Aviation
Virgin Australia Shows Price War’s Costs
SYDNEY — When John Borghetti took the reins of Virgin Australia Holdings Ltd. in 2010 after being passed over for the top job at Qantas Airways Ltd., one of his first moves was to launch a price war to lure travelers away from its bigger rival.
The casualties from that price war are mounting—and not just at Qantas, which is cutting jobs and might sell assets to protect profits. On Thursday, Virgin Australia forecast a loss before tax of around 49 million Australian dollars (US$44 million) for the six months through December, after its shares recently fell to a two-year low.
Airlines often experience turbulence because of factors such as high jet-fuel costs and tepid demand, but investors are now questioning whether Virgin Australia’s woes have been self-inflicted. Its move to boost capacity and cut ticket prices prompted Qantas to defend its 65% share of the domestic aviation market by responding in kind.
The result was a glut of commercial jets in the skies over Australia, and increasing numbers on routes to farther-flung destinations.
So far, Virgin Australia’s biggest investors are staying on board. Australia’s No. 2 carrier counts Air New Zealand Ltd., Singapore Airlines Ltd., Etihad Airways and Richard Branson’s Virgin Group Ltd. as its main shareholders, which together own more than 70% of the company.
Smaller investors, however, aren’t so sure that Virgin Australia’s strategy is on the right path.
“It’s interesting to note that Virgin has competed more heavily, and to its own financial detriment, over the period that Virgin’s ownership by other airlines has increased,” said Angus Gluskie, Sydney-based managing director at White Funds Management, which holds a small amount of Virgin Australia stock.
“Investors should be questioning whether the longer-term interests of these airlines are becoming more important to Virgin than near-term profits,” he said.
Air New Zealand, Singapore Airlines and Etihad compete with Qantas on international routes. Late last year, all three Virgin Australia investors increased their holdings after the Brisbane-based carrier issued new shares to raise around A$350 million.
“We are fully supportive of Virgin Australia and its strategy and are confident that John Borghetti and his team will continue to attract more share of the travel wallet of both business and leisure customers,” an Air New Zealand spokesman said. A spokeswoman for Singapore Airlines said it continued to support Virgin’s strategy, while an Etihad spokesman wasn’t immediately available for comment.
Virgin Australia’s strategy has involved putting business-class seats on domestic flights and targeting routes that ferry workers in and out of mining towns in more-remote regions of the country. By the end of June, Virgin Australia was making more than 20% of its revenue from higher-margin business and government travelers, up from below 10% when Mr. Borghetti took over as Virgin Australia CEO after leaving as head of operations at Qantas.
Qantas suffered from the domestic competition, warning on Dec. 6 that it expected a pretax loss of up to A$300 million for the six months through December and would lay off a further 1,000 workers.
Virgin Australia investors, however, were concerned about the finances at the company. Several brokerages have downgraded their earnings forecasts for the airline, which reported a pretax profit of A$61 million for the six months through December 2012, following the Qantas announcement.
“When I talk to investors, there are some that raise questions,” said Mark Williams, a Sydney-based analyst at CIMB. “But management has done a pretty remarkable job at repositioning Virgin Australia in such a short period of time. It’s pretty tough out there, but over time we’d expect capacity growth will settle down.”
Thursday’s earnings forecast by Virgin Australia—issued following a request by the stock exchange to explain a recent sharp fall in its share price—excludes one-off losses associated with budget carrier Tigerair and restructuring costs, indicating its bottom-line figure may be even worse. However, shares rose 8% to recover some of the steep losses incurred in the past two weeks.
Matt Spence, an aviation analyst at Bank of America BAC +0.18% Merrill Lynch, said he doesn’t expect a turnaround any time soon. He predicts that Virgin Australia will post a pretax loss of A$120 million for the full year.
Still, Mr. Spence noted that Virgin Australia increased fares in December by as much as 4%, a sign the price war with Qantas may be easing,
Qantas is due to report its first-half earnings Feb. 27, a day earlier than Virgin Australia.
– WALLSTREET JOURNAL
The Nigeria Civil Aviation Authority (NCAA) has announced stringent measures against pilots and crew members who work for multiple airlines concurrently, a practice it describes as a serious safety violation.
In a letter dated November 6, 2024, Acting Director-General, Chris Nojomo warned that pilots operating for more than one airline without specific safety protocols pose significant risks to Nigeria’s aviation sector.
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The directive, titled “Prohibition of Ad-Hoc Flight Operators for Multiple Airlines,” noted that NCAA surveillance reports revealed multiple cases of unauthorized cross-airline work by flight crews, which the agency now plans to address.
According to the NCAA, simulator and proficiency checks endorsed on a pilot’s license are valid only for the specific airline and training program under which they were issued.
The letter stated, “With effect from the date of issuance of this directive, all operators and holders of pilot licenses are informed that this action will be treated as a violation of the Nigeria Civil Aviation Regulations.”
The NCAA’s new policy, effective November 11, 2024, warns that violators will face strict enforcement actions. Moving forward, simulator renewals will also be filed directly with individual operators, further tightening the agency’s oversight.
