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.

(Visited 85 times, 1 visits today)

13 comments

Join the conversation

The Crikey comment section is members-only content. Please login or sign up for a FREE trial to engage in the commentary.

Share this article with a friend

Just fill out the fields below and we'll send your friend a link to this article along with a message from you.

Your details

Your friend's details

Sending...