Brett Godfrey and one of his maidens, image courtesy Virgin Blue
2010 looks like being Brett Godfrey’s biggest as well as last year as CEO of Virgin Blue.
In fact heading the succession selection process following his expected announcement this morning that he will leave his post as the first and so far only CEO of the airline in its 10th anniversary year seems some way down the list of ‘things to do.’
Virgin Blue is making a modest $231 million equity raising which will put total cash at $705 million when the process is completed.
The guidance with the announcement to the ASX also says it is looking for a further $215 million from sale and lease back arrangements compared to the $133 million raised by way of its asset realisation program in the last financial year.
The guidance also points at the full net loss of $160-165 million for the last year being followed by break even results in the year to 30 June 2010.
Put in context, the horrendously bad and costly timing of the launch of V Australia services to the US has overwhelmed the profits from a successful domestic operation that grew well in the past year while the Qantas Cityflyer and Qantaslink services shrank rather badly.
If V Australia does better in the next year, the upside for Virgin Blue is obvious, and the more so if an operational merger with Delta Airlines gains regulatory approval.
It might even put pressure on the airline not to cut domestic capacity by a further 5% in the current financial year. Like Qantas, the manner in which Virgin Blue has reduced capacity, through sending domestic jets on working holidays on Pacific, Indonesian and New Zealand regional routes gives it the flexibility to quickly ramp up capacity in response to improved demand.
Unlike Qantas, Godfrey doesn’t have the problem of a Jetstar brand that damages his main brand. Jetstar was supposed to save Qantas when it started operations in 2004, but while it worked at balance sheet level by eroding the costs and inefficiencies of the main line brand, it seems to have grown its market share at the expense of Qantas not Virgin Blue.
Now something similar is happening wherever the Qantaslink turbo prop fleet meets the Virgin Blue E-jet fleet, particularly on Canberra services.
Godfrey is the architect of this model of being in the middle, but not ‘trapped in the middle’ as Chris Corrigan used to call it when Patrick Corp was the dominant shareholder. Godfrey’s term New World Carrier surprised everyone including maybe himself by finding a new source of growth in single person businesses, and small to medium enterprises that never had access to the corporate travel account discounts available to the big end of town.
It is precisely the segment that allows Southwest and easyJet to run rings around legacy carriers like American Airlines and British Airways, while Jetstar and Tiger pursue the Ryanair model of being cheap but customer and business travel unfriendly.
So in his last year at Virgin Blue Godfrey has an airline that knows what it is while its main competitor comes across as having lost its way.
Not that the last year will be easy. Godfrey is hated in some quarters for having succeeded against the legacy carriers where Bryan Grey failed, and where Air New Zealand raped an Ansett operation that was already collapsing from ingrained inefficiencies.
He is also stared down the ludicrous Tesna challenge by which Lindsay Fox and Solomon Lew pursued the Ansett terminal empire under the cover of relaunching the dead carrier.
Virgin Blue has made many people look foolish in their analysis and predictions of the carrier’s performance and outlook in its first nine years.
Some of them will be hoping for vindication in the last year of the first man to beat the odds and make a new entrant airline succeed where only failure was allowed.
6 Comments
I think that man should be considered some sort of hero. I remember the days straight after Ansett colapsed and Qantas had a monopoly on all travel from Perth to the east coast. Fares were absurbly prices.
Once Virgin started flying, the fares fell by about 3/4.
Good onya Brett
Ben,
A drover’s dog could have made a similar “success” of things after the downfall of Ansett. The man has not, I believe, faced any real test of his management or leadership skills and now that the test is ahead of him in the form of pressure within Australia from Jetstar and Tiger and from pressure without in the form of V Australia, the guy’s “doing a runner”. This is hardly the mark of a true CEO. BTW, I would think that the proposed “deal” between V Oz and Delta is anything but a foregone conclusion – his opponents will throw his own words in his face.
“where Air New Zealand raped an Ansett operation that was already collapsing from ingrained inefficiencies.”
I really don’t get the Australian, anti Air NZ attitude. It was an ineffecient, out of control Ansett largely managed from Australia by Australians that almost brought down Air NZ not the other way round. Simply put, if Air NZ had not bought into Ansett then it wouldn’t have lasted as long as it did, such was the amount of cash Ansett was burning through. The NZ government ended up bailing out Air NZ to the tune of $800m afterwards so its not like Air NZ benefited financially.
