New Virgin boss cuts deep, saving on routes, planes and people

The best part is that as a clean skin executive, Scurrah can overhaul previous management decisions without the need to apologise for them. Indeed, they provide him with low-hanging fruit to boost the airline’s performance.

Scurrah sounds like an executive running a business which happens to be an airline, rather than an airline executive.

He isn’t just looking for Virgin to improve on traditional airline metrics like cost per kilometre or revenue per kilometre. Having come from outside the industry, he wants to achieve the same returns on invested capital as any well-run capital-intensive business that sells highly perishable goods – in Virgin’s case, airline seats.

And in theory this should be achievable in a domestic duopoly, particularly in Australia – a wealthy country where distances between capital cities make flying the only time-efficient option.

Since taking over as chief executive in March, Scurrah has been drip-feeding investors with various elements of his transformation plan.

His decisions to review and delay $2.5 billion worth of Boeing MAX jet orders and buying back a 35 per cent share in Virgin’s passenger loyalty program, Velocity, for double the price it was sold five years ago have already been ticked off.

By Christmas, most of the 750 in headcount reductions, designed to shave $75 million from Virgin’s cost base, will be complete. And on Wednesday the airline confirmed it would ditch the Melbourne to Hong Kong service it launched with such fanfare three years ago, and retain only the Sydney-Hong Kong route at this stage.

It’s not so much shrinking its way to greatness – rather shrinking its way to profit. At least that’s the plan.

Introducing Hong Kong to its international offer was a timing disaster, thanks to the civil and political unrest that has blown up the economics of the route. Qantas recently said the protests had cost it $25 million of profit.

Indeed there had been plenty of speculation that even before Hong Kong’s political disruption, the route to Melbourne had been performing poorly. Suspending it was viewed as a no-brainer, or even a get out of jail free card.

An additional bonus is that paring back Hong Kong frees an aircraft for Virgin’s newly announced route to Tokyo, which will begin in March next year.

Looking at Virgin’s other international connections, Scurrah has also taken the significant decision to cut its Sydney to Christchurch service and add services from Melbourne to Denpasar.

These changes form part of a larger rejigging of the domestic networks flown by Virgin and its leisure carrier sibling, Tiger.

Airlines regularly massage their networks, changing flying frequencies and routes to improve profit.

This is no different. It’s just on a larger scale, which will reduce the airline’s capacity by 2 per cent and retire five older planes.


It’s the last piece of Virgin’s transformational jigsaw puzzle. All the major planks to Scurrah’s transformational plan have now been outlined and the foundations have been put in place.

Now we need to see whether profits will flow.

Unfortunately for Virgin’s investors eager to see an earnings revival, the Australian economy and the skimping consumer have thrown a spanner into the works.

Like other companies operating in the discretionary goods and services sector, airlines are feeling the effects of a soft market with little to no revenue growth.

So there could be a lag to achieving Scurrah’s plan of transforming this “great airline” into a “great business”.

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