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fleet decisions

Jul 6, 2016

Tigerair Australia to replace all of its A320s with 737s

Virgin Australia and its Tigerair franchise are continuing moves to turn into a simplified group flying only one type of wide body and single aisle jets across their combined networks

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

Tigerair CEO Rob Sharp with a newly repainted A320 he won't have for long
Tigerair CEO Rob Sharp with a newly repainted A320 he won’t have for long

Virgin Australia’s plan to simplify its fleet moved forward today with confirmation that all of the Tigerair Australia branded A320s would be ‘transitioned’ to 737-700s or -800s within three years.

The move is spelled out in the information for shareholders filed with the ASX this morning with the formal launch of a 1 for 1 non-renounceable pro rata issue of shares to raise approximately $852 million.

It was also foreshadowed earlier this year when Virgin Australia Holdings (which owns all of the Tigerair Australia franchise) announced that all of the main airline’s Embraer E-190s and some of its ATR turbo props would also leave the group’s combined fleets within that time frame.

Virgin Australia is pursuing a fleet simplification program that will see it equipped with only one type of wide body jet (whether from Airbus or Boeing) toward the start of the next decade, as well as having a common fleet of Boeing 737 single aisle jets for the balance of the jet operations by its brand and those of Tigerair.

There are currently 14 A320s in service with Tigerair. They are augmented by three 737-800s from the Virgin Australia fleet of  78 single aisle Boeings which the low cost carrier uses for some flights to Denpasar.

That 737 fleet includes two of the smaller capacity 737-700s.

Virgin Australia has an order for 40 of the new engine technology Boeing 737 MAX 8 jets.

However none of those new 737 MAXs will go to Tigerair, which will have all of its A320s replaced by older 737s now in the Virgin Australia fleet.

It isn’t clear at this stage if this process of renewal of the Virgin 737 fleet, and the replacement of Tiger A320s by retired or transferred Virgin 737s will see a tightening of capacity by Virgin Australia. It seems to depend on the delivery and replacements schedules of the two VAH brands, but the guidance from Virgin, as well as Qantas, has so far been in favour of continued tightening of capacity to match a downturn in demand attributed to a softer and less confident national economy.

In that respect, VAH has engineered a useful tool for fine tuning capacity adjustments for its full service carrier, but it doesn’t seem to provide for any substantial growth in demand for the low cost brand other than an implied focus on lifting load factors.

The documents also revealed an acceleration of impairment charges brought about by the group’s restructuring and efficiency programs. In statutory rather than underlying terms, this sets it up for a full year loss.

After Virgin Australia announced its fleet simplification ambitions earlier this year it became known that at the right price it might acquire more of the current 737-700 version of the single aisle jet to better accommodate capacity on those of its routes where the soon to depart E-190s are deployed, and sometimes against Qantas Boeing 717s. It is believed to have been encouraged by recent large purchases of 737-700s and -800s by US carriers that have decided that a bargain price for a run-out model of the 737 family deliveries better value than a higher price for the fuel savings promised by the MAX series.

However Virgin Australia has kept those cards close to its chest, meaning all options have yet to be exhausted as it considers the right sizing of what will be a network served by a small number of a higher capacity wide-body jets (including non-stop services to the US) and a large fleet of Boeing 737s comprising the current NG series and the incoming MAXs.

The candidates for replacing today’s small A330-200 and 777-300ER fleets would be a version of the Boeing 787 Dreamliner or Airbus A350 lines. Virgin’s guidance on that decision has been that it isn’t considered urgent or imminent.

Fleet simplification programs are generally well received by financial analysts.

Etihad risks having its Virgin equity diluted to half size

The documentation filed by VAH today confirms that Etihad has to date expressed no interest in participating in the share placement capital raising.  It notes that Etihad’s current 21.83 percent stake in VAH could be halved (obviously) by a 1 for 1 issue if all of the other shareholders exercise their full entitlements.

The offer closes at 5 pm Sydney time on July 27.

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13 comments

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13 thoughts on “Tigerair Australia to replace all of its A320s with 737s

  1. Zarathrusta

    Yuck. I get the need to standardise, but I think Virgin group are going in the wrong (tight waist) direction and also there is no workable larger version of the MAX.

  2. Deano DD

    Me thinks
    Older 737s will move to Tiger
    Some Ejets replaced and older 737s going to Tiger replaced with their order of 40 new 737s
    Other Ejet routes and many ATR routes will be outsourced to Alliance with the 21 they just bought
    As for the wide bodies, I think 787s or more 777s

    1. john grier

      Alliance F50’s to replace VA ATR ?

