Virgin set to experience turbulence following recent net loss

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Virgin Australia has announced this week a program to cut 750 head office and corporate roles after posting a $349 million full-year loss. The result is a surprising drop for Virgin following their slender thing profit of $64 million the previous year. The plan to slash jobs is estimated to save the airline $75 million annually in costs. The cuts would impact seven per cent of Virgins current workforce.

On top of labour costs Virgin has advised it would be making an urgent assessment of all its current routes and capacities to see where further savings can be made. It’s expected there will be a strong focus around leisure routes. The move would ensure better route profitability for the airline.  Virgin has also decided it would hit pause on fleet renewal until July 2021.

The recent loss has not made new VA CEO Paul Scurrah’s life any easier since he landed into the tough job following the departure of John Borghetti. The new CEO pointed to tough trading conditions as well as rising fuel and the lower Australian dollar.

The news follows rival Qantas posting earlier this month a 6.5 per cent fall in annual net profit. Like Virgin they attributed the loss to higher oil prices and a weaker foreign exchange.

 

 

JOHN BORGHETTI TO LEAVE VA

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This week’s best kept secret in the aviation sector goes to the resignation of Virgin Australia CEO John Borghetti. The catch is he won’t be stepping away effective immediately but will stay for another two years, with his contract expiring 1 January 2020.

The early announcement was made so that Virgin was given ample time to headhunt a new leader and allow a smooth transition.

Having spent 45 years in the aviation industry, Mr Borghetti was appointed as Virgin CEO on 8 May 2010. Previously he was Qantas’s executive general manager for six years but made the move to Virgin after he lost the CEO leadership opportunity to rival Alan Joyce.

The news whilst somewhat surprising is not at all unexpected. Virgin in recent years has struggled turning a profit with the company posting a loss of $220 million for the full year ended 30 June 2017.

In addition the loss of key partnerships has hit the company hard with the Air New Zealand divorce and Qantas-Air New Zealand partnership announced recently in its place being the final straw in his downfall.

It will be interesting to see where Virgin heads from here. It is a very tough act for anyone to navigate and I will give Borghetti some kudos where it is due as it would not have been easy. That said Virgin does need a strong and decisive future, something that has not been evident lately with the company in a confusing budget/ premium model mindset.

Whatever the case the next couple of years will be key to Virgin’s future.

 Comments

What do you think of John Borghetti’s resignation? Do you think he acted in the best interests of the company or was this a poor decision at a time when they needed him most?