Charter and Cargo - Niche aviation businesses delivering low risk, high margin revenue Merren McArthur Chief Executive Virgin Australia Regional Airlines and Virgin Australia Cargo
O U T L I N E Charter and Cargo – Virgin Australia Group Strategy Charter ‒ The story of Virgin Australia Regional Airlines ‒ Charter Operations v RPT Operations ‒ Riding the Resources Boom/Bust cycle Cargo ‒ Story of a Start Up ‒ Cargo Network 2
C H A R T E R A N D C A R G O – D I V E R S I F Y I N G T H E G R O U P R E V E N U E B A S E Charter / Cargo Domestic Mainline Freighter Business (Bellyspace on pax aircraft) Medium – High Low Volatility of Demand High (Some Long Term Contracts) (Long Term Contracts) n/a Low Supply Side Risk 1 Medium to High (Dictated by Pax Business) (Capacity contracted by customer) Low Capital Investment Nil High (Older Aircraft) Investment Planning n/a 3 – 5 years 6 – 9 months Horizon 0 – 10% 2 Margins 80% + 6% - 12% Niche aviation businesses leveraging mainline to deliver low risk, high yielding revenue stream 1 Risk that capacity will exceed demand 3 2 Based on Australian Aviation Industry margins 2012-2017
V A R A – T R A N S F O R M A T I O N O F A 5 0 Y E A R O L D A I R L I N E Apr A320 fleet size to Jun 18 increase from 2 to 3 17 Resources Feb F50 fleet downturn Jul 16 16 decommissioned Dec ATRs transferred to Jul 16 15 VAA Fe b 14 Sep F100 fleet size grew May 15 16 from 10 to 14 May Mar Airline re-branded as 13 16 VARA Apr Apr Virgin Australia Cargo offers an innovative, reliable and responsive cargo solution to our customers Virgin Australia 13 13 acquires Skywest 4
C H A R T E R V S R P T M O D E L Key Attributes RPT Charter Certainty of demand Volatile / Discretionary Contracted / Essential Visibility of demand 1mth 6 mths Aircraft procurement lead time 2-3 years 3-6 mths Capital Cost of aircraft (B737 v F100) > $90m < $4m Fuel cost Volatility of market pricing and hedging policies Pricing volatility passed through to customers High utilisation required to deliver return on Schedule Low utilisation tailored to customer needs capital investment Clients Diverse - corporate and retail Predominantly resource sector Charter = low risk, high yielding revenue stream, reliant on resource industry cycles 5
F I F O M A R K E T – T H E P E R C E P T I O N Aerodromes lacking in facilities Charter = low risk, high yielding revenue stream, reliant on resource industry cycles Small, 20 seat aircraft Dirt Runways 6
T H E R E A L I T Y - E V O L U T I O N O F T H E F I F O A I R P O R T Old Onslow Terminal Charter = low risk, high yielding revenue stream, reliant on resource industry cycles New Onslow Terminal 7
T H E R E A L I T Y – C H A R T E R A I R C R A F T Charter = low risk, high yielding revenue stream, reliant on resource industry cycles 8
R I D I NG T H E R E S O U R C E S C Y C L E - F I F O W E E K L Y D E M A N D P A T T E R N 60 2009 2013 2014 2015 2016 2017 50 40 30 20 10 0 Mon Tue Wed Thu Fri Tuesday to Thursday requirements dominate the weekly schedule Charter = low risk, high yielding revenue stream, reliant on resource industry cycles Monday and Friday requirements have increased 9
R I D I NG T H E R E S O U R C E S C Y C L E – F I F O D E M A ND O U T L O O K - W A 400 Charter RPT 350 300 250 200 150 100 50 0 1 -50 -100 2015 2016 2017 2018 2019 2020 Volumes are large, with some customers having more than 300,000 passengers per year Forecast decline in size of resources sector workforce, but demand is expected to remain high due shorter operational roster cycles Charter = low risk, high yielding revenue stream, reliant on resource industry cycles 313,000 incremental FIFO workers expected to utilise Perth Airport annually by 2020 Note: Increment on 2014 levels 10 Source: 2015-2025 Western Australian Resources Sector Outlook, 13 November 2014
V I R G I N A U S T R A L I A C A R G O – S T O R Y O F A S T A R T U P Prio ior to V Virgin in Austral alia C a Cargo Ent ntry Qantas holds a virtual monopoly in domestic cargo market Jun 200 trading accounts Jun Toll carries most of its cargo on its own freighters 17 17 No choices available to other major customers (TNT / DHL etc) Market is poised for disruption Jul TNT contract Jul 16 16 commenced Jul Freighter network Jul 16 16 launched Fe b 14 May 100 trading After er l launc unch o of Virgin gin Australia lia C Cargo May 16 accounts 16 Real choice to cargo customers in airport-to-airport cargo market * Mar 5-year exclusive cargo services agreement signed with TNT Mar 16 TNT contract signed More than 200 trading accounts with in excess of 60 in the 16 pipeline Oct Virgin Australia Cargo offers an innovative, reliable and responsive cargo solution to our customers Improved utilisation of Virgin Australia’s mainline belly space Virgin Australia Cargo 15 capacity launched * : No competitive alternative since 2001 11
V I R G I N A U S T R A L I A C A R G O N E T W O R K Current Freighter Network Freigh eighter N Net etwork ‒ 3 x BAe 146 ‒ 1 x B737 – 300 C A I R N S T O W N S V I L L E ‒ Goal to transition to low noise, fuel efficient B737NG fleet, subject to Sydney Curfew Amendment Existin ing V Virgin A gin Australia lia P Passeng enger er N Net etwork ‒ Leverage capabilities of ~ 3,700 passenger flights to 43 domestic B R I S B A N E and 15 international destinations P E R T H S Y D N E Y Inno novativ ive B e Bookin ing P g Portal l A D E L A I D E ‒ First cargo business to make the booking portal (iCargo) available M E L B O U R N E A I R W O R K P I O N A I R B A E 1 4 6 - 2 0 0 Q T on mobile devices P I O N A I R B A E 1 4 6 - 2 0 0 Q T L A U N C E S T O N Virgin Australia Cargo offers an innovative, reliable and responsive cargo solution to our customers 12
Q U E S T I O NS 13
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