1 Mar, 2024
Air New Zealand warns of profit slide ahead of Qantas results
Financial Review

Air New Zealand has warned its fortunes will reverse in the next six months as competition returns, corporate bookings remain soft and delivery of new planes stalls.

As Qantas prepares to hand down its financial results for the first half of the financial year on Thursday, the New Zealand carrier reaffirmed earnings for the six months to December 31 at the lower end of its $180 million to $230 million guidance.

But it warned against extrapolating first half results across the second part of the year, saying full-year earnings would be just $200 million to $220 million, including $20 million worth of COVID-19 pandemic fight credits it banked in January.

“Air New Zealand notes that a number of economic and operational conditions have deteriorated further and are increasingly expected to have a significant adverse impact on its performance in the second half of the financial year,” it said in a statement.

“The airline’s forward bookings profile which indicates that the increased capacity and further pricing pressure from United States carriers is expected to more adversely impact the forward revenue performance for the remainder of the financial year.”

Air New Zealand chief executive Greg Foran said in an interview last year that United Airlines’ move to ramp up capacity in Australia and New Zealand had put pressure on yields. The US carriers have redirected aircraft that had serviced routes to China – where travel has not yet rebounded to the US – to Oceania, Air NZ said.

United also overtook Qantas as the biggest carrier between Australia and the US in the northern winter period.

Air New Zealand blamed “significant inflation” for blowing out its cost base, while it said ongoing weakness in domestic corporate and government demand had hurt revenue.

The airline also said it had incurred $35 million in short-term costs for aircraft leasing and contact centre resources, related to Airbus’s Pratt & Whitney engine problems.

OAG, an aviation information service, said manufacturing problems at Boeing and Airbus had put pressure on the leasing market, given 50 per cent of airline capacity is now leased.

Investors will be watching for commentary from Qantas about the first months of the year when it reports on Thursday, including whether corporate travel has rebounded.

While Qantas was tight-lipped ahead of its result, analysts have interpreted its lack of trading update since last September as meaning its result should be in line with previous guidance for around $920 million.

Morningstar analyst Angus Hewitt warned airlines would need to compete harder on price as more capacity and carriers come back to the market after the pandemic.

“The read-through for Qantas is that switching costs among airlines remains negligible and consumers aren’t loyal. All international carriers are increasing capacity, and this is clearly weighing on pricing and presumably, profits,” Mr Hewitt said. “Air New Zealand is much more reliant on leisure travel compared with Qantas’ much stronger corporate business and international, given it is lacking a big domestic market like Australia.”


1 Mar, 2024
Airfares fell last year, but cancellations and delays persist: ACCC
The Age
The Age

Airfares may be falling, but the number of delayed and cancelled flights in Australia remains well above the long-term average, the consumer watchdog has found.

The Australian Competition and Consumer Commission (ACCC) on Tuesday issued its first report on domestic airline competition since its quarterly monitoring was reinstated at the end of last year.

It found the airlines’ average revenue per passenger— a key indicator of ticket prices– was 13 per cent lower in December 2023 than in December 2022 when adjusted for inflation. But with the cost of airfares over the month just 1 per cent lower than prices before the pandemic, the service provided by the airlines was well below average.

ACCC chair Gina Cass-Gottlieb said it was difficult to judge whether the poor reliability among airlines was likely to continue over the coming months, given the ongoing supply chain and resourcing challenges facing the sector.

“We are conscious of the impact of poor reliability across all classes of passengers. It has been very disappointing for customers and there are many factors which cause it. We think we can say the industry is out of the recovery phase, but it’ll be interesting to see which of the changes [from pre-COVID-19] are permanent,” Cass-Gotlieb said on Tuesday.

While overall ticket prices have come down a notch, it’s still hard to find bargains. The “best discount” economy airfares are still above pre-pandemic levels, with the real price index of discount airfares 5 per cent higher this January than in January 2020, the competition watchdog found.

Cass-Gotlieb said it was unlikely Qantas and Virgin’s cumulative 91 per cent hold over the domestic market would change until the government implemented the 2020 Harris Review recommendations to overhaul Sydney Airport’s slot demand management scheme.

“Regulatory reform is a critical step to bolstering competition,” Cass-Gottlieb said. “Sydney Airport’s position as the main gateway to the east of Australia means allowing better access to its slots is pivotal to the level of competition,” she said.

