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It was a somber experience to listen to Tiger Airways Holdings acting chief executive Chin Yau Seng on Thursday night reiterate the group's commitment to safety and the Australian market, its desire to resume services as quickly as possible, and the "demonstration of commitment" Tiger made by appointing a former Qantas chief pilot as a safety advisor, when hours earlier Australia's safety regulator decided there were "deficiencies" so great in Tiger's re-submitted paperwork that it would take a few weeks to sort out, during which time Tiger would remain grounded.

During Tiger's first quarter earnings call Chin made no mention of the grounding extension the Civil Aviation Safety Authority plans to seek, saying instead Tiger had "made good progress with CASA" and "hopefully tomorrow we'll make another announcement".

When asked about the grounding extension, Chin said, "We can't comment on that." He added that "discussions are on going".

Whether Chin was ignorant or trying to spin the situation by avoiding it all together is debatable, but far more important is Tiger's paperwork failure, the sequence of which needs to be put into perspective.

CASA said it gave Tiger on 28 July "a notice listing a set of conditions it is proposing to impose on its air operator's certificate which may form the basis for the airline resuming operations. The notice also set out what Tiger Airways needs to do before CASA would even consider imposing the conditions."

Four days later on 1 August, CASA said Tiger had responded and CASA would consider the response. Advance three days to today and the response has so many "deficiencies" that it will take weeks to sort out, despite the response only being compiled in four days. It leaves the mind to wonder how Tiger in four days created a mess so great it will take weeks to sort out.

Clearly Chris Manning, the former Qantas chief pilot appointed as Tiger safety advisor, is not working out--but it remains to be seen if it is his doing or Tiger management not fully embracing his recommendations. Chin said Thursday evening that Manning "brings onboard a difference perspective". Chin said Tiger was willing to improve its safety. "Nobody's perfect," he said.

But not everybody is grounded, and then faced with an extended grounding after botching an opportunity to return to service.

A$18m loss for first quarter
On top of that, Tiger Australia for the first quarter had a "disappointing" S$23.2m (A$18m) operating loss, much of which Tiger attributed to higher fuel costs and decreased revenue from volcanic activity. Despite the Singapore arm posting an operating profit of S$7.5m, down from S$13.5m for the corresponding quarter last year, the group posted a S$20.6m loss, down from a S$1.9m profit for the first quarter last year.

Chin expected the current grounding, which occurred over the popular July school holidays, would see Tiger Australia post a financial loss for the year to 31 March 2012.

Annual earnings for the group would be "significantly affected" because of Tiger Australia's loss and grounding, Chin said. Bookings in Singapore, however, were strong, Chin said.

Here some say Tiger should call it quits in the Australian market. The carrier disclosed that as of today it had refunded S$17.7m in ticket sales and S$1.7m of ancillary revenue since the grounding. Those figures, however, are not in addition to the S$2m the carrier previously reported it was losing each week of the grounding.

Tiger confirmed it is in discussions with the South Australian government over the A$2.25m the government granted, with conditions, to Tiger to set up a base at Adelaide that is now expected to close. "These discussions are ongoing and a conclusion has yet to be reached," Tiger said in a statement.

No plans to leave Australia
"It is a major setback but I think we will get over it," Chin said. He added that there was "money to be made" in the domestic market, and Tiger Australia has in the past come close to break-even. Tiger's board and investors were "nowhere close to that tipping point" of pulling the plug down under, Chin said.

Re-branding not ruled out
If and when Tiger resumes services it will likely do so under its existing brand, but the carrier has not ruled out a re-branding exercise in the future. "When we resume services we intend to keep our brand," Chin said. He added that the group was working on a "number of initiatives".

No direction on service resumption plans
For nearly a week now Tiger's booking engine has showed that it only flies from Melbourne to five destinations. Asked if this was an indicator of reduced services, as expected, once the ban was lifted, Chin remarked it would be "premature to comment on what resumed services will look like".

"It doesn't mean it's restricted to that," Chin said, explaining he was "not yet in a position to say what the resumption plan is".

Aircraft basing flexible
A cut in services could yield surplus aircraft. While there were reports last month leasing agreements would make it prohibitively expensive to re-locate aircraft from Australia to the group's Asian bases, Chin said there were no such financial restrictions.

Chin, a former executive with Singapore Airlines, who has an approximately one-third stake in Tiger, disclosed the Tiger board approached him to lead the company while then-chief executive Tony Davis went to Australia to lead the operation here. Chin received clearance from Singapore Airlines to take up the opportunity.

The future management structure of Tiger is unclear, although Chin lightheartedly remarked "Tony [Davis] is not banished to Australia".

The epithet "the airline industry is always in crisis" could be your reaction to Virgin Blue's announcement this morning that it expects to post a financial loss of A$30-80m this year compared to last year's $34.3m profit.

