Qantas share price lower after Virgin Australia announces future plans

The Qantas Airways Limited (ASX:QAN) share price is dropping lower today after Virgin Australia announced plans for a stronger more profitable airline…

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The Qantas Airways Limited (ASX: QAN) share price is dropping lower today after an update from its rival Virgin Australia.

At the time of writing the airline operator’s shares are down 1% to $3.23.

What did Virgin Australia announce?

This morning Virgin Australia announced its plan for a stronger, more profitable, and competitive business. This plan aims to secure approximately 6,000 jobs as it prepares to exit voluntary administration under the ownership of Bain Capital.

Virgin Australia revealed that its plan is anchored around six key points. They are as follows:

Overhaul the cost base and simplify everything, starting with the fleet.

The company believes that to build a successful airline, it will need to align costs with a depressed and uncertain revenue outlook. This includes simplifying its fleet to realise cost efficiencies and remove operational complexity. This will see the airline transition to a single Boeing 737 fleet for domestic and short-haul flying and discontinue the Tigerair brand.

Focus on customer value.

Virgin Australia wants to be the best value carrier in the market and not a low-cost carrier. It intends to offer exceptional experiences at great value, regardless of purpose of travel. It will also continue to focus on delivering the best on-time performance and maintain an exceptional safety record and safety culture.

Harness culture.

Management believes the company’s culture is unique and the heart and soul of both the airline and Velocity Frequent Flyer. As such, it will continue to “reinvigorate the Virgin Australia brand and its passion for customer service, while embracing the diversity, talent and strength of its people.”

Investment in world class digital and data technologies.

Virgin Australia plans to invest significantly in the comprehensive digital re-platforming of both the airline and Velocity Frequent Flyer program. It expects this to accelerate its vision for the future. Which will not only improve its commercial capability and guest experience, but significantly enhance the employee experience and increase the pace of profitable revenue growth.

Strong balance sheet and investment capital for both transformation and growth.

Management expects the company to emerge from its voluntary administration with a strong balance sheet that is worthy of an investment grade rating. This is expected to provide resilience and future growth potential.

Jobs and future growth.

As a result of the changes announced today, Virgin Australia expects 3,000 jobs to be impacted. This will be primarily across the operations functions and corporate roles which directly support the operation. Management commented: “While devastating for our people, making these changes now will secure approximately 6,000 jobs once market demand recovers, with potential to increase to 8,000 jobs in the future.”

“Continued uncertainty.”

Virgin Australia Group CEO and Managing Director, Paul Scurrah, commented: “Our aviation and tourism sectors face continued uncertainty in the face of COVID-19 with many Australian airports recording passenger numbers less than three per cent of last year and ongoing changes to government travel restrictions.” 

“Demand for domestic and short-haul international travel is likely to take at least three years to return to pre-COVID-19 levels, with the real chance it could be longer, which means as a business we must make changes to ensure the Virgin Australia Group is successful in this new world,” he added.

Mr Scurrah concluded: “Virgin Australia has been a challenger in the Australian market for 20 years, and as a result of this plan and the investment of Bain Capital we are going to be in a much stronger position to continue that legacy.” 

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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