In a bold step to strengthen Akwa Ibom’s position in Nigeria’s aviation industry, Governor Umo Eno announced the addition of two new Bombardier CRJ900 aircraft to the fleet of the state-owned airline, Ibom Air, on Friday.
The two aircraft, registered as 5N-CED and 5N-CEE, mark a milestone in the state’s commitment to strategic investment, with the governor stressing that the acquisitions were fully funded by state resources without loans from financial institutions.
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At a welcoming ceremony attended by local officials and residents, Governor Eno emphasized his administration’s mission to drive revenue-generating ventures for Akwa Ibom rather than relying on debt.
He called the move a step toward breaking the cycle of government investments that only serve to pay off loans, vowing that the state’s funds would go towards projects that bring returns to the people.
The governor challenged Ibom Air to turn a profit by 2025, stating that the airline’s management should ensure routes in and out of Uyo remain dependable to prioritize the needs of Akwa Ibom travelers.
“As long as I remain governor, we will continue to use state funds for the benefit of all, not for private gain,” he said, noting that his administration aims to ensure that public investments deliver real value to the state.
Governor Eno also provided updates on several ambitious state projects, including an 18-story commercial complex underway in Lagos and an upcoming 4-star hotel in Abuja, both designed to generate revenue for Akwa Ibom.
Plans for an international market in Ikot Ekpene and the phased opening of a new terminal at the Victor Attah International Airport were also announced, with the airport terminal set for partial operation by December and full activation in early 2025.
Speaker of the Akwa Ibom State House of Assembly, Udeme Otong, commended Eno’s financial management, highlighting that the administration has avoided seeking loans over the past 18 months despite launching significant development projects.
Ibom Air’s Chairman, Pastor Imoabasi Jacob, expressed appreciation for the state’s investment in the airline, which has seen its fleet grow to nine aircraft.
Jacob credited the governor’s support with enabling Ibom Air to boost flight capacity, meeting demand on popular routes such as Uyo-Lagos-Abuja.
Captain Mfon Udom, CEO of Ibom Air, stated that the expanded fleet will improve efficiency and allow the airline to scale up its operations in time for the Christmas travel season.
Udom also noted that the airline anticipates the delivery of nine additional Airbus planes, which will further strengthen Ibom Air’s market presence.
Traditional leaders, including HRM Edidem Ita Edet Okokon III of Okobo Local Government Area, lauded the governor’s leadership, pledging continued support from the traditional institutions.
Anie Essienette, Group Manager for Marketing and Communications at Ibom Air, noted that demand for the airline’s services has surged nationwide, with the new CRJ900 aircraft helping meet this increasing need while the airline awaits further fleet expansion.
Nigeria’s Minister for Aviation and Aerospace Development, Festus Keyamo is of the view that there’s no cause for alarm over the approval of a private airstrip for a religious organisation, which attracted the attention of the House of Representatives.
He took to his verified handle on micro-blogging site, X, on Friday morning to shed light on the subject, and explained that it could be a great source of revenue for Federal Government.
Keyamo asserted that the issue was raised by an honourable member at plenary, out of ignorance, but was “unanimously referred to the Aviation Committee to look into.”
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Keyamo expressed confidence that by the time his Ministry was done enlightening them, “they will be satisfied”.
He added that “the privates air strip owners pay the Federal Government handsomely for these services.”
Keyamo wrote, “I think this is not correct. The House of Reps. as a body did not call on the Minister to revoke the license of any private airstrip.
“I think what happened is that someone moved a motion in that regard and it was unanimously referred to the Aviation Committee to look into it.
“Whilst the intention of the Hon. Member who moved it is very patriotic, it was based on a complete lack of knowledge of the aviation sector.
“By the time we explain to them how private air strips work and the processes they undergo by our agencies before the final approval, they will be satisfied.
“The responsibility of the owners of private air strips is just to build the runway and terminal building. But after they build the control tower in particular, it is completely handed over to the Federal Government through NAMA (Nigerian Airspace Management Agency) which is in complete control of the entire airspace in Nigeria. An MOU is usually signed with NAMA in this regard before the airstrip is approved for operations.
“It is NAMA that provides the Air Traffic Controllers and Engineers in ALL AIRPORTS and AIRSTRIPS IN NIGERIA. And the privates air strip owners pay the Federal Government handsomely for these services.
“No object flies into Nigeria without the prior clearance by NAMA and without filing a clear flight plan, eg, where it is taking off from and where it intends to land.
“And I have recently directed that all aircraft coming into the country MUST first land at our international airports where they would be properly processed and checked before they make their local flights into whatever airport or airstrip they intend to go. So, it is COMPLETELY AND TOTALLY impossible for any private airstrip owner to just jump on an aircraft and fly in and out of the country through that facility. The Federal Government does not permit that. You will not be cleared for take off or landing without prior request and authorisation.
“I thank the Member for his patriotism, but I wish he contacted us first to explain to him before rushing to move such a motion.
“I attach herewith for public consumption the NAMA Act that gives exclusive control of the Nigerian airspace to the Federal Government through NAMA.”
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