Indeed, Virgin Blue has been directly affected by a number of incidents that are affecting travel demand: Queensland floods, New Zealand earthquake, and rising fuel prices. So far the carrier has managed to avoid direct repercussions of the earthquake in New Zealand, but a medium/long-term indirect affect is not yet clear. Those events are affecting other airlines too: Air New Zealand last week said it expected to post a second half loss--but not, it should be noted, an annual loss. The difference is Virgin Blue has another burden.

The carrier's game change programme seeks to ultimately improve margins, especially with corporate travelers, but you have to spend money to make money and boy has Virgin been spending: new route to Abu Dhabi, new partnership with Etihad, new cabins (above), new uniforms (left), and new menus. Bigger costs are yet to come, like the re-branding and two A330-200 aircraft due to enter service in the next few months.

The two aircraft are leased, which helps defray costs over an outright purchase, but costs are still incurred in crew set up, spare parts, and maintenance (the two frames, formerly with Emirates, are a decade old). Better economics will come with the two A330-200 aircraft due next year direct from the Airbus production line, the first time the carrier will take brand new Airbus aircraft.

Still more changes and costs--some announced, some not--are on their way, so that helps explain how Virgin, unlike Air NZ, will undo its first half profit of $37m statutory before tax, meaning the carrier will lose $67-117m this half of the financial year. Virgin thus finds itself needing to more carefully balance game change with cost. It is understood some initiatives, like new training, have been scaled down. Fuel contingency amounts are being fine-tuned. Employees are also conjuring cost-cutting ideas.

Chief executive John Borghetti and his team have a solid vision of where and what they want their rejuvenated carrier to be. They have to navigate that path, which includes cost oversight and cost-cutting but also managing shareholders and investors by convincing them spending now is the right time to make the transformation lest Qantas has any more time to play catch-up, as it did with the trans-con market.

This Wednesday has been tooted as a very historical day for the Virgin Blue Group. Besides the group's half-annual results, what might we hear? Here are some possibilities.

• New uniform. All but guaranteed: flight attendants have picked up their uniforms, signed confidentiality agreements, and will start wearing the uniform on 23 February, the same day there will be a media unveiling at the Westfield Sydney shopping centre. For more, and what the uniform will look like, see here.
• New name, logo, and livery. "Virgin Australia" still seems to be the running favourite, but will Singapore Airlines allow them to use the name? Or will some in Virgin management have their way and drop the Virgin branding?
• An alliance with at least one Asian airline.
• A new service to a major city in Asia. Hong Kong, the perennial favorite, is still talked up, as is Shanghai.
  
• Additional Airbus A330 aircraft. These would be for the very short-term. The fleet could also be announced as going overseas, notably to Asia (see above).
• Additional Boeing 777 aircraft. V Australia will eventually need more. Is now the time? Some say yes. Curiously, the old talk of inducting -200LRs into the fleet for New York services still seems to be circulating.
• Order announcement for turboprop fleet. ATR-72s seem to be the running favourite. Although ATR does have an unidentified order, that order is not believed to be for Virgin.
• New domestic cabin, including new premium class. Also a mention of when Sky Interior deliveries will start, and what the A330 interior will be? (Apparently economy won't be much but business should have a few doodads.) With regards to IFE, Virgin has reportedly run into licensing disagreements with Panasonic for the Red system V Australia uses.
  

What do you think?

Virgin Blue's short-haul fleet is poised to see the introduction of business class under the carrier's "New Blue" strategy. (Photo: Will Horton)

Virgin Blue's long-term "New Blue" strategy for the group aims to capture more of the corporate market with a business class while vowing its leisure product will be "attacking all three of our competitors at the back of the plane", Virgin Blue Group CEO John Borghetti said today in Melbourne at a speech at the Annual Stockbrokers Conference.

But Borghetti said nil of what stockbrokers--or indeed anyone--are most concerned about: Virgin's slashing in May of its annual profit from $80-100m to $20-40m, an announcement that saw the airline's stock value drop by 39%.

He did however refute claims suggesting the downgrade was a desk clearing exercise "to make my life easier as CEO", he said. "That is not the case. It is not about writing down assets to the bottom line."

Bankers and analysts have been seeking answers about the sudden downturn and have so far felt "underwhelmed" with Virgin's reply. Virgin blamed the profit downgrade on "rapid deterioration and increased volatility in the operating environment, particularly in respect of the leisure segment both domestically and internationally" coupled with increased capacity.

Borghetti's only explanation was repeating the earlier claim about weaker demand and higher capacity without elaborating why it was not taking more capacity out of the market. Although V Australia's fifth B777 will add 2900 additional seats per week when it enters service later year, in April V Australia converted its remaining two of seven B777-300ERs on order to options; they were due for delivery in 2011.

