Virgin Australia: profit warning – oh dear!

Today, Virgin Australia’s CEO warned the market that full year earnings could be down by as much as $100 million, compared to last year. And that’s after the previous boss John Borghetti announced a first half profit to break records. Oops!

Scurrah’s announcement meanwhile forecasts a $35 million loss on the full year. A weaker 2nd half is standard for the industry, so that’s not a surprise, but the gap in expectation is a little alarming.

Way of making yourself look good?

Is this Scurrah’s way of making himself look good – like a newly elected government – tighten your belt and make all the unpleasant decisions in the first year so you can relax and be generous in the rest of your term?

He’s only been in the chair for a month and a half, and has already delayed the delivery of planes (Boeing 737 MAX), and ‘denied’ scuttlebutt that Virgin is preparing to sell, or part sell its loyalty scheme.

Loyalty to the loyalty scheme

Earlier in the week – reports surfaced that consultants were running the rule over the Velocity loyalty scheme.

Elizabeth Knight in the Sydney Morning Herald opines that:

‘Having control of Velocity is a luxury, given Virgin could well use the cash that a sale or sell down would generate. But it is probably a necessary luxury. This business generates solid, sustained and reliable earnings – something that has alluded the Virgin group over the past ten years.’

Elizabeth Knight, Sydney Morning Herald

In-capacity

Scurrah has already reigned in capacity, cutting it by 1.5 per cent. He is all about returns and has no romantic view of the ‘capacity wars’ of a few years ago that nearly bankrupted both Virgin and Qantas.

“There’s going to be, in May and June a retraction of 1.5 per cent in capacity across the network.”

Paul Scurrah – as quoted in the SMH May 18-19 2019 p27

Affected Routes

These will include anything to or from Perth, Canberra, and some regional routes to Kalgoorlie, Ballina and Proserpine. There have already been cuts to some other regional and flights to and from New Zealand.

2PAXfly take out

I think Paul Scurrah is probably still tyre kicking – just getting the measure of the organisation – where the problems are, where improvements could occur, and then he wants to prove himself with his board, and with his customers. How he is going to do that is yet to be revealed.