VA half yearly results to 31 December 2018

[Melburnian1]

No doubt there'll be much analyst commentary about VA's half yearly results. I deliberately have not read any of it yet:

https://www.asx.com.au/asxpdf/20190213/pdf/442ktjb2zc1dvy.pdf

https://www.asx.com.au/asxpdf/20190213/pdf/442ktgghxnrwws.pdf

The takeouts are that the domestic operation is profitable, as is (no surprise) Velocity Frequent Flyer, but the international flying arm and TigerAir Australia continue to make losses.

The 'slides' mention the words 'enhancements' and 'enhance' once each. AFFers can have the joy of a hunt through the pages to see where.

Given how the 'capacity war' with QF seems to be in either a truce or to have ceased, the domestic arm's profitability is as expected, but in time, fleet renewal costs must be a weight.

VA has net debt of almost A$4 billion, so reducing it from profits of even $200 million per annum (this half year c.A$74 million) on a group basis will take a long time. The A$ may continue to drop, a danger surely for any airline that has many costs in US$ but revenue in A$. On page 17 of the 'slides' document, VA uses the word 'adverse' in relation to currency movements. 72 per cent of its debt is in US$ - bad!

Passenger numbers in the half year compared to June - December 2017 dropped by 220,000 on TT, but rose by 360,000 on VAd and by 110,000 on VAi.

TT's punctuality is very poor (not that JQd is much better!) I am unsure why TT's passenger numbers dropped so much: the limited strike action has occurred since 31 December 2018. Did it discontinue some poorly performing routes or reduce frequencies?

One wonders how many millions the Hong Kong experiment is costing. It's been good for travellers as with this third airline providing nonstop competition to CX and VA, fares have dropped, but VA's load factors are not great (though perhaps improving a bit) and yields must be low despite the quality of the offering, which like its A332s when used on Oz transcons get good reviews from passengers.

In the 2018 first half, VAi lost $2.8 million; in the 2019 first half, this rose to $12 million, a negative difference of $9.2 million, much of which may be attributable to the MEL and SYD - HKG routes.

There are other 'costs' to the HKG routes such as lower availability of A332s on the east coast to and from Perth routes, meaning that passengers have to put up with terrible B738s more often (while QF can offer more widebody transcons despite with what many say is a slightly inferior product on its A330s compared to VA's A330s).

The jury remains out on the TransTasman situation given the abolition of NZ/VA sharing. There must be a chance this becomes a sinkhole for VA, particularly if Australian consumer confidence declines further.

The VA Velocity FF scheme increased its net profit only marginally (although ahead of CPI). I'd have expected more.

Of its 133 aircraft, 66 are owned by VA and 67 leased.

I like VA and prefer it to QF but VA would have to be the least well known of the majors (EK, JQ, NZ, QF and VA) operating the TransTasman routes, also served to a small degree by well regarded CI.

One wonders what part owner SQ's reaction (if any) would be. Probably a tiny half smile at best, given the underperformance of VA to date.

 

[CPMaverick]

Excellent and informative summary, thank you.

I like VA and prefer it to QF but VA would have to be the least well known of the majors (EK, JQ, NZ, QF and VA) operating the TransTasman routes, also served to a degree by well regarded CI.

Honestly I think few average Australians even realize EK & CI run TT routes. (I'd lump them with SQ, LAN, and others that have the occasional obscure AU-NZ flight).

VA advertises the NZ service heavily, I don't think they would be at the bottom of a list if people had to name which airlines offer TT service. QF and NZ may have an edge in this regard, but not a huge one.

 

[Melburnian1]

Excellent and informative summary, thank you.

Honestly I think few average Australians even realize EK & CI run TT routes. (I'd lump them with SQ, LAN, and others that have the occasional obscure AU-NZ flight)....

They may not but EK's patronage on its TransTasman routes (some of which were discontinued, probably due to low yields) was pretty good. The passengers must come from somewhere!

I agree CI would have the lowest recognition but it receives praise on some of the more popular review sites so by word of mouth, awareness slowly spreads. Regrettable from a competition perspective that CI no longer flies across the Tasman from all three Oz east coast major airports.

Any public transport needs at least 12 months to establish itself, surface or air modes.

 

[moa999]

The negative operating cashflow is still concerning.

As is the US$400m of debt due in November 2019.

Although at least the recent results give them the ability to refinance, the falling AUD makes it more expensive.

 

[Melburnian1]

The negative operating cashflow is still concerning.

As is the US$400m of debt due in November 2019.

Although at least the recent results give them the ability to refinance, the falling AUD makes it more expensive.

Agree.

Clearly VA is doing a lot better than EY but that doesn't say much.

I can't imagine too many passengers want QF to have a monopoly, yet many decline to give their patronage to VA.

Does VA have a long term future? It sure has an 'interesting' number of part owners.

