategy since becoming CEO of Virgin Australia in late March. The redundancy plan, which aims to bring a cost savings of $50.5 million by the end of Fiscal Year 2020, will see the departure of key executives and a salary freeze of middle management and above who do not fall under the group’s enterprise bargaining agreement.

 


“Decisions which have a direct impact on people’s livelihoods are never made lightly, and I regret the need to reduce the size of our workforce so quickly,” Scurrah said. “However, today’s financial results tell us loud and clear that we need to reduce costs.”

 


The group’s management shakeup will see chief financial officer Geoff Smith replaced by Virgin’s former CFO Keith Neate, who left the group in 2011; acting COO Stuart Aggs will become the group’s permanent COO; and Air Canada executive John MacLeod will step in as chief commercial officer on October 8, effectively replacing Virgin’s current CCO Merren McArthur. McArthur will retain her position as Tigerair’s CEO over the coming months to support the group’s restructure but intends to exit the group upon MacLeod’s appointment.

 


Additional measures call for the integration of various corporate and operational functions of its three business divisions—Virgin Australia, Virgin Australia Regional Airlines, and Tigerair—as well as a detailed review of its fleet size and network with a view that underperforming routes would be slashed. The group is also laying plans to reassess all supplier contractors, including aircraft lessors, with the aim to save $34 million annually.

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