Virgin Australia CEO Paul Scurrah.
Virgin Australia CEO Paul Scurrah.

The inside story of how Virgin nosedived and where to from here?

VIRGIN Australia staff should today be celebrating a hard-earned 19th birthday but instead, 750 workers at the struggling airline are anxiously awaiting departure.

It was on this day, 19 years ago, Virgin Blue's inaugural flight left the Brisbane Airport for the sky.

At 9.35am on August 31, 2000, its first flight, 'Disk Jockey 214', departed for Sydney.

The funky and fresh Virgin Blue brand, with one route, two planes and 200 people, took off in Australia.

With the pop of Yellowglen champagne Sir Richard Branson's airline joined Impulse, which launched two days earlier, and established carriers Ansett and Qantas on the hotly contested eastern seaboard.

Fast-forward 19 years and 133 Virgin Australia Group aircraft crisscross the skies in a global operation supported by more than 10,000 people.

But as the adage goes, what goes up must come down.

In 2012, after a decade of growth, the financial state of the airline started to nosedive.

Now, seven straight years of losses, including $315 million this year, has forced newly-appointed chief executive officer Paul Scurrah to slash Virgin's corporate workforce by 30 per cent.

"It's never something you want to do," he said.

"Being viable and profitable is necessary for our future."

Every route will be reviewed, fleet size assessed and the order of 48 Boeing 737 MAX planes - tipped to cost $2.5 billion - reconsidered.

External factors including soft demand, high fuel costs and a weak Australian dollar has pummeled the airline in recent times, while a series of internal issues has compounded its problems.

"It's been a challenging time to be running the airline," Mr Scurrah said.

"There's been headwinds with things we can't control."

 

Sir Richard Branson launches Virgin Blue's first flight, from Brisbane to Sydney, in 2000.
Sir Richard Branson launches Virgin Blue's first flight, from Brisbane to Sydney, in 2000.

 

Since his appointment in March Mr Scurrah has moved to streamline the company's executive team and remove the duplicated workforce.

The former Queensland Rail CEO agreed it had been a baptism of fire.

"I'm really excited about the business despite the headwinds," he said.

"There is definitely a very viable and very sustainable business here at Virgin Australia."

While Virgin's machines frequent most Australian airports, the company's soul remains in Queensland largely thanks to former Premier Peter Beattie.

In 2000 Mr Beattie, knowing Sir Richard was looking for a home for his Australian empire, stepped up with a lucrative offer.

The opportunistic premier offered $10 million to persuade the British entrepreneur to base Virgin Blue in Brisbane.

The deal included a $6 million payroll tax waiver and $4 million in training and marketing packages.

In return, and now perhaps irony, Sir Richard would bring 750 jobs to Brisbane.

Almost two decades later Mr Scurrah insists, despite the shedding of 750 jobs, the company will remain in Queensland.

"We've got a long-term lease at Bowen Hills," he said.

"I made the conscious decision to relocate myself back to Brisbane.

"That should be a signal of how important Brisbane is to us."

Despite this, Mr Scurrah would not guarantee its head office would stay at Bowen Hills.

"Everything's under review," he said.

The AFL tragic, who sits on the board of the Gold Coast Suns, said the company needed to "pull the lever harder" on managing its capacity and flagged further redundancies.

"We are undertaking a full network and aircraft utilisation review that may result in broader cuts" he said.

Virgin Australia's head office at Bowen Hills is home to about 1300 employees including CEO Paul Scurrah.
Virgin Australia's head office at Bowen Hills is home to about 1300 employees including CEO Paul Scurrah.

Mr Scurrah inherited the difficult business model when he took the reins from John Borghetti in March this year.

After ten years with the airline, Mr Borghetti retired to spend more time restoring and running classic Porsches.

The former managing director, who sits on the board of Coca-Cola Amatil, declined to comment on his time with Virgin.

"When I walked out of there I thought right, that's the end of it," he told the Courier Mail.

Mr Borghetti arrived at Virgin Australia in 2010 with a plan to build a premium airline capable of competing with Qantas.

Virgin's vibrant red and blue paint scheme was replaced with the crisp white and silver splash, designed to lure the more serious traveller.

That transformation of Virgin from a no-frills flyer to a corporate aviation juggernaut has failed, Strategic Aviation Solutions chairman and industry expert Neil Hansford said.

"Its business model is confused," he said.

Mr Hansford said Virgin was caught between being a low-cost company or a serious carrier for business travellers and "Qantas haters".

Virgin's attempt to lure those travellers away from the flying kangaroo has not worked, thanks largely to the rival's highly successful Frequent Flyer program.

"One in every two Australians is a member of Qantas Frequent Flyer," Mr Hansford said.

"I'll travel Qantas to get my status credits so I can use their lounge.

"It made it hard for Virgin to try and entice people away."

 

Former Virgin CEO John Borghetti at his offices in Sydney. Pic: James Croucher
Former Virgin CEO John Borghetti at his offices in Sydney. Pic: James Croucher

 

The future is bleak if Mr Scurrah is not able to turn things around, Mr Hansford declared.

"I think they will run out of money before they get back to profitability," he said.

"They've lost a billion-plus in seven years and they now have a bigger cost structure.

"He (Mr Scurrah) has got to reduce the fleet, he's got to cut the flying and he's got to start asking fundamental questions."

There are bright bolts among the dark clouds of Virgin's balance sheet, however.

Its revenue growth was the strongest recorded since 2015 and the company's Velocity Rewards program has 9.8 million members.

Mr Hansford said Virgin's 2014 takeover of trouble-plagued carrier Tiger was a mistake.

"Tiger should have just been left to go broke and disappear," he said.

The tarnished airline lost $45 million in the 2019 financial year.

Dropping the Tiger brand and incorporating it into Virgin is the only way it can effectively rival Jetstar, Mr Hansford believes.

Mr Scurrah acknowledged the branding of Tiger and its perception was under review.

"We'll make sure the Tiger product is seen as a very strong and very good value, leisure-based airline," he said.

Tourism Minister Kate Jones said she had assurances "Virgin have no immediate plans to cancel routes to Queensland".

"It's definitely disappointing," she said.

"But when it comes to aviation attraction, this government has more cash on the table to secure direct flights to Queensland than any government in our state's history.

"We'll continue to work with airlines to secure flights and grow our tourism industry."

There will be no party today to celebrate the airline's 19th year.



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