The government reinstated the ACCC’s monitoring in October, now to run until 2026, following fierce criticism the air travel sector was improperly regulated and uncompetitive. Qantas was the only airline to oppose the resumption of the monitoring reports, arguing that the ACCC already oversees the industry. 

The ACCC said in its report that although volatility in capacity had subsided, the number of delays and cancellations remained well above pre-COVID-19 levels. The percentage of flight cancellations has consistently been above the long-term average of 2 per cent, and about 35 per cent of flights were delayed in December, well above the long-term average of 19 per cent.

Bonza cancelled almost 20 per cent of flights in December, followed by Virgin at 8 per cent. Jetstar cancelled 6 per cent while Qantas cancelled 4 per cent. Rex recorded the lowest cancellation rate over the month, at 1 per cent.

“Factors contributing to poor service reliability and within airlines’ control include efforts to manage systemic issues associated with the COVID-19 pandemic, pilot shortages, pilot training bottlenecks and some supply chain disruptions,” the ACCC said. It also noted ongoing staffing issues within Airservices Australia – the government body responsible for air navigation services – had also contributed to poor service levels.

Staff and supply chain shortages are not anticipated to end anytime soon. There is a global shortage of air traffic controllers and pilots, which has resulted in some workers seeking better conditions overseas. The government’s recent skills shortage report found there weren’t enough pilots in every state of Australia in 2023.

So far, Regional Express has cut a number of flights from its network citing resourcing and supply chain issues, while Qantas submitted to the government it “faces challenges” maintaining its pipeline of pilots.

“There are not enough new commercial pilot licences being issued to sustain the needs of the broader Australian domestic aviation industry and the numbers are declining,” Qantas said in its aviation green paper submission.

“According to CASA [the Civil Aviation Safety Authority], in financial year 2020 there were 1343 such licences issued and only 943 in financial year 2022.”

Airline seat capacity has stabilised to about 95 per cent of pre-pandemic levels after a volatile two years, but the industry is yet to have a month when it flies at least the same number of seats it did in 2019.

The ACCC also said the number of business travellers remains well below pre-COVID-19, and passenger volumes on major capital city services including Melbourne to Sydney – one of the busiest routes in the world – stand at 85 per cent of 2019.

Half of Australia’s domestic passengers flew on routes with either three or four airline competitors in December, but Qantas and its budget carrier Jetstar continue to control more than 60 per cent of the domestic market, the competition regulator found.

18 Jan, 2024
How airline CIOs can turn IT from a cost center to a profit center

Airlines could generate significant EBITDA value by rethinking the role of IT and transforming the function from a cost center to one that drives operational and commercial performance.

Imagine an airline IT system where a simple coding mistake or broken database file has the potential to delay or cancel thousands of flights—and this mistake requires hours to fix. It’s difficult to comprehend the pressure that an airline and its IT personnel would face while trying to resolve this situation. But this is the reality of the airline industry. Many airlines depend upon highly sensitive IT systems which have typically been in operation for at least 20 years, some closer to 50. Modernising such systems will likely require a hefty investment. What’s more, many systems have been updated and altered over the years by building workarounds and adding layers—this situation exacerbates their fragility and adds a good portion of untangling to any modernisation effort.

Airlines’ tech-related incidents, including security breaches and system crashes, have brought flights to a standstill—often affecting entire regions. While these extreme events that capture global attention are sporadic, many airlines face several day-to-day technology-related pain points. The burning question: what can they do to solve these issues, smooth operations, and prevent the likelihood of major incidents?

To understand the scale of the airline IT challenge, and what can be done, we conducted in-depth interviews with 15 airline CIOs across the globe. What became apparent is that airline IT transformation is by no means simple. CIOs have to deal with monolithic legacy systems and need to ensure high levels of stability. In parallel, they are tasked with finding new digital talent and building their organizations’ digital and data capabilities.

The interviews also revealed a growing trend: airline IT is no longer considered a cost center (and a potential point of failure). The function has become a driver for improving operational and commercial performance.

Many airlines already apply a wide variety of artificial intelligence and machine learning applications to automate processes, from operations to customer service. For some, the new approach to IT has paid off resulting in reduced operating costs, increased ancillary revenue per passenger, and improved customer experience. In total, we estimate that IT transformation could increase industry EBITDA by more than a third by 2030.

This article focuses on the following five elements that can help airlines achieve business improvements through IT and transform the function from a cost center to a profit center: focusing on business-driven use cases; shaping modern IT architecture; rebuilding the operating model; strategically combining internal and external capabilities; and building the airline’s data capabilities.