Mind you, both it and QF will have substantial requirements for refleeting in the next few years.

 

[kevrosmith]

Thanks for the summary. Very helpful.

 

[odysseus]

One wonders how many millions the Hong Kong experiment is costing. It's been good for travellers as with this third airline providing nonstop competition to CX and VA, fares have dropped, but VA's load factors are not great (though perhaps improving a bit) and yields must be low despite the quality of the offering, which like its A332s when used on Oz transcons get good reviews from passengers.

In the 2018 first half, VAi lost $2.8 million; in the 2019 first half, this rose to $12 million, a negative difference of $9.2 million, much of which may be attributable to the MEL and SYD - HKG routes.

Reportedly, the international hit came more from pricing/competition on the US route. I'd say that while HKG prices have been fairly stable over the past year, US route prices have gone down, so suspect that's made more of a contribution. I also suspect that yield has ever so slightly improved on the HKG route.

 

[Bagpuss]

I've always found it "amusing" for a company which was an LCC converted into a "Full Service Airline" keeps reporting it gets so many financial charges for implementing cost savings. Just doesn't make sense.

I get the feeling they will never see any real savings switching TigerAir to B737's. How many years and a total of 4 B737 airframes with TigerAir.

 

[Melburnian1]

...I get the feeling they will never see any real savings switching TigerAir to B737's. How many years and a total of 4 B737 airframes with TigerAir.

Bagpuss, is VA planning on transferring the B738s from VA to subsidiary TT that are the oldest, or the ones not due for a major maintenance check for a while?

 

[Bagpuss]

Bagpuss, is VA planning on transferring the B738s from VA to subsidiary TT that are the oldest, or the ones not due for a major maintenance check for a while?

I'm not an insider. My understanding is that the VA older B737's will be going to Tiger. (VA will replace with B737MAX).

Though I thought a number (most) of the TT A320's were destin for VARA.

 

[Mr Pumblechook]

I'm not an insider. My understanding is that the VA older B737's will be going to Tiger. (VA will replace with B737MAX).

Though I thought a number (most) of the TT A320's were destin for VARA.

That's what I understood, too. Oldest VA 737s go to TT and the TT 320s go to VARA to operate on behalf of VA. Meanwhile still paying to lease aircraft that are in storage. Maybe it all made sense once but it doesn't any more

 

[jase05]

One wonders how many millions the Hong Kong experiment is costing. It's been good for travellers as with this third airline providing nonstop competition to CX and VA, fares have dropped, but VA's load factors are not great (though perhaps improving a bit) and yields must be low despite the quality of the offering, which like its A332s when used on Oz transcons get good reviews from passengers.

Very interesting and a pity it’s not patronised more as I think their service to HKG is fantastic especially in J. I would choose them to fly to HKG any day over their competitors.
I really hope they can get their affairs in order and stick around for many years to come.

 

[ozstamps]

I flew Virgin HKG-MEL today in Biz. Plane about half full. Seeing it is Chinese New Year period that load is not good.

Near missed the flight as that Lounge in HK calls no flights, and has hopeless screen displays that scroll forever in English and Chinese, and said MEL flight was GO TO GATE when in reality it was ''final call''. INEXCUSEABLE. Check-in at HKIA downtown station was slow and sloppy via a bored looking girl with just one booth for all classes.

Just to GET to the remote 200 gates there at HKIA Virgin uses is a lonnnnnnnnnnnnnnnnnng schlep from the main T1. For a change we arrived hours early, so that long hike was just annoying, but the Lounge lack of advice re boarding, was a clanger.

Flight over to HKG on Saturday my checked bag, clearly marked Virgin priority, took 15 mins to spit out. We were late making our dinner booking with friends. NO excuse for Premium pax to wait 15 mins from when bags start ejecting - they must tighten up on such stuff, or they will never steal away any Cathay pax. Near last out of an A330. If I had the energy to moan to Virgin, I would probably get a $100 voucher, and they are always hit or miss about hearing or responding meaningly re real time feedback, so I likely will not bother.

Took 3 Virgin domestic flights today and all were surprisingly full, as all non peak hours. ADL-MEL at 11am had a 100% full business class which surprised me. So Domestic doing OK does not surprise me.

 

[Melburnian1]

I flew Virgin HKG-MEL today in Biz. Plane about half full. Seeing it is Chinese New Year period that load is not good...

Ozstamps, fantastic report. Many thanks, as it's pure gold.

Chinese New Year runs 5 to 19 February so wouldn't many travellers from mainland China or Hong Kong already have decamped from their abodes and be at their leisure destinations such as MEL or SYD? Maybe the loads from now until 18 February are heavier northbound.

Still, I'm not disagreeing with your post overall as above I observed the increased losses on VAi and thought HKG was to blame, but another AFFer attributed it more to the LAX flights than HKG.

