Virgin Australia to cut capacity, fleet as coronavirus erodes demand

By Jamie Freed

SYDNEY (Reuters) - Virgin Australia said on Wednesday that it would reduce capacity, leading to the removal of seven planes from its fleet and possible pilot redundancies, and cautioned its bottom line would take a hit as the coronavirus outbreak erodes demand.

The bleak outlook comes as Australia's second-biggest airline reported a 78% plunge in underlying pre-tax profit for the six months ended December. The closely watched measure fell to A$24.5 million ($16 million) after adjusting for accounting changes due to higher fuel, airport, aircraft and staff costs.

On a bottom-line basis, Virgin Australia Holdings Ltd <VAH.AX> posted a first-half loss of A$88.6 million and said the coronavirus situation was likely to knock A$50-A$75 million off its earnings in the second half.

Larger rival Qantas Airways Ltd <QAN.AX> last week posted flat underlying pre-tax earnings and announced plans to ground the equivalent of 18 planes and freeze recruitment due to the virus.

Virgin Australia said it would cut capacity by 3% in the second half and 5% in the next financial year, in part by removing seven Airbus SE <AIR.PA> A320 jets from the fleet of its struggling budget arm Tigerair Australia to accelerate its transition to an all Boeing Co <BA.N> 737 fleet.

"We are seeing an increase in cancellations and a weakness in demand and a reduction in forward bookings," Virgin Australia CEO Paul Scurrah told reporters, citing the impact of the virus.

"The capacity and fleet changes we have announced today will mitigate that," he added.

He said leisure destinations like Cairns that were heavily dependent on tourists from China, where the virus originated late last year, were the hardest hit by the fall in demand.

Scurrah added that the reduction in its fleet size might lead to pilot job losses.

Virgin Australia this month announced it would stop flying from Sydney to Hong Kong over concerns about civil unrest and the coronavirus, having earlier cut its Melbourne-Hong Kong route to enable it to launch new flights from Brisbane to Tokyo's Haneda Airport in late March.

The coronavirus, which can be transmitted from person to person, has killed more than 2,500 people and infected over 80,000 people, mostly on the mainland. It has already jumped to about 30 countries and territories, prompting governments to impose travel curbs in a bid to contain its spread.

The Australian government on Sunday raised its travel advice to Japan to "high degree of caution" due to a heightened risk of local transmission of the coronavirus.

Scurrah said bookings for the Tokyo route were strong and so far there were no plans to reduce flying due to the virus.

Virgin Australia shares closed at a record low on Tuesday and were flat as of 0145 GMT on Wednesday, having risen more than 8% in earlier trading.

Its major shareholders include Etihad Airways, Singapore Airlines Ltd <SIAL.SI>, HNA Group [HNAIRC.UL], Nanshan Group [NANSH.UL] and Richard Branson's Virgin Group.

(Reporting by Jamie Freed; Editing by Grant McCool and Himani Sarkar)