Each of these elements has unique success factors and challenges, and many airlines have found ways to implement these changes effectively. Here, we draw on insights shared by the CIOs to explore emerging recipes for success and highlight the results achieved.

Focus on business-driven use cases

To get a sense of the size of the airline IT transformation opportunity, on an industry level, we evaluated various use cases for IT applications and the potential value they could generate for an airline. The evaluation points to five value streams, or categories of use cases, where airlines can reap benefits. In total, IT transformation could generate close to $45 billion in industry EBITDA by 2030, a 36 percent increase compared to 2019 figures (exhibit). Primarily, this impact would be achieved by optimizing operational efficiency.


Airline tech transformation could realize almost $45 billion in industry-wide value by 2030, primarily by optimizing operational efficiency.

So how can individual airlines turn this opportunity into reality? Successful transformations often start with defining applicable use cases, assessing the value at stake, and implementing them as a collaborative effort between IT and business. An airline’s roadmap could include hundreds of use cases, and the experiences of major airlines show that between 30 and 50 use cases can be launched in the first year of a technology transformation. Airline retailing and operations are significant opportunity areas to consider.

Airlines have the potential to create up to $10 billion in value across a number of use cases in the revenue domain. These are largely oriented around the power of personalization and the ability to interact with customers through their preferred channels. Tech-enabled revenue opportunities include lowering customer acquisition costs, improving conversation across channels, and engaging customers through new channels. Airlines could also harness the power of analytics to enhance their dynamic pricing and bundling across customer segments and also invest in automation to help improve customer service by increasing speed and responsiveness.

Airline operations can benefit from new opportunities driven by technical innovation, such as the creation of digital twins. For instance, creating a digital twin of an operations control center can allow airlines to model what-if scenarios against different objectives such as operations recovery and crew scheduling. This can help to reduce real-world delays and improve staffing efficiency. And a digital twin of each part installed on an aircraft can continuously track the health of the aircraft based on sensor data, detecting patterns and predicting the need for maintenance interventions. Digital twins can even be used to model networks and ATC behavior based on historical precedents, reducing delays and improving network resilience.

Shape modern IT architecture

Challenges with monolithic software architecture and legacy mainframe systems are common, but few airlines have identified solutions. Almost all CIOs reported that their organizations experience difficulties around monolithic and outdated systems provided by vendors, and even airlines that use their own passenger service systems (PSS) face similar challenges. These systems are typically provided by a small set of third-party vendors who often have modernization challenges of their own.

Some mainframes have been in operation for more than 20 years. Updating these legacy systems—that span passenger service, workforce management, fleet maintenance, and other domains—could cost hundreds of millions of dollars and there is a risk of encountering migration issues. Essentially, the industry’s dependence on largely outdated technology reduces its ability to generate value, and the complexity of airline IT systems results in functionality and stability issues.

The unique dynamics of the industry exacerbate these pain points. The “always on” business model increases the risk involved when embarking on change. And, although the industry is well regulated, its technology is not standardized. As such, transitioning to new standards could require substantial time and industry-wide modernization.

Rather than sticking with the status quo, airlines can consider decoupling from legacy systems by building cloud-enabled orchestration platforms, microservices, and application programming interfaces (APIs). Core services such as inventory can be decoupled through an abstraction layer in cases where a PSS provider allows this access. Data can be pulled into the abstraction layer, leaving the technical complexity of the PSS underneath. Using the simplified data, airlines can build specific business capabilities, for instance through microservices and APIs. These would allow airlines the freedom, independent from PSS providers, to develop custom solutions ranging from refund processes to flight and car rental bundles. Decoupling can extend beyond retailing, allowing operations systems such as crew management to benefit too.

To illustrate, one full-service carrier with a global fleet of more than 200 aircraft launched an end-to-end tech transformation with architecture as a priority. By using a greenfield approach to implementing new architecture, the airline was able to encapsulate core systems and build bespoke business capabilities to improve the passenger experience. It was able to achieve a 50 percentage-point increase in digital experience net promoter score (NPS) while increasing ancillary services revenue per passenger by over 50 percent, and reducing airport costs per passenger by nearly 20 percent.

