Bangkok--20 Feb--CAPA
The Centre for Asia Pacific Aviation (CAPA) today noted the excellent first half results by Virgin Blue Airlines, and predicted a capacity-led escalation in price competition in the Australian domestic market later this year.
Executive Chairman, Peter Harbison, stated, “Virgin Blue is to be congratulated on an excellent set of numbers, achieved in a fairly benign operating environment. While the carrier forecasts net profit for the current full year will be more than 60% higher than in 2005/06, earnings will be more tested in 2007/08 and launch costs associated with long-haul operations in 2H08 will ensure profits stay under pressure in 2008/09”.
According to the CAPA report, published in its weekly Peanuts LCC report, the main test over the next year will be how Virgin Blue responds to:
(1) a lower cost Tiger Airways; and,
(2) the competitive response from Qantas and Jetstar.
“A positive for Virgin Blue is that is has been able to restrict its cost increase (in the latest half, excluding fuel), to 1.5%. But, from mid-07, a capacity battle is looming — with inevitable pricing competition. Just as Virgin Blue increases its capacity by 10% and Tiger adds a further 3% to the total (with a disproportionate impact if focused on a handful of routes), Qantas and Jetstar will be obliged to add seats to retain market share — either by delaying retirements, bringing international capacity onshore or leasing in new equipment”, said Mr Harbison.
Mr Harbison also described Virgin Blue’s new profit share arrangement for its staff, as a “sensible move” ahead of the entry of a new competitor, when staff productivity and retention will be crucial.
But perhaps the most remarkable move announced today was CEO Brett Godfrey's suggestion that Virgin Blue was considering establishing an "ultra-low cost" subsidiary. This would be a world first - Virgin Lite Blue?
"This would be a reasonable response, effectively mirroring Qantas in the domestic marketplace", said Harbison, "but at the same time it is a reflection on the remarkable pace of change in the airline industry".
CAPA will shortly release its highly-anticipated Aviation Outlook report for 2007. For further information, please visit www.centreforaviation.com