That provoked a hostile response from Qantas, which pledged to add two flights for every one added by Virgin in order to preserve its market share, creating a brutal profit draining battle that dragged both companies to heavy losses.
Advertisement
Similarly, Virgin now risks losing customers that would have travelled on it to Bali from Melbourne, Adelaide and Perth defecting to Jetstar on those routes rather than the Tigerair option, even if the latter is cheaper.
The timing could not have been more dubious, with more than a month of eruptions from Bali’s Mt Raung wreaking havoc with flights, preventing thousands from leaving for Bali and leaving thousands more stranded in the favourite holiday destination, including the July school holiday throng.
However, Virgin will increase flying to New Zealand with its alliance partner Air New Zealand.
Its defence of its cost position came as it moved to stem bleeding from its global operations, whose pre-tax losses widened to $69 million for the year, from $49 million previously.
Despite this, Tigerair sallied forth with its launch, and new services are on sale now.
Virgin Australia chief executive John Borghetti said based on current market conditions, all fundamental business metrics are on track for the group to return to profitability and report a return on invested capital in line with its cost of capital for the 2016 financial year.
Virgin Australia will axe flights to Bali and Phuket in an effort to turn around its loss-making global business and get back to profitability for the first time in four years.
Mr Borghetti said the airline had begun a restructuring of the operations and had introduced business class on its trans-Tasman and Pacific Islands routes that already had shown positive results. “That made a profit of $111 million in 2014-15″.
Macquarie Equities analyst Sam Dobson said the result highlighted “rational behaviour” across Australia’s aviation sector.
No matter how the numbers are diced Tigerair Australia will have 30 economy seats on those 737 flights that will exceed the number of extra space seats in any other single aisle cabin flown by an Australian airline at home or overseas. Whether the company would start paying dividends is “a question for another day”. The airline’s first MAX delivery remains on track for 2018.
Advertisement
The airline now expects to achieve more than $1.2 billion in cost savings by the end of the 2016-17 financial year, up from its previous target of $1 billion.
