Virgin Blue jolted the market this morning by making more money in the first half of its financial year than the three times larger Qantas Group.
It’s the first time any Australian airline has outperformed Qantas in profit after tax terms in any reporting period.
Virgin Blue’s CEO Brett Godfrey said it had also pencilled an in principle agreement with Boeing this morning for 50 new jets which it would use to extend its new position as having a larger domestic jet network in Australian than Qantas (which is a consequence of the expansion of Jetstar at the expense of the full service carrier.)
About 28 of those jets would replace expiring leases or aircraft that are already close to five years old, which is young for Qantas but very old in terms of Virgin’s emphasis on churning jets before they start requiring older aircraft maintenance procedures.
Virgin Blue would also bring back into domestic operation at least six jets it had sent on working holidays on regional international flights to cope with the need to defend and grow its Australian market share and it was seeking short term leases cover its ambitions pending delivery of new jets.
The groups domestic flights made $108 million PBT but its new long haul division V Australia lost — $39 million in the period.
Virgin Blue’s guidance remains for a full year PBT of between $80-110 million, and Godfrey was at pains to hose down speculation in analyst circles that it would have a better second half, matching similar caution by the Qantas group after it reported its first half year results last week.
The Virgin Group’s cash balances were $842 million at December 31, or $376 million more than a year earlier. However Godfrey said unencumbered or free cash was a more relevant measure of its strength, and had risen from $229 million to $513 million.
Godfrey said Virgin had greatly expanded its agreements to code share or interline with international airlines serving Australia, including striking a deal with Qantas oneworld alliance partner, Cathay Pacific.
In a press conference which is still underway, Godfrey said the airlines pursuit of the middle ground, between high fare full service operations that companies were increasingly deserting, and tight pack inflexible cheap seats like those offered by Jetstar and Tiger, had proven the right strategy on domestic routes.
“The middle is where the money is,” he said.
who cares? both are essentially foreign owned firms.
By domicile Qantas is no more than 49% foreign stock holder owned. By major shareholder domicile Virgin Blue is about 25% foreign owned by Richard Branson’s private company.
Virgin might make a little more profit if it can get it’s planes to take off reasonably on time! I went to Sydney Monday afternoon 45 mins late, came home Wednesday afternoon 40 mins late. You get what you pay for i guees.
Virgin Blue’s profitability is substantially improved by the fact that the vast majority of its fleet is made up of quite young 737 NGs and even younger Embraer 170-190.. The fact that many are also leased allows for some creative accounting regarding imparements and such, rather than depreciation of assets.
Qantas on the other hand is stuck with a significant number of legacy aircraft (the 737-400s come to mind however the shining example of this is the 767-300 fleet, which has been forced to soldier on long past their use by date due to the ongoing 787 delays).
Qantas also operates significant number of fleet types due to the routes it flies (A380, 747-400ER, 747-400, A330-300, A330-200, 767-300, 737-800, 737-700, 737-400 and various members of the Dash-8 family). This increases the costs of training, compliance, maintenance, spares holdings and such.
Virgin Blue operates 737-700s and -800s, Embraer 170s and 190s and has recently taken delivery of several 777-300ERs for V Australia. The significantly smaller number of aircraft types delivers synergies in terms of maintenance, training and associated costs compared to Qantas.
Qantas also has significant costs associated with their international network, being required to maintain service and maintenance agreements in a wide range of countries and support significant costs structures due to long haul crewing costs, particularly in London, Singapore and Bangkok, plus the operation of Qantas Club Lounges across Australia and overseas.
Virgin by comparison operates very few international services (through its Pacific Blue, Polynesian Blue and V Australia arms) resulting in significant savings compared to Qantas.
This is not to defend Qantas, simply to point out that comparing the two is often like comparing apples and oranges.
Virgin are masters of loading and offloading their planes in fast efficient time – front and back doors.
I fly at least twice per month – and Virgin, responding to problems about 1 year ago have certainly lifted their game in terms of begin on time, customer service and flexibility.
Add that to acceptably priced fares to most Australian and Asia Pacific destinations and Virgin have the mix right.
Whilst all of the differences between the airlines as other comments have detailed – in the end it is depart on time and price right that works for return customers
Qantas on the other hand is slipping in all these areas – cost more, planes not clean and delays.
Jetstar can be relied upon to be delayed – I cannot recall the last time that I flew Jetstar and it left on time.
As a frequently flying customer loyal only to getting to my destination on time and in relative comfort – ie: legs not numb, temperature on board not too cold or hot and pleasant staff (let’s face it – air travel these days is not about comfort) I currently vote 1 Virgin.