Borghetti all but asked the industry to look past the downgrade and instead focus on the future that he expects will bring greater financial stability by shifting from being a leisure-focused carrier to a corporate airline.

That shift began some years ago with the introduction of premium economy on its short-haul fleet, domestic lounges, and a frequent flyer program. But Borghetti is poised to set the business throttles to full.

"Business Class will no longer be the exclusive province of Qantas", Borghetti said, confirming expectations Virgin will offer a dedicated business class. Presently the only Virgin Blue group airline with business class is long-haul subsidiary V Australia.

"Our push into the corporate market is aimed at providing us with more resilient higher margin business travellers," Borghetti said. He vowed the carrier will "bring true competition" to the leisure market, but noted "we must reduce our reliance on this segment if we are to reduce the earnings volatility that goes with it."

With product upgrades have come concerns of increased cost to Virgin, which started as a low-cost carrier before revamping itself to a middle-market carrier. Borghtetti did not deny costs could rise, saying only he would not "take our focus off our cost base".

Control over costs will be crucial. Borghetti re-iterated the carrier's pledge to preserve its leisure market share in the next two years. While predecessor Brett Godfrey remarked last year low-cost carriers like Jetstar and Tiger were in a "race to the bottom", Borghetti said Virgin will challenge "all three of our competitors".

He did not divulge how Virgin would match the range from full-frills Qantas to no-frills Tiger, but cautioned "It is not about pushing a standardised solution, [but] rather one that is derived from a deeper understanding of customer needs." It's a hint that could be seen as Virgin moving towards an Air New Zealand-like fare structure, the first attempt of a structured product un-bundling since Air Canada's short-lived LCC spin-off Tango from last decade.

On the topic of alliances, Borghetti said Virgin will continue to remain independent and form individual strategic alliances where it sees fit, such as the pending joint ventures with SkyTeam's Delta for trans-Pacific flights (for which it expects approval by August) and Star Alliance's Air New Zealand for trans-Tasman flights. Borghetti qualified his statement, saying "our mind is not closed to other options."

Borghetti said the "New Blue" plan is being finalised with results expected to be implemented in the next 12-18 months. In April when Virgin Blue confirmed its order for upwards of 105 B737s, it said it expected the first aircraft of that lot to be the first in its fleet to incorporate the hard product changes of its new strategy. Borghetti disclosed the carrier will soon start a pitch process to select an advertising agency to help promote its strategy.

Borghetti said the next 12 months would be "tough", but allayed financial fears by saying the group had an $800m cash balance with no refinancing options while all debt against aircraft were secured.

Borghetti did not comment on the prospects of the group uniting its brands under one name or new aircraft orders.

If you, like many others, remain unimpressed with Virgin's profit downgrade and lacklustre reasons, at least take confidence in the fact Borghetti had the wit to drop the "Airline of the Future" moniker for the more simple "New Blue", which should make the carrier stronger, provided Borghetti delivers on what he promises--and with greater explanation.

At Air NZ's half-year financial results, CEO Rob Fyfe announced his carrier will make undisclosed improvements to its Trans-Tasman product. The carrier will start to unveil the improvements in mid-March, after which Fyfe said competitors would be "scrambling to catch up".

The improvements come as Air NZ faces "unstable market dynamics" on the Trans-Tasman market, as Fyfe characterized it. He said demand was down 2.9% and the carrier cut 10.5% capacity. Air NZ faces increased competition, primarily from non-full-service carriers Jetstar and Pacific Blue.

It seems likely then the improvements will aim to increase passengers' perceived value of Air NZ's full service, thus wooing them away from Jetstar and Pacific Blue--or stopping a further exodus. It's unlikely Jetstar and Pacific Blue would improve their product since it is tied to offering passengers the lowest fare.

The Trans-Tasman improvements, new cabin design, and introduction of more A320s will make the next twelve months "one of the most defining" in Air NZ's history, Fyfe remarked.

Financial results summary:

• Normalised earnings* before taxation of NZ$96 million, up $70 million from the same period last year
  
• Normalised earnings* after taxation of $64 million
• Operating revenue down 15% to $2.1 billion
• Passenger demand down 4.6%
• Passenger load factor up 3 percentage points to 81.6%
• Net cash position $1.1 billion
• Interim dividend of 3.0 cents

* Normalised earnings exclude the impact of derivatives that hedge exposures in other financial periods.

Fyfe said other carriers have approached Air NZ asking to license its premium economy seats, but said "They'll have to wait a little while."

At the end when there were no further questions, one NZ reporter asked Fyfe about the carrier's claimed drink-driving problem. Fyfe declined to comment, saying the conference was about financial results. "We are not dealing with those issues", he said. Ouch.