Virgin Australia and the US market: 10 years and 4 million passengers but declining market share

Wednesday (27-Feb-2019) marks the tenth anniversary of long-haul services for Virgin Australia. The group took delivery of its first Boeing 777-300ER on 6-Feb-2009 and the first flight to Los Angeles took off from Sydney at 3pm on 27-Feb-2009, operating under the V Australia brand.


Highlights:

  • Virgin Australia celebrates on 27-Feb-2019 the tenth anniversary of long-haul operations;
  • The group has served Los Angeles for a decade with a fleet of 777-300ERs, carrying more than 4 million passengers to date from Brisbane, Melbourne and Sydney;
  • Virgin Australia’s US traffic reached an all-time high in FY2018, but levels have been flat from FY2011 to FY2017, resulting in market share declines.

V Australia took delivery of three more 777-300ERs in 2009 and a fifth aircraft in 2010. These enabled it to add services from Brisbane and Melbourne to Los Angeles later in 2009. V Australia along with sister short-haul airline Virgin Blue adopted the Virgin Australia brand in 2011.

The group has consistently competed in the Brisbane and Sydney to Los Angeles markets since 2009 (with some variation in the number of frequencies). Melbourne-Los Angeles was suspended in Oct-2014 but was resumed in Apr-2017.

Virgin Australia currently has 16 weekly flights to Los Angeles consisting of seven from Sydney, five from Brisbane and four from Melbourne (based on OAG schedules for the week commencing 25-Feb-2019). Since Apr-2017 Virgin Australia’s schedule has included 15 to 18 weekly flights to Los Angeles depending on the time of year (the reduced schedule accommodates downtime for maintenance).

Los Angeles is now the only destination served with Virgin Australia’s 777-300ER fleet. Over the years the airline has used 777s to other destinations – including Abu Dhabi, Johannesburg, Nadi and Phuket. All these routes were short-lived except Sydney-Abu Dhabi, which was operated for several years. (Virgin Australia also operated Abu Dhabi-Kuala Lumpur under a wet-lease arrangement with UAE carrier Etihad Airways, utilising the downtime in Abu Dhabi.)

Sydney-Abu Dhabi was temporarily suspended for a few months in 2016 as Virgin Australia retrofitted its 777-300ER fleet and permanently suspended in 2017. Without Abu Dhabi or any other long-haul destination Virgin Australia was able to add capacity to Los Angeles. The Los Angeles schedule included only 11 to 14 weekly frequencies, depending on the time of year, for several years prior to the increase that was introduced in 2017.

Virgin Australia carried 453,000 passengers to/from Los Angeles in the fiscal year ending Jun-2018 (FY2018), which represented a 6.5% increase compared to FY2017 and marked an all-time high for the airline. The airline has carried more than 4 million passengers in the Australia-Los Angeles market since its long-haul launch in Feb-2009.

CHART: Virgin Australia passenger traffic to/from Los Angeles (in thousands) since launching 10 years agoSource: BITRE (Note: includes V Australia traffic until Dec-2011, when V Australia was rebranded)

Virgin Australia accounted for a 23.1% share of the 1.964 million nonstop passengers flying between Australia and Los Angeles in FY2018 and a 14.2% share of the 3.191 million nonstop Australia-US passengers.

While this level is respectable, Virgin Australia’s share of the Australia-US market was higher back in FY2011, when it captured 17.7%. Virgin Australia’s US passenger traffic was relatively flat from FY2011 to FY2017, resulting in market share declines. Virgin Australia’s 6.5% growth in FY2018 was slightly faster than the overall 4.5% market growth but hardly made a difference in gaining back any of the market share lost the six prior years.

CHART – Virgin Australia was the third largest airline in the Australia-US market in FY2018, based on share of nonstop passenger trafficSource: BITRE (Note: Jetstar Airways and Hawaiian Airlines only serve Honolulu)

Virgin Australia’s long-haul fleet has been stuck at five aircraft since late 2010 despite an original commitment for seven 777-300ERs that was announced in Mar-2007. V Australia also came close to ordering 777-200LRs, which would have been used to launch Sydney-New York nonstops. The group’s former CEO, Brett Godfrey, proposed the acquisition but ultimately the board did not agree, resulting in more conservative growth strategy as Mr Godfrey handed over to John Borghetti in 2010.

Fast forward nine years and rival Qantas is now close to acquiring new aircraft for Sydney-New York, which will enable it to further widen the gap with Virgin Australia. As Virgin Australia marks a decade in the US market and as Mr Borghetti prepares to hand over the reins to newly appointed Paul Scurrah, it is perhaps time for the group to relook at its long-haul strategy – and if it wants to resume growth or perhaps retreat given the financial challenges associated with operating a subscale fleet of only five aircraft.