Yes, offpeak on the VA 738s I rarely see more than two or three in business class. Probably a different story on the A332s - when they run - across to and from PER.

If you had to wait 15 minutes for bags in HKG and you were almost last off the A332, do you estimate that including the time off the aircraft to the carousel, in total this was c.30 - 35 minutes?

 

[ozstamps]

Chinese New Year runs 5 to 19 February so wouldn't many travellers from mainland China or Hong Kong already have decamped from their abodes and be at their leisure destinations such as MEL or SYD? Maybe the loads from now until 18 February are heavier northbound.

CNY all happened last week in HKG we were told by all. Fireworks and sales etc, and Dragon stuff! Indeed there was remarkably little evidence it was even occurring, even over weekend - ANYWHERE it was even winding up. We were in Chatswood Sydney last Thurday night, and it was far more evident there.

Plan A had been to wander into China for a few days, but a few MILLION people do the border crossing by land late last week, and on the weekend, so we quickly canned that bright idea.

We were in Biz so got to bag carousel pretty much first, so saw first bags come off. We've been to HKG a few times in recent months, and never check bags usually so no idea how sloppy bag handling usually is, but most serious Asian carriers are METICULOUS re creating separate containers of Priority Bags, and sending them off FIRST. All part of the smooth and classy flight experience package.

What will be hurting Virgin I feel sure, is the lack of WiFi on the A330s to HKG.

Saturday I had a bit of a business crisis, I was up all night trying to sort with several folks in the USA, and was only part sorted.

Domestic flight ADL-MEL was fine with WiFi, but step onto a 9 hour long haul and ZIPPO. It really inconvenienced me. I was on the laptop the entire flight doing draft letters and emails and stuff and really needed to have accessed websites to assist in that. I really assumed they had WiFi on the A330s.

Near every carrier I fly long haul has had it for years, and if it affects me it will affect others much moreso I am sure. I'll bet the house that Cathay and SQ offers it. Does Qantas?

If Virgin is losing money on the HK flights as seems clear, no idea why WiFi was not an urgent retrofit in the next sked maintenance overhaul around when they planned it, as it makes them VERY uncompetitive.

Yes it costs money, but so does serving French Champagne which they do, and handing out sets of Pyjamas - if they want to play with the big boys in any market they must get these basic things in place and working or they will keep losing. Even if they added a $20 charge to use it as some carriers do, who cares for 9 hours? It is 2019, and even teenagers want WiFi!

 

[Mogul]

VA should just stick to domestic and TT, leave all the international stuff to SQ, DL and others.

 

[eastwest101]

Seems to be a story of shrinking capacity by both QF and VA in the domestic market has meant that domestic fares and yields have gone up, and fuel prices stayed relatively low helping the bottom line of both QF and VA domestic. If VA mainline domestic can't make money now they will never make money.

Aside from domestic VA, the rest of the VA business is a steaming mess with fairly empty A330s flying to HKG and pretty competitive environment in the transpacific market with depressed fares and yields, now off to compete in the New Zealand market against NZ and QF so no profits there, other short haul VA international bleeding money (Pacific and Bali), still paying for E190s, paying to fly Alliance F100s everywhere, still recovering from the loss of the VARA ATR debacle, pilot shortage for their B737 fleet, the TT business is a complete cluster with a poor mix of fleets and pilots.

Hope the new leadership can pull it together for VA because I don't fancy being Jetstarized if Qantas's only competitor disappears..

 

[AIRwin]

VA should just stick to domestic and TT, leave all the international stuff to SQ, DL and others.

Kia Ora, Mr Chris Luxon!

 

[moa999]

Getting rid of international ops would also enable a takeover by one or a consortia of the shareholders much easier

 

[ozstamps]

Not sure I agree entirely new routes are not wise - BUT as posted, if they want to rub shoulders with the big boys, their product MUST be as good or better. And WiFi and speedy Priority Bags are low cost no brainers. I would never have chosen either HKG or LAX.

HKG I assume was in their minds to get and use CHINA feeder traffic, and the routes of Hong Kong Airlines, who as we now read, look close to bankruptcy.

Those guys like Cathay have deep pockets, and to heavily discount for a year to bleed you mega millions, and hence get upstarts to cancel, is no big deal for them.

Why on earth Virgin Australia fly to the USA, when a major partner Delta (plus several other deep pocketed carriers) do each day, when inbound USA tourism on all carriers has fallen due to Trump era, is a mystery to me.

Africa is not the worst option. Do a deal for the long haul and use the SAA Africa feeds internally - SAA have a good network there. Some South African Airways widebody planes are really starting to fall apart (much like the country sadly) - Was in Africa last month and 2 different guys I spoke to had just done long haul Biz Class flights on SAA, and their IFE was ENTIRELY inoperative for entire 12 hour flights.

They told me the entire plane was affected. Might have been same plane on different days, but not a reason to ever re-book them, both felt. ​