The raping was very much the other way round, helped along by pro Qantas regulators and Civil Aviation officials. Single aviation market my arse.
Or as Sir Selwyn Cushing told us publicly over here ‘We will run Ansett the New Zealand way, from New Zealand, ‘ comments made shortly before the Melbourne office was turned into a branch office. I agree that Ansett was going to fail anyhow, but the New Zealand way as applied to Ansett was not a good look from any level.
On the public record, the administrators of Ansett, Korda Mentha, sold legal indemnity from prosecution under Australian companies law in relation to Air New Zealand for close to $150 million shortly after they assumed that role.
“On the public record, the administrators of Ansett, Korda Mentha, sold legal indemnity from prosecution under Australian companies law in relation to Air New Zealand for close to $150 million shortly after they assumed that role.”
Which kind of proves my point though doesn’t it? That was $150m more (excluding whatever Air NZ sunk into the dog before bankruptcy) than Korda Mentha would have got if Air NZ had not bought Ansett and it had gone bankrupt by itself.
Oh and don’t get me started on the stupid things Cushing has said and done….
35171 – I respect your right to an opinion, but let’s separate fiction from fact.
Ben – Apologies for the branching away from the DJ topic.
1. $150 Mill Settlement
KordaMentha gave Air NZ a $150 million “off the hook” escape deal, in order to give Ansett vital money to meet immediate costs and possibly restart services after the collapse. While Air NZ should have really been pursued for further money, Korda Menthas decisions were correct (and necessary) at the time, as Ansett’s bank accounts were dry. The fact that Air NZ took the deal and agreed to pay the amount out in exchange for indemnity against any further legal action speaks for itself.
2. Ansett dragged down Air NZ?
A little clarification. Air NZ purchased Ansett, not the other way around. They had a choice not to buy it, and they did so anyway – with the good and the bad that came with that decision. Within 3 months of the purchase of News Ltd’s 50% share, all management functions were re-routed to Auckland. Air NZ called the shots in that last year, not Ansett (refer Cushing comment as discussed). As Ben will agree, AN had a lot of problems (needed major re-capitalisation, new fleet, change of work practices – I don’t think anyone would disagree with that, but Air NZ was not the white knight to turn it around).
3. Should Air NZ take all the blame?
No. Of course it shouldn’t. Ansett’s problems stemmed from well before Air NZ walked through the doors (I don’t dislike NZ). It was not one simple thing that caused its demise, it was a multiple range of factors all coming together. That being said, Air NZ did play their part. They bought Ansett. They ran Ansett, they had to take responsibility for everything that happened to Ansett after News Ltd left. That is fact.
Ansett would have gone bankrupt by itself? – Maybe. It was going to be very difficult to steer it away from the abyss, but not impossible by any means. It needed both strong leadership and ownership following the exit of News Ltd to turn things around and address it’s problems, but Air NZ could not (and did not) provide either. Had a powerful player with the cash to re-capitalise AN purchased the airline, (ie – SQ), there’s quite a chance AN would still be around today (abeit in a leaner and meaner format). Air NZ certainly did not keep it going longer than it should have been. With News gone, they owned the whole pie, which meant they were fully responsible for the entire operations of both AN and NZ. If anything – Air NZ probably accelerated it’s demise, as opposed to what might have happened if News had held off it’s exit a while longer. Air NZ didn’t purposely come in and destroy it, (they’re not that stupid, it almost destroyed them as well) – but they were short sighted in buying it, had no idea of the realities of the harsh Australian domestic market, and had no financial hope of managing it. When they finally realised they shouldnt have bought it, it was too late. This was their failure, and this was their fault. This is something they will be remembered for forever.
Call it what you like, but “raping” is probably a good a word as any, and I’ll back Ben on it. NZ is still flying today, and AN is not. It’s a firm kick in the guts to anyone who worked at Ansett, I dont apologise for using the expression. Right or wrong, good intentions or bad, we all saw the result of Air NZ’s ownership, and it was nothing short of devastating. Sixteen thousand people lost their jobs, and probably another three thousand more lost theirs from supporting companies and contractors. Many people in the wash up lost everything else – houses, marriages – and in some cases, even more. I wont elaborate – I’ll only say that it was one of the most horrific things I think I’ve ever experienced, and I wouldnt wish that on anyone – not my worst enemies, and no – not even the staff and crew at Air New Zealand, who had no part in the upstairs political games.