Virgin Australia to slash 750 jobs after posting $349 million loss

28th August 2019

Photo: CEO Paul Scurrah discusses Virgin Australia’s results with The Business for tonight’s program. (ABC News: John Gunn)

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 $349 million full-year loss.

The company reduced its net loss from an even-bigger $681 million last year, however, its underlying performance, excluding one-off costs and gains, was substantially worse.

Virgin’s underlying loss before tax of $71.2 million was a big drop from a profit of $64.4 million 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 $159 million in fuel and foreign exchange “headwinds”, but has now hedged in excess of 90 per cent 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 $75 million per annum.

The cut makes up about 7 per cent of Virgin’s total workforce, with about 30 per cent of the positions in its head office.

‘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.”

Speaking to The Business, Virgin Australia chief executive Paul Scurrah would not rule out further job losses or route cancellations.

“As we go through this process, we’ll look at what it is required that gets us into that profitability and we’ll make the right decisions, as tough as they might be, to make sure we get there,” he added.

The airline already reduced capacity (the number of seats available) by 1.5 per cent 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 $50 million in cost savings.

All this cost reduction is in anticipation of a further $100 million 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 per cent to $3.9 billion, 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 $133.4 million were dented by the costs associated with a 2.3 per cent 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 per cent 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 per cent to $1.3 billion, pre-tax and interest earnings for this segment of the business plunged to a loss of nearly $76 million, almost four times worse than last year’s result.

Virgin’s low-cost offshoot, Tigerair, also saw its loss worsen to $45 million, as it took a $10.7 million 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 $122.2 million, up from $110.1 million the year before, as the program added more members.

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