Rebuild the operating model

In many airlines, technology remains separate from the business—so business strategy remains distinct from IT strategy. To remedy this situation and advance tech transformation, airlines could establish new ways of working between business and IT. Specifically, an agile digital operating model centered around cross-functional, value-stream or product-led teams can create a strong link between business value drivers and technology. A development, security, and operations (DevSecOps) approach may increase the speed of development. And an outcomes-based management approach focused on objectives and key results may drive accountability. At the same time, airlines could work at attracting the technology talent needed to help the tech transformation succeed.

The following scenario illustrates what new ways of working could look like in practice. Squads that combine business and tech talent could be deployed across the organization. For instance, a pricing squad could be led by a product owner who deeply understands the business and is responsible for the squad’s output. This squad would be made up of staff who traditionally report to the CCO, such as pricing experts and business analysts, and include tech roles like a tech lead, data analyst, full-stack developer, and DevSecOps engineer to ensure the development and deployment of high-quality pricing technology. These cross-functional tech roles can be moved to different business areas to maintain consistency across the organization.

This approach has shown positive results. One hybrid carrier launched an enterprise-wide agile transformation to improve performance and build back stronger after the impact of the COVID-19 pandemic. Deploying cross-functional squads across the business, including commercial and operations, helped the airline to achieve several milestones: initiatives were launched at ten times the pace compared to before the transformation, staff engagement improved by 25 points, and customer journeys were enhanced.

Strategically combine internal and external capabilities

Many airlines face an IT talent crunch. CIOs noted that the trend of outsourcing IT capabilities created a significant skills gap and many companies are left with minimal in-house digital capacity. This skills gap is hard to bridge due to difficulties in attracting and retaining tech talent.

Airline companies often view software engineers as valuable resources relied upon for executing a particular solution, rather than as a potential source of company strength. One CIO said: “Engineers in commercial are core to our success, but they are all outsourced.”

Airlines that have made headway in solving the talent challenge have taken the approach of planning their talent strategy to employ global talent while also leveraging external vendors’ capabilities. Best-in-class strategy implementation includes long-term planning of capabilities, assessing major gaps, and defining the ways to close those gaps. As one CIO explained, that particular airline does not only focus on closing the talent and capabilities gap in the short term, but also considers how to inspire employees, attract new talent, and develop its existing talent.

CIOs also pointed to a way in which forward-thinking airlines can enable the IT function to play a greater role in meeting business objectives. As IT is now expected to help realize savings and generate value, a new role may be emerging in the industry: the product manager—a connector between business and IT. In many other industries, product managers understand the context and the business use case, and work with IT to determine exactly which solution needs to be implemented. The role is rare in the airline industry, but may be gaining traction.

Build data capabilities

Airlines have a vast amount of data, but it is often held in various systems, so it is difficult to combine for a comprehensive view. Companies can unleash the full potential of their data by creating a data strategy that builds upon specific use cases. To do so, they could build a multilayer data architecture—using an ecosystem of modern data technologies such as data platforms or streaming engines—and integrate data from across the business.

This means that data from the environment (weather, air traffic control), assets (flight schedule, aircraft maintenance), staffing (flight crew, ground ops), and passengers (connections, load factors) could be combined to build a comprehensive view of operations. Then, airlines could build tailored solutions to improve operations by leveraging advanced analytics, business analytics, and data engineering.

For instance, a day-of-operations predictive failure model could simulate scenarios that would help to plan for irregular operations while also showing the outcomes and associated costs for each scenario. It is important to embed a data-driven culture across the organization, and at all levels of the organization, for this strategy to succeed.

Some airlines have successfully built out their data capabilities. For example, a large full-service international carrier launched an analytics transformation that involved rethinking the booking-to-delivery process of its cargo business and developing a new capacity management forecasting application. Using the following approach, several AI-driven solutions were developed and put into production. First, a demand forecast model estimated how much capacity would be needed for each route. Then a no-show model was used to predict which clients would likely cancel on the day, or day prior to the flight, so the airline could accommodate more bookings to ensure full capacity. In addition, another tool estimated the cost of the no-show model being wrong—so the airline could make sure that select shipments would always have a spot on the plane. This new system allowed the airline to increase its cargo revenues by 9 percent.

Bringing it all together: Make tech transformation possible

Airlines have an opportunity to drive real value through tech transformation. CIOs wishing to spearhead this transformation could take the following three actions:

  • Bring stakeholders together: Stakeholders across the organization, including the Board, may need to be convinced of how important tech can be if they are going to invest in a tech transformation. It will likely be impossible to achieve success in isolation; CIOs can benefit from a support team and from securing buy-in across the organization.
  • Build a business-driven tech roadmap: A tech strategy for transformation may not achieve results if it optimizes for tech alone. Rather, a tech roadmap can be business-driven and prioritize value in each business domain.
  • Elevate the role of IT: IT will likely need to do more than run business-as-usual IT and manage a cost center if the airline is going to transform. Instead, IT can move closer to the business, with increased collaboration, so that it becomes a partner to drive overall business strategy.

