Aug
28

Game on as Virgin Australia’s profit soars.

Year two of its three-year game change programme, and a transformed Virgin Australia has shown it is the antithesis of Qantas. The airline today posted an after tax profit of $22.8 million, and a full year underlying profit before tax of $82.5 million, an improvement of $149.1 million from the last financial year.

Virgin’s results are admirable given a continued tough operating environment, a loss from fuel hedging and the need to absorb costs associated with the transformation.

The airline has experienced strong revenue growth over the year up 19.8% to a total of $3.9 billion.

Two years into its game change programme and a year ahead of schedule Virgin Australia has achieved a 20 per cent share of the Australian corporate and government market. High yield revenue is up 113 per cent and John Borghetti believes the airline has achieved the “tipping point in realising a new competitive norm in Australia”.

CEO John Borghetti attributes the result to the “tireless dedication of our people, their drive to make a real difference for customers, and their unwavering determination to deliver on strategy”.

The Game Change transformation may be complete, but the game is only just starting for Virgin.

Starting October, Virgin will roll out its WiFi streaming IFE product. The system developed by Lufthansa Systems’ will stream content directly to Samsung Android tablets. From early 2013, the airline will implement a new Sabre reservations system allowing the airline to use a single VA airline designator for all services.

Virgin is reaping the benefits of being the world’s largest virtual network carrier. International operations are now extremely profitable, “the best part is we did this without buying one aircraft” says Borghetti. Codeshare and interline revenue from its international partners is up 158 per cent. New international destinations and virtual network partners are also on the horizon as Virgin targets an additional $150 million in revenue from its virtual networks by 2015.

The Airbus A330-200 fleet will also see international services sooner rather than later. Given the benefits of its virtual network, Virgin’s own international network will continue grow in an extensive but complementary fashion.

One aircraft will be delivered in 2013 and by June 2016 the airline will have eight of the type. Its widebody transcontinental services require five aircraft, and the remaining three will likely be used to complement Etihad’s eventual Perth to Abu Dhabi services, and launch services from the east coast to new destinations in Asia.

Virgin Australia is currently evaluating both the Airbus A350 or Boeing 787 and will place an order for unspecified number by June 2013 for delivery from 2017. Borghetti noting “its a holistic view of our long-haul and medium-haul operations” as the 777s will need to be replaced around that time. It also provides Virgin the opportunity to mature its own international network and presence to better leverage the capability of its next generation narrowbody Boeing 737 MAX 8 and widebody aircraft for expansion post 2017.

Closing his press conference, John Borghetti took a jab at the competition, “I’ve been around a long time, probably a lot longer than some would like”. With everything at Virgin looking up, he’s going to be around a lot longer yet.

Virgin Australia’s full results presentation to the ASX can be found here and breakdown here.

Aug
20

Qantas’ Boeing 767s are in it for the long haul.

 

Like Dontella Versace checking in for more age defying plumping, Qantas’ ageing Boeing 767-300ERs are to be given another facelift.

Commencing in October, Qantas will retire another seven of its ageing 23 Boeing 767-300ERs, and the remaining 16 aircraft will undergo a major interior refurbishment. The programme is also step in the right direction for Qantas to return to its roots as an hip, innovative product leader.

Marc Newson has been brought into design contemporary interiors. Business class will feature charcoal leather seats with retro chic 70’s wood panelling, and aubergine is Newson’s colour du jour in Economy. The aircraft will also be given new carpets, lighting, curtains and dividers.

Each refurbished 767 will feature Qantas’ “groundbreaking WiFi entertainment” Q Streaming. And iPads will be provided to all passengers, in Business and Economy. The system provides passengers with 200 hours of on-demand IFE, and passengers will be able to connect with their own portable devices.

Q Streaming is delivered by five WiFi terminals fitted in ceiling on the right hand side of the cabin. Passengers connect to the terminal closest to your seat row, and streaming content is provided from the aircraft’s own content server located in the avionics bay beneath the cockpit. The server is essentially a mini computer with a pair of 500GB solid state drives, each of HD contains all the in-flight programming so the system has redundancy and will continue to work if one drive fails.

Qantas Domestic will also receive 3 new aircraft, 2 Boeing 737-800s and 1 A330-200, before year end.

Refurbishment will not make the B767s any cheaper to operate, nor will they become more fuel-efficient. Original plans envisaged Qantas B767s retired by 2010, replaced by Boeing 787 Dreamliners from 2008. However, Boeing and Qantas’ combined delays, mean the 787 will be 6 years late by the time it enters Qantas service in 2014.

Updated plans replaced the 767s 1-to-1 by Jetstar’s 11 A330-200s returned as the carrier receives the Group’s first 15 Boeing 787 Dreamliners from mid-2013. However, returning all the A330s does not provide Jetstar much capacity to grow.

Either way, the 767s are likely to be around for a lot longer yet. While the retro, tech savvy refresh will go a long way, it doesn’t remove the fact that the 767s are so old you can almost hear the floor creak as you step into the cabin. Let’s hope people aren’t falling through the floor before the time they ret…well, if they ever retire.

