Home' Asian Aviation : AAV April 2014 Contents AsianAviation | APRIL 2014 21
describes it as a "demolition job" and a result of
"misguided management decisions, poor aircraft
choices, distracting investment in risky offshore
ventures, bad strategic choices and terrible brand
Fleet and network changes are also planned,
which will see fleet types slimmed from11 aircraft
types to seven, with an average age of eight years.
The changes have again prompted industry
comments that Qantas' earlier fleet decisions have
resulted in some of its problems today, with critics
saying that it should have ordered the 777 for long-
haul international services instead of A380s and
747-400ERs in 2000. Even Joyce, who inherited the
orders, was reported recently at an Australia Israel
Chamber of Commerce event to concede it would
be good to go back in time and change the order.
Underperforming routes will be dropped, with Perth-
Singapore to go in the first quarter FY15; Brisbane-
Singapore and Sydney-Singapore to be operated by
A330s replacing 747s; Melbourne-London services
to be retimed to reduce ground time at Heathrow
which frees up an A380.
The airline will return its Brisbane Airport terminal
lease to the airport, yielding A$112 million, while
discussions with Sydney and Melbourne airports
The restrictive Qantas Sale Act, which limits
foreign ownership of Qantas to 49%, is at the heart
of the airline's woes, according to management.
"However, it is clear that such a move would have
limited chance of passing through the Senate," the
It adds: "We need immediate action to address
the imbalance that has been allowed to persist for
almost two years -- namely Virgin's unlimited ability
to access foreign capital from government-owned
airlines to fund a loss-making strategy against
Virgin Australia is itself being adversely affected
by its bitter capacity battle with Qantas, resulting
in a statutory loss after tax of A$83.7 million and
a pre-tax loss of A$49.7 million. The airline said
it was adversely impacted by the challenging
and competitive environment, ongoing subdued
consumer sentiment and economic uncertainty, as
well as the effect of strong market capacity growth
and the A$27 million cost of the carbon tax.
"The result reflects the tough trading conditions
across the entire industry for the first half of FY14,"
says John Borghetti, CEO.
Borghetti says Virgin Australia's business
efficiency programme is progressing towards the
target of $400 million in cumulative productivity
gains for FY15. In addition, the airline has identified
several additional cost saving initiatives over and
above this programme for implementation over the
next three years, including renegotiation of supplier
contracts, increased fuel efficiency initiatives and
deeper pursuit of cost savings through leveraging
the scale of its international alliance partners.
"I am confident that we are on track with our five-
year Game Change Programme strategy to create
a business that can deliver sustainable performance
for the long-term," says Borghetti.
While Virgin Australia's Borghetti has high hopes
for the future, the country's regional airlines are
not so optimistic. Well-established regional airline
Brindabella Airlines collapsed at the end of last year
after two decades of service, following at least a
dozen fellow regionals.
At the time of Brindabella's collapse, Regional
Express' (Rex) chairman, Lim Kim Hai warned:
"If nothing significant is achieved within the next
three months, Brindabella's collapse could well
be a precursor of more to come in the regional
Rex, which is the country's largest independent
regional airline, reported a profit before tax of A$5
million on turnover of A$129.3 million for the first
half -- 59.8% down on the same period a year ago.
Chief operating officer Garry Filmer has warned of
the "irreversible collapse of regional aviation" unless
the government takes immediate action.
Meanwhile, across the Tasman, Air New Zealand has
turned its performance around, with a record result
for the first half of FY14 thanks to its Go Beyond
strategy. The airline announced pre-tax normalised
earnings of NZ$180 million (US$153 million) -- up
29% on the previous period -- and statutory earnings
before tax of NZ$197 million, with a net profit after
tax of NZ$140 million -- up 40%. Revenues reached
NZ$2.3 billion and unit costs improved by 3%. ANZ
is forecasting a full year pre-tax result of more than
"Air New Zealand's Go Beyond strategy is clear.
We have a relentless focus on global sales and
marketing excellence, combined with a keen eye on
continuously improving our cost base while delivering
a world class customer experience," says chairman
Chief executive officer Christopher Luxon says
ANZ has worked hard to improve its cost base in
an environment where it has not grown and it is
now in a position of being able to adapt to changing
macro-economics and competitive environment. "In
fact, we have reduced our capacity flown overall
as we realigned our long-haul network. With new
fleet additions and capacity growth, our scale
grows. Our new aircraft will be significantly more
efficient than those they replace and having fewer
aircraft types drives unnecessary complexity out of
our operations," he says. ANZ expects to deliver
capacity growth of around 8% in the 2015 financial
year as its new Boeing 787-9s and 777-300s enter
ANZ has also followed a successful alliance
strategy. Luxon says: "Forming the right alliances with
the right partners allows us to deliver on our strategy
of profitable growth as a Pacific Rim airline."
"I am confident that we are on track
with our fiveyear Game Change
Programme strategy to create a
business that can deliver sustainable
performance for the long-term"
CEO, Virgin Australia
Borghetti says Virgin Australia's business efficiency programme
is progressing towards the target of A$400 million in cumulative
productivity gains for financial year 2015.
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