Conditions for airlines have been challenging. Airlines that embark on a tech transformation could unlock a substantial increase in value. To do so they may need to address the tech-related pain points holding many companies back. CIOs are well positioned to drive large-scale transformation as they are capable of bringing the separate parts of the business together to implement change and deliver performance.

14 Dec, 2023
Airlines double their forecasts to expect $36b in profit this year
Amelia McGuire

The global airline industry expects to record a net profit of $US23.3 billion ($35.6 billion) for 2023, more than double its June forecast, as the cost-of-living crunch fails to dampen demand for travel.

And for next year, the International Air Transport Association – which represents more than 300 of the world’s biggest airlines including Qantas Airways and Virgin Australia – expects record revenue growth and is forecasting an even higher net profit of $US25.7 billion.

IATA Chief Economist Marie Owens-Thomsen said the 2023 doubling of her forecast meant she had “egg on her face”, but it reflected the unpredictable nature of aviation. The $US13 billion outperformance was driven by China’s unexpectedly fast capacity ramp-up and the lack of seasonality across the European and US markets over the year.

“We’re still left with these big questions about when unemployment may return to slow the pace of improvement,” Owens-Thomsen said. “If people continue to work at a record rate, they will fly at a record rate.

“Every year since COVID-19 we’ve been thinking, surely this will come to an end, and it just hasn’t.”

She conceded it was possible 2024’s forecast was again underestimating the industry’s earnings prospects, but stressed it was important to remain vigilant to the macroeconomic volatility of such projections. 

Despite the billions of dollars in profits, the expected profit margin for airlines across the industry is expected to be 2.6 per cent, or $US5.45 per passenger this year, well below the airlines’ cost of capital. This margin is expected to edge up by 0.1 per cent in 2024.

The local airline industry estimates the profit margins of Australia’s carriers to be between 8 and 10 per cent, far higher than the global average due to the highly concentrated domestic market and continued international capacity constraints.

14 Dec, 2023
This tiny plane could be the future of air travel
Ayesha de Kretser Senior reporter

Air New Zealand is making an aircraft purchase of another kind, buying its first electric plane, and securing the right to purchase almost two dozen more, as the aviation sector grapples with how to decarbonise travel and reduce fossil fuel emissions.

But Air New Zealand chief executive Greg Foran, who said the airline had placed an order for one ALIA aircraft from electric aerospace company BETA Technologies, said he was not “betting the farm” on the new plane, which would initially only carry cargo.

Air New Zealand has an option for two more ALIA aircraft and rights for an additional 20. The battery-powered all-electric aircraft is expected to go into testing in 2026. 

Mr Foran said Air New Zealand is exploring ways to partner with Australian aviation industry to develop a SAFs industry that would feed its long-haul international flying ambitions. But the Kiwi airline is also working with the New Zealand government to explore whether it could do the same at home.

“We are absolutely engaged with the teams in Australia to understand what that [SAF industry] looks like because that is logical,” Mr Foran said.

“We’re also undertaking a study here in New Zealand to say, what would it take to operate a sustainable aviation fuel plant here.”

Mr Fromyhr said Qantas’s target to achieve 60 per cent of its fuel from SAFs by 2050 “is highly dependent on sourcing SAF in Australia since it currently does 67 per cent of its refuelling in Australia, representing 36 per cent of Australian jet fuel demand.”

14 Dec, 2023
What the Qantas-Ticketek deal means for frequent flyers
Sam Buckingham-Jones Media and marketing reporter

Qantas’ frequent flyer division has struck a deal to partner with TEG’s Ticketek allowing customers to exchange points for access to events in the Silver Lake-owned ticketing company’s first major move since abandoning attempts to sell the business.

As first reported by The Australian Financial Review’s Street Talk column in June, Qantas Loyalty had considered joining a bid from KKR for the $2 billion ticketing business. Silver Lake, a Californian private equity fund, had brought in Jefferies to sell it. 

The deal with Qantas Loyalty, which will allow events to be booked using frequent flyer points and provide early access to some tickets, comes as Silver Lake considers its options for TEG, including whether to attempt listing it on the ASX.