The full Qantas statement can be found here, and Qantas’ Q Streaming trial FAQ booklet can be found here.

Aug
11

China Southern: The blue dragon has risen.

China Southern is likely to be the first airline in the world to operate the Boeing 787 on services to Australia. President & CEO Tan Wangeng announcing Wednesday that the airline “will spare no effort in building the Canton Route into a premium product” to be operated by Airbus A380s and Boeing 787s.

Already big and getting bigger. China Southern is the largest passenger airline in Asia, carrying over 80 million passengers in 2011. The third largest by market capitalization. The sixth largest by fleet size. And, Skytrax’s most improved airline of 2011.

China Southern in 2015

International operations currently account for only 18.4% of the carrier’s Available Seat Kilometres (ASKs), the smallest of China’s ‘big three’ airlines. 80% of its domestic route network, and 81.6% of its ASK capacity competes directly against high speed rail. The result? China Southern is turning to international markets with the aim of increasing its international ASKs to 35% by 2015.

Chairman Si Xianmin noted in a recent interview that “[we’re] looking at route expansion into South America, Africa and other emerging markets to expand our hub network. The broader vision of the Canton Route is to build Guangzhou as a global, comprehensive, long-haul aviation hub”.

Currently operating 35 weekly services to 5 Australian cities, plans see this increasing to 55 weekly return services (110 total services – China Southern considers a one-way flight, one service) to Australia by 2015. In addition, South American services are likely to operate through Nairobi, home of Skyteam partner Kenya Airways, linking three of the world’s largest developing markets.

Ürümqi is China Southern’s strategically located second international hub. A cooperation agreement signed by the airline and the Xinjiang Autonomous Region government, has seen Ürümqi Airport’s passenger traffic grow to become China’s fourth largest international airport. From Ürümqi the carrier offers services to the middle east, Turkey and following the resumption of services to Tashkent in July all of the CIS republics (except Moldova). Supported by expanding minerals exploration in the region, could China Southern leverage Ürümqi’s strategic location to reshape sixth-freedom traffic flows across Asia?

Opportunity much? Nearly 3 billion people live within 4.5 hours flying time of Urumqi. China Southern’s current international network from Urumqi, and connections to its other major China hubs.

The Baiyun experience

Tan says that “More than 30% of the passengers travelling on this [Canton] route are from Australia and Europe”, but if it is to win greater market share from other ‘Kangaroo route’ carriers, the airline will need to substantially improve the transfer experience at Guangzhou’s Baiyun Airport.

One of those ‘only in China’ experiences, transferring is in many ways akin to being in a barnyard cattle run, in which the ground staff aren’t really clear about where they are leading the cattle.

Onto the tarmac? Your colleague’s sign says that way. NO! Which bus? That one…No, this one! Both buses end up at the same location – domestic baggage claim. But shouldn’t I be at an international terminal? Need I go on?

The wings of China? China Southern’s special new 787 Dreamliner livery. Photo: Wcarn.

Once onboard

Ghastly transfers aside, China Southern is developing a winning on-board product as a result of substantial focus and investment. While the older Airbus A330s compare with Qantas’ domestic B767s, their latest A330s are almost A380 quiet, feature Thales’ TopSeries touch screen IFE, and a very comfortable 34/35 inches of legroom throughout economy.

The carrier’s first three Boeing 787s are currently completing change and incorporation rework and will be delivered in 4Q 2012. The aircraft will feature the same interior as China Southern’s A380s with 4 first class suites, 24 business seats (78inch pitch), and 200 economy (33in pitch) with Panasonic’s eX2 AVOD IFE throughout.  IFE content is still not what you would find on other international carriers, limited by China’s censorship restrictions.

China Southern’s A380s, but what’s kept them domesticated?

Sources say upon EIS in 2011, the Civil Aviation Authority China (CAAC) restricted operations over concerns that cockpit flight crew English levels were insufficient to operate in a monolingual English environment, particularly in relation to the aircraft’s Electronic Flight Bag (EFB). An extensive flight crew training programme has taken place over the last year, and it seems the CAAC’s restrictions are soon to be been lifted.

Three A380s are currently in service, a  fourth arrives in September, with the fifth and final aircraft scheduled for delivery in early 2013. Configured with 8 first suites, 70 business class seats, and 428 economy, the carrier’s five A380s will be deployed on daily Guangzhou – Los Angeles, and likely later daily Guangzhou – Paris and/or London.

Sydney may also eventually see A380 services, Tan recently saying “on our current Sydney route we operate [a] double daily using our A330 aircraft and the load factor has been very satisfying. We are now exploring the possibility of operating the A380 on this route, which means we can operate a triple-daily service. But we have to study if the market will be big enough to digest this capacity”.

China Southern is on the verge of being unleashed in the same way Emirates was 10 years ago. A blue dragon is rising, and it’s winging its way to a city near you.

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