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Stiff competition slaps Virgin, Qantas with losses

Both Virgin Australia and Qantas have reported profit losses for the first half of the 2014 financial year, but have each committed to strategies that they believe will help ensure their businesses will be future-ready.
Written by Aimee Chanthadavong, Contributor

Virgin Australia continues to commit to its Game Change program despite reporting a statutory loss after tax of AU$83.7 million during the first half the 2014 financial year.

Virgin Australia CEO John Borghetti blames the loss on the challenging trading and competitive environment; ongoing subdued consumer sentiment and economic uncertainty; the effect of strong market capacity growth; and the unrecovered AU$27 million cost of carbon tax.

Despite this, Borghetti said the company is on track with its five-year Game Change program strategy aimed to ensure that the business remains sustainable for the long term.

As part of this, the company implemented SabreSonic, an end-to-end airline passenger system, into its systems in January 2013. Borghetti said this decision has improved the company's access to global markets, expanded its interline and code-share revenue potential, and enhanced the customer experience.

Skywest, which Virgin acquired in April 2013, was also later transferred in August onto the Sabresonic system to ensure that its resources systems and processes aligned with the Virgin Australia operating platforms.

"Optimising the benefits of the enhanced platform has enabled the airline to greatly improve mobile and self-service capability and drive online sales growth," Borghetti said.

"As a result of the redesign of the Virgin Australia website, we now have the fastest major airline website in the country."

During the half year, Virgin Australia said it also commenced in August the rollout of its wireless entertainment technology to its Boeing 737 fleet. Borghetti said this had an "immediate impact on customer satisfaction with in-flight entertainment", with customer satisfaction increasing by 27 percent.

But Virgin Australia's loss has been overlooked by competitor Qantas, which reported a statutory loss after tax of AU$235 million for the first half of the 2014 financial year.

Qantas CEO Alan Joyce slammed Virgin for taking advantage of the Australian domestic market that had been "distorted by the current Australian aviation policy", as Virgin Australia has been allowed to be majority owned by three foreign government-backed airlines, and yet retain access to Australian bilateral flying rights.

"Late last year, these three foreign-airline shareholders invested more than AU$300 million in Virgin Australia at a time when, as Virgin Australia reported to the ASX on February 6, it was losing money," he said.

"The capital injection has supported continued domestic capacity growth by Virgin Australia, despite its growing losses."

In spite of facing "some of the toughest conditions Qantas has ever seen", Joyce reaffirmed the company pushes to remain relevant by undertaking its "biggest ever transformation over the past four years", with hopes to achieve AU$2 billion in cost reductions by FY17.

Joyce outlined that the company will use technology initiatives to enhance efficiency, including the rollout of its Boeing 787-8 into Jetstar's long-haul network, improving freight supply chain and terminals, and rationalising its software applications.

At the same time, the group will rely on the continuous function of a number of its information technology and communication services to reduce the likelihood of outages, ensure early detection, and mitigate the impact.

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