The deal, to be announced today, will immediately give Qantas Loyalty customers early access to Jerry Seinfeld Live in Sydney, the Australia v West Indies cricket Test series in Brisbane and Lightscape Melbourne, three events scheduled for next year.

Qantas Loyalty has become an increasingly important part of the airline’s business, although the division’s chief executive, Olivia Wirth, is to depart in February.

In August, analysts at Macquarie said Qantas Loyalty remained on track for between $500 million and $600 million in earnings this financial year, with drivers of the performance including “increased spend on Loyalty point-earning credit cards and membership growing by 1.1 million or around 8 per cent year-on-year”.

“With more than 20,000 live events each year across entertainment, sport and theatre, partnering with Ticketek opens up significant opportunities for frequent flyers to get even more value from their membership and their Qantas Point,” said Ms Wirth.

Geoff Jones, TEG’s chief executive, said almost 20 per cent of tickets were bought by international or interstate visitors. “Live entertainment is a major motivator for short-stay travel across borders,” he added. 

Silver Lake acquired TEG in early 2020 from Nine Entertainment, the publisher of The Australian Financial Review. It paid about $US1.3 billion ($1.98 billion).

It tried to sell TEG after it recovered from pandemic lows, but failed to get a high enough offer. The process had narrowed to two contenders: Blackstone, which had Goldman Sachs and King & Wood Mallesons, and KKR. Street Talk previously reported Silver Lake wanted circa $3 billion, but bidders saw it as worth closer to $2 billion.

Silver Lake started meeting with lenders for a dividend recapitalisation in October, expecting to seek $600 million to $700 million in debt.

30 Oct, 2023
Virgin Australia turns a profit for the first time in 11 years
The Age
Virgin Airlines CEO Jayne Hrdlicka oversaw the airline’s first profit in eleven years.CREDIT:

Virgin Australia has reported profits of $129.1 million for the 2023 financial year, its first profit in 11 years as demand for travel soared and passengers returned to the skies, driving up airfares.

The figure represents a significant turnaround from the $565.5 million loss Virgin made in the previous financial year, with revenue improving 124 per cent to $5 billion as the number of passengers nearly doubled to 18.9 million, according to documents filed to the corporate regulator on Tuesday morning.

Virgin chief executive Jayne Hrdlicka said it was an important milestone for the business.

“It has been 11 years since Virgin Australia returned a profit, and our results signal that the transformation of Virgin Australia is progressing well,” she said.

“Value and choice are core to our business and as the continuing rise in cost of living impacts household budgets, we believe we are well positioned to continue to provide customers with the best value in the market.”

The recovery in revenue was predominantly driven by “record” demand from leisure travellers as well as business travellers of small-medium businesses, while corporate travellers returned at a slower rate. The airline has been eager to position itself as a ‘value’ carrier, sitting in between the premium and the budget ends of the market.

As the end of border closures ushered in an era of revenge travel, Virgin used every available aircraft in its fleet, which saw domestic capacity return to pre-COVID levels at the beginning of this year. Virgin also won more loyal customers last financial year, with its loyalty business Velocity notching a 68 per cent increase in revenue to $330 million, while with the number of Virgin frequent flyers lifted by 6.5 per cent to 11.5 million members.

The country’s second-largest domestic carrier slid into administration just two months into the COVID pandemic, during which it was unable to service its debts as the coronavirus pandemic grounded most of its fleet and starved it of cash.

Virgin has ambitions to eventually return to the Australian stock exchange, which it delisted from on November 17, 2020 after coming into the full control of private equity giant Bain Capital. It has not given a timeframe for when it plans to float and said it is a matter for shareholders. Bain Capital owns about 93 per cent of the business, while Richard Branson-founded Virgin Group owns about 5 per cent and Queensland Investment Corporation owns the remaining 2 per cent.

While the airline expects to turn a profit again at the end of the current financial year, it will have to carefully manage its expenses, which increased 76 per cent to nearly $4.8 billion and weighed on the bottom line as its fuel bill rose by $728.3 million, or 146 per cent, to $1.2 billion. Labour costs and airport charges also rose 61 per cent to $3.5 billion. All of these factors are expected to continue this and next year, particularly as the war in Israel pushes up global oil prices.

Virgin has not paid any corporate tax in the past 10 years, according to responses provided to Senate questions answered on notice. The cumulative effect of several years of losses saw airline’s net liabilities swell from $730.9 million to $1.36 billion.