      Alliance announced yesterday they are getting 3 more jets. F100 + 2 x F70’s.

  3. SladeyP

    And what of the single A320 currently running for the old Skywest?

    1. Ben Sandilands

      The ASX filing (just click the link) shows two old A320s in ex Skywest fleet and says they will remain there.

    2. john grier

      it’s an old orphan anyway, isn’t it ?

  4. Creeper

    I thought the whole LCC thing was new aircraft which in return gives lower overheads like all LCC run to. Can’t say many run their Lo Co outfits with old hand-me-down aircraft.

    Yet Tiger gets 10-15yr old fuel guzzling rust buckets? Should do wonders for the OTP and customer satasfaction. Usually means higher fares?

    1. Deano DD

      Would be interested to know the math
      Eg
      Alliance picked up 21 F70/100 for like $15million
      Cost per frame about $1million (if you include some fixing up )
      Lets assume its paid off over 3 years
      Cost is $900.00 per day
      Versus
      What does a new 737 really cost per month to lease ? ( I say lease as this is the real cost )
      Lets assume they get a bargain at $30million
      Lets assume no interest
      Lets assume 10 year lease
      Round figures
      $3 million per year
      Or around $8,000.00 per day

      So at roughly $7,000.00 per day difference does the new 737 save enough in fuel to make it a better option ?
      And would servicing a 25 year old Fokker be cheaper than than a new 737
      A poor example, but
      A 1990 car versus a 2015 car
      Service costs are very similar except that new cars have longer service intervals, but, with a lot more that can go wrong as there are way more components and technology, would this be the same for aircraft ?

      The temporary current low interest rates also weigh in, but finance costs will inevitably rise again

      So would a LCC be better running old cheap frames versus expensive new ones ?

      1. Red Devil

        Dean, you unlock some fundamental questions in the LCC world. I own a Cessna Mustang that cost me $2000 an hour including all the running costs, maintenance etc yet I can buy a ticket to the Gold Coast for $49. Jetstar are running around with brand new Neos with winglets. What the? I have noted that they transfer to the Qantas AOC regularly. $270 each way so instead of the maintenance being done at Jetstar’s expense they spend $540 to transfer then the maintenance occurs at the mother ship’s expense. Gee I wish I could get someone else to pay for my maintenance. As for the leasing you are very close on larger aircraft, roughly 1% of the aircraft value per month. e.g. $30 million equals $300000 a month. No wonder the Qantas Board have a few leasing experts on the board who are also work for aircraft leasing companies.

      2. john grier

        Can the Alliance f100 have their seating reconfigured to carry more pax ?

        Read that an F100 can take up to 122 pax, but obviously less leg room. Does that matter with TT type operation ?

        Does it cost to much to move galleys etc. ?

        Maybe just reduce pitch & get 1 or 2 more rows of 5, making 105 or 110 seats ?

    2. Travel Hound

      Hello Creeper,

      I think the notion LCC’s required new aircraft dates back to the early 90’s where the 737NG had a considerable operating cost advantage over the old 737 classics.

      Even thought the 737NG is soon to be replaced by the MAX, they are still very competitive in a low fuel cost environment. Avolon leasing released a report stating the NG would still have lower operating costs over the MAX when fuel costs are under $70.00/barrel.

      What I think this announcement does do is allow Virgin to utilize some of its older aircraft to significantly reduce the leasing costs of TigerAir. This will allow Virgin to grow and shrink TigerAir with lower risks and subsequently costs. It could also be a precursor for the closure of TigerAir if Virgin are unable to make the airline work.

      Time will tell!

  5. Zarathrusta

    One thing not factored in is that with a LCC, having containerised checked baggage can make a huge difference to turnaround times. The A32x series offers this and the 737s don’t. Flying recently on Qantas made me realise how much only boarding / exiting through the airbridge slowed things down compared with Virgin using the tail door too. I also realised flying on Jetstar recently the problems caused by passengers who boarded through the wrong door and weren’t turned back caused.

    1. Dan Dair

      Your containerised baggage point is accurate but doesn’t actually reflect LCC operations.

      LCC’s are much more likely to give one free item of cabin baggage of a greater size &/or weight than full-service carriers & then charge a substantial sum for hold baggage.
      The principal being that the self-loading freight will mostly deal with its own self-loading baggage.
      Consequently reducing both the cost of baggage-handling fees & the time taken to turn the aircraft around on the ground.