August 27, 2019 / 11:33 PM / 2 months ago

CORRECTED-UPDATE 3-Virgin Australia swings axe as loss puts focus on costs

(Corrects shares to lowest in more than a decade, not all-time)

* Reports A$71.2 mln underlying pretax loss

* 30% of head office and corporate workforce to be cut

* New top executives appointed under CEO Paul Scurrah

* Shares down as much as 9% to lowest in more than a decade

By Jamie Freed

SINGAPORE, Aug 28 (Reuters) - Virgin Australia Holdings said on Wednesday it would cut 750 jobs, merge business divisions and conduct a sweeping review of its operations after swinging to an annual underlying loss due to soft market conditions and higher fuel costs.

As its shares fell as much as 9% to the lowest level in more than a decade, Chief Executive Paul Scurrah said the airline would focus on cutting costs to get into a strongly profitable position over the coming years.

“I think it will take some time to get us into the position we are planning on getting into,” he told reporters on a call.

In addition to the job cuts, which will save A$75 million ($50.7 million) and affect 30% of head-office and corporate roles, the airline also appointed a new top management team under Scurrah, who took on his role in March.

Australia’s No. 2 airline has been struggling financially relative to deep-pocketed rival Qantas Airways Ltd, and decisions made by Scurrah’s long-serving predecessor, John Borghetti, make it more difficult to manoeuvre amid declining consumer and business confidence and slow economic growth.

Scurrah said softer conditions experienced in the second half of the financial year were continuing, and costs would rise a further A$100 million from fuel and unfavourable foreign exchange in FY20.

“There’s no doubt we are operating in tough economic conditions and trading is challenging,” he said.

The company reported an underlying pretax loss, its most closely watched measure, of A$71.2 million ($48.1 million) for the year ended June 30, compared with a A$64.4 million profit last year.

The result was significantly worse than its guidance provided in May for an underlying loss of at least A$35.6 million, although it was in line with analyst expectations, according to Refinitiv data.

On a statutory basis, including one-off gains and losses, it reported its seventh consecutive annual loss, this time of A$315.4 million due to impairments of budget airline Tigerair Australia and its international business, deferred tax assets and restructuring costs.

The Brisbane-based airline said it would conduct a review of its capacity, routes, fleet and supplier contracts to eke out further cost cuts.

It was evaluating the performance of all of its routes and expected capacity growth to be negative in the first half of the current financial year, Scurrah said.

Contracts with aircraft lessors, airports and other suppliers would be scoured for annual savings of A$50 million.

Virgin also would combine the back-office functions and operations of Virgin, Tigerair Australia and its regional business to make decision-making more integrated.

Scurrah said the company would focus on being the best-value airline for corporate and leisure travellers in Australia rather than obsessing about competing against Qantas.

“I intend to run our own race, to be our own company,” he said.

Virgin has appointed Keith Neate as its new CFO. Neate was once a chief financial officer of the airline under its previous low-cost guise Virgin Blue and more recently the CFO of Aurizon Holdings Ltd.

The company also named John MacLeod, a former Air Canada executive, as its chief commercial officer. ($1 = 1.4806 Australian dollars) (Reporting by Jamie Freed in Singapore; additional reporting by Niyati Shetty in Bengaluru; Editing by Stephen Coates)

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