Virgin customers are sitting on approximately $114 million in unused COVID credits that will expire on June 30, 2025.

Virgin’s financial figures are dwarfed by the numbers of its rival Qantas, which reported a record $2.5 billion in underlying profits during the same period.

The aviation industry has faced heightened scrutiny over the past year amid persistently high airfares and cost-of-living concerns.

The Senate inquiry into the federal government decision to block Qatar Airways’ application to double flights yesterday released its final report, which recommended the government immediately review its decision, a position that Virgin welcomed.

“A reversal could deliver benefits as early as Christmas for Australians seeking to travel to Europe, the Middle East and Africa, for the tourism industry and Australian exporters,” a Virgin spokesperson said.

Since September last year, Virgin has had a codeshare agreement with Qatar Airways. This means Virgin would materially benefit if Qatar’s bid to add 21 extra flights a week to Australia were successful.

1 Sep, 2023
Helloworld shares surge as transaction volumes more than double
Financial Review

Helloworld shares were sharply higher on Monday after the travel agent said it had swung back to a profit and that it would continue growing earnings as international travel rebounds.

The volume of transactions more than doubled in the 12 months to June 30, from $1.08 billion in the last year, which took in a period of COVID-19 restrictions, to $2.57 billion. It remains below pre-pandemic levels.

Helloworld is one of the country’s largest operators of travel agencies, with 5 per cent of the retail market. Its largest competitor is Flight Centre, which will release its results this week and is expecting transaction volumes to be around $22 billion, an increase of some 115 per cent.

A turnaround among travel agents points to the size of the broader resurgence in the tourism industry. Official forecasts suggest there will be six million outbound departures this year, half the pre-pandemic level. That mark is expected to be surpassed by 2025. Domestic travel, on the other hand, has already exceeded levels seen before COVID-19.

Helloworld told shareholders that the proportion of leisure travellers would normalise and volumes should recover to pre-pandemic levels in the next financial year “assuming increased airline capacity”.

Tourists from China will also “present ongoing opportunities” for Helloworld, the company told shareholders, after Beijing put Australia back onto a list of approved destinations for local tour operators.

“Ticket volumes continue to increase as carriers return to Australia and New Zealand and number of flights grows,” the company said in a statement. “[Transaction volumes] for flights is near pre-pandemic levels, with lower volumes being offset by higher ticket pricing. Growth in ticket numbers into FY24 will be supported by the later opening of Asian markets.”

Helloworld declared a final dividend of 6¢ a share and guided for earnings between $64 million and $72 million this financial year.

Helloworld chief executive Andrew Burnes said acquisitions and investments into technology made during the year helped propel underlying earnings to $44.1 million, from a $10.6 million loss a year earlier.

“Helloworld made several acquisitions during financial year 2023 which will continue to support our growth into the future, and we have utilised our strong liquidity position to minimise dilution,” Mr Burnes said.

Among those acquisitions was Australiareiser, a specialist travel wholesaler, and Express Travel, which operates an air ticket consolidation business and cruise and package wholesaling in Australia and New Zealand. The company has also agreed to acquire Phil Hoffmann Travel, a Helloworld affiliate which operates out of nine locations in South Australia.

The company said even though it had entered the last financial year with several international borders still closed, their reopening spurred continued growth. “As travel recommenced, travellers visiting friends and relatives was the predominant reason for travel; however, over time the prominence of leisure-based travel has steadily increased,” Helloworld said in its statement.

Net profit after tax from continuing operations was $19.2 million, compared with a $28.8 million loss in the prior year.

During the year, Helloworld’s biggest shareholder, Qantas, sold its remaining 12.4 per cent stake in the company, at a price of $1.72 a share. The stock was up 6.7 per cent to $3.20 during trading on Monday.

1 Sep, 2023
Flight Centre reinstates dividend as earnings and sales soar
Financial Review

Flight Centre expects a return to “more favourable dynamics for travellers” after reporting record performance in corporate travel, taking its total sales to their second-highest level ever.

The company reported a $485 million year-on-year turnaround in underlying earnings before interest, tax, depreciation and amortisation to $301.6 million, above the mid-point of already upgraded guidance.

It will pay an 18¢ a share, fully franked dividend for the first time since the pandemic, representing 52 per cent of its $47 million net profit after tax.

The leisure and corporate travel agent said macroeconomic changes “do not appear to be significantly impacting demand” so far this financial year, with profit and sales higher than a year earlier in the first two months.

