Could domestic focus be Virgin Australia's saving grace?

13 March 2020, Written by Matt Ogg

Could domestic focus be Virgin Australia's saving grace?

Virgin Australia (ASX: VAH) has announced a reduction in flight capacity due to Covid-19, but has emphasised its predominately domestic focus has insulated the airline from some of the broader international impacts.

The company has followed Qantas' (ASX: QAN) lead in reducing its international flights, including the exit of flights from Auckland to Tonga and the Cook Islands, as well as reducing the number of flights from Australia to Japan, the US and New Zealand.

Like so many companies dealing with uncertainty around the coronavirus, Virgin has suspended earnings guidance for FY20.

The company's international capacity reduction will increased from 4.8 per cent to 8 per cent in the current half, followed by an increase to 10.3 per cent in the first half of FY21.

The domestic capacity reduction will rise from 3 per cent to 6 per cent for now, and reach 7.7 per cent in the next half.

Virgin Australia notes domestic operations account for 88 per cent of passengers and 78 per cent of flight revenue.

"We have already announced a number of measures to mitigate the impact from COVID-19, however the pace of the global spread and decline in demand has required us to implement further changes today to minimise the future financial impact," says CEO and managing director Paul Scurrah.

"As a largely domestic airline, we are less exposed to the impact on international travel, however we remain disciplined in our focus on managing capacity in response to forward bookings and continuing to reduce costs across the business."

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Major changes include:
  • Reducing the daily Brisbane to Haneda service to three times per week from 29 March until 3 May.
  • Reducing the daily Sydney to Los Angeles service to five times per week from early May to early June.
  • Further reducing Trans-Tasman services from a 2.6 per cent reduction to 6 per cent for 2H20, including the strategic reduction of frequencies on Auckland-Melbourne to daily from May and a temporary reduction on Auckland-Sydney services.
  • Auckland-Tonga to cease on 1 May.
  • Auckland-Rarotonga to cease on 21 July.

"The reductions in services will also mean reduced flying for our crew and we are committed to working with them through this period and providing a range of options," says Scurrah.

"Pleasingly, our travel bookings to Western Australia and local leisure destinations such as the Gold Coast, Sunshine Coast, and Hamilton Island continue to be ahead of where they were at the same time last year. This demonstrates Australians are continuing to travel within our own backyard and support local tourism.

"These measures announced today are intended to soften the impact from COVID-19 and safeguard our company for the future."

Virgin has a cash position in excess of $1 billion, with no significant debt maturities until October 2021 and no new aircraft deliveries until July 2021.

Related story: Virgin Australia reduces flight network as losses flow

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Business News Australia

Author: Matt Ogg





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