Qantas and Virgin Australia play waiting game on 787/A350 decisions
Australia's two major airlines both intend to place new orders for long-haul aircraft, but with their financial performance still far short of target, firm commitments remain elusive.
holds 50 options and purchase rights for -9s, but it will not convert these to orders until its international unit returns to profitability, which is projected to be around 2015. , having slipped back into the red, is weighing whether to order 787s or . However, its decision timetable appears to have lengthened and it may not come for a year or more.
That is not to say that Australian carriers are standing still on fleet renewal. Qantas has revealed details of a major refurbishment of its Airbusfleet, and it has a large orderbook earmarked for its Jetstar low-cost subsidiary. Virgin also has a hefty backlog of -800s, and is due to receive more A330s.
But during their earnings calls for the fiscal year ending June 30, the CEOs of the two airlines emphasized they are in no hurry to add to their long-haul orderbooks. Their focus is honed on attaining a more solid financial position.
Qantas has tentatively reserved delivery slots starting in 2016 for its 787-9 options and purchase rights, and the carrier is sticking to its assertion that it will not convert any of these to firm orders until its international operation is back in the black. The airline says it is making good progress toward reaching that goal, but it appears that it must be fully achieved before the orders can be made official.
The carrier previously had 35 firm orders for the -9s, but about a year ago Qantas canceled these while retaining the options it held for the aircraft. By doing this, the airline could delay the 787-9s by a few years and give itself more flexibility with deliveries. These -9 options are separate from the 14 787-8 firm orders that are destined for Qantas subsidiary Jetstar, and are due to begin arriving in late September.
CEO Alan Joyce says the plan is to get the international unit back to break-even by fiscal 2015, “then we'll make a call” on the 787-9s after assessing global market conditions. Until that time, the airline will not comment on whether the likelihood of firming the orders is growing stronger or receding.
Qantas wants to “maintain complete flexibility” regarding these options, Joyce says. While the first potential deliveries would be in 2016, others are spread over subsequent years—“so decisions can be made on an aircraft-by-aircraft basis.”
In the meantime, the carrier will be advancing with other fleet moves. It plans to install new interiors on its 30 A330s from late 2014, including an upgraded inflight entertainment system and newly designed business-class seats. The 10 A330-300s used on international routes will also be outfitted with new economy seats, while the remaining 20 -200s, used for domestic service, will have refurbished economy seats.
Three Jetstar 787-8s are scheduled to be delivered by the end of 2013. As the 787s arrive, Jetstar A330s will be transferred to Qantas mainline, and all of Qantas's-300s will be retired by mid-2015.
Four new 737-800s will enter the mainline fleet in the current fiscal year, and the last of the domestic 737-400s will be retired during this period. Two morewill also be retired in the 2014 fiscal year, following five that were phased out in the previous year.
Qantas achieved a slim net profit of A$6 million ($5.5 million) for the fiscal year ending June 30, which was a turnaround of A$250 million from its loss a year earlier. The international unit saw the biggest improvement, halving its loss from the previous year. The mainline domestic operation and the Jetstar subsidiary contributed healthy profits, although they declined from the previous year.
Virgin Australia has been stating for several months that it is considering an A350 or 787 order, and executives have previously indicated they would make a decision by year-end. However, CEO John Borghetti now says a 6-12-month timeframe is more likely, or perhaps beyond that.
Borghetti says there is “no urgency as such” to make a commitment on these aircraft types. “There is nothing holding us” to the 6-12-month estimate, and Virgin Australia would be “quite happy to push it out further” if necessary, he notes. “We want to make a considered decision” based on what will best fit the airline's route structure.
Virgin Australia is scheduled to take delivery of 18 737-800s through 2016, part of its total orders of more than 60 737-family aircraft. It has one more A330-200 due this year, and another next year.
The airline reported a net loss of A$98.1 million for the fiscal year, which was a significant drop from the previous year's profit of A$22.8 million. It incurred A$105 million in pre-tax costs from its major restructuring and transformation program, including Virgin's switch to a Sabre reservations system, and the acquisition of regional carrier Skywest and a controlling share in Tigerair Australia. In addition, a new carbon tax cost the airline A$47.9 million.
Virgin Australia's major airline stakeholders—, and —have committed to provide an A$90 million term loan to Virgin to help boost its liquidity.