“We’ve got a reasonably significant, higher-end leisure market through travel associates and Scott Dunn in the United Kingdom and the United States and that market seems pretty resilient,” Flight Centre chief executive Graham Turner said. “Even in our mass market brands like Flight Centre, most of the international travellers tend to be mid to higher income people who probably haven’t been as affected by the economic issues.”

The company also said the strong recovery and improved outlook had given it confidence to announce a new capital management framework, through which it will re-invest in capital expenditure and, where appropriate, mergers and acquisitions, as well as pay dividends or conduct strategic buy-backs to increase earnings per share.

It expects to pay 50 per cent to 60 per cent of its after tax net profit as dividends or buybacks, including of convertible notes, from this year.

“Very low unemployment globally is aiding leisure sector recovery, while [Flight Centre]’s business is leveraged towards demographics that are less affected by mortgage stress, specifically the luxury sector and baby boomers, and who are therefore more likely to continue to travel,” it said.

Mr Turner said international flight capacity should return to around 90 per cent by the end of the year. “Flight Centre also strongly supports yet-to-be-approved plans by other airlines, including Qatar Airways and Turkish Airlines, to increase traffic to Australia to boost tourism and to deliver cheaper airfares to travellers,” he said.

Tim Plumbe, an analyst at UBS, said it was a “positive result”, with margins for leisure travel in the second half of the financial year on the same period before the pandemic. “Expect positive reaction [given the company’s] positive operating momentum ... for both businesses [and the] reinstatement of [its] dividend and capital management strategy,” he said.

1 Sep, 2023
Flight Centre swings back to profit, sees airfares falling
The Sydney Morning Herald

Flight Centre boss Graham Turner says travellers should expect to pay less for travel in the future as international airfares continue to fall. But he doubled down on his criticism of the Albanese government for blocking Qatar Airways from adding flights to Australia.

One of the biggest travel booking companies in the world, Flight Centre recorded $301.6 million in underlying earnings in the year to June 30, an almost half-a-billion-dollar turnaround from its 2022 loss of $183.1 million.

About 70 per cent of this result was generated in the six months to December following increased corporate travel, bolstered domestic flight offers and the rampant return of international airlines to Australia when the borders reopened after the pandemic.

Flight Centre recorded a full-year statutory profit of $70.5 million, swinging from a $377.8 million loss the year before. Its total transactions doubled to $22 billion.

The travel agent said macroeconomic conditions had not been “significantly impacting” demand in the first six weeks of this financial year, with its earnings already markedly higher than during the same, COVID-19-affected, period last year.

Flight Centre will issue a dividend for the first time since the pandemic. Shareholders will receive a fully franked payout of 18¢ per share. The company plans to adopt a new capital management strategy this year to pay out more than 50 per cent of its net profit as dividends or buybacks.

Presenting the results, Turner – who founded the travel booking behemoth in the 1980s – reiterated his criticism of the government’s decision to reject an application from Qatar Airways to double its flights to Australia.

“This is a significant blow. No other part of the tourism and aviation sector can rationalise it. I don’t blame Qantas for its lobbying, but I am concerned it was successful,” Turner said.

“This is supposed to be a competitive market, a free market. Our travel agency business competes with many major international businesses in Australia, as it should. Most other markets we compete in are relatively competitive.”

Turner said he was “reasonably confident” more international airlines would continue to apply to fly to Australia. He pointed to European carriers including Air France, which does not currently fly to Australia and has indicated it would like to. Turkish Airlines, one of the biggest airlines in the world, has also flagged its intention to fly here, but the Turkish government is yet to formally lodge an application.

Turner said he was concerned about the competition consequences of the government’s decision, and reiterated his prediction that it would keep airfares high.

Flight Centre’s results were buoyed by the resumption of corporate travel overseas. The group expects corporate travel in Australia to exceed 2019 levels by the end of 2024 as fares normalise.

“We spent a lot of time negotiating with businesses during COVID-19 to make sure they would continue to partner with us. We won a lot of work that way. This result is down to that success in the US and UK, but we expect Australian corporate travel to normalise as fares come down, and it becomes easier to book a seat,” Turner said.

RBC equity research analyst Wei-Wei Chen said Flight Centre’s leisure travel division outperformed its expectations, while its corporate segment underperformed. UBS’ equity research team said in a note the result was “a little underwhelming”.

Flight Centre shares closed 3 per cent lower at $21.42 on Wednesday.


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