IN BRIEF: June 2019 issue

JOHN O’Sullivan steps aside

Tourism Australia will enter a new era this month with the departure of Managing Director, John O’Sullivan after five years in the role. O’Sullivan has been appointed as CEO and Executive Director of the ASX-listed activities specialist, Experience Co Limited. O’Sullivan said he was leaving with mixed emotions, “but I feel I’m leaving the organisation in a really good position. Australian tourism is performing well, with international arrivals and spending both at record levels. We’ve reshaped our marketing narrative. Our Tourism 2020 journey is nearly complete…and I firmly believe Tourism Australia is driving the right strategy to take the industry to new levels,” O’Sullivan said.

In his new role he will take over from Bob East, who has been acting as Experience Co CEO since February this year when the company reported the sudden departure of Anthony Ritter at the same time as a profit downgrade.

East will remain as Chairman of both Experience Co and Tourism Australia. O’Sullivan will see a significant salary bump as Experience Co CEO, with a base salary of $500,000 plus the potential to earn another $500,000 as part of the company’s short- and long-term incentive schemes.

Hunter Travel Group’s big deal

Brett and Louise Dann have finally confirmed the long-rumoured expansion of their travel agency network, with a new joint venture with the Royal Automobile Club of Queensland boosting the Hunter Travel Group’s overall portfolio to 40 stores nationwide. The new JV will incorporate RACQ Travel and RACT Travel, which Hunter Travel Group (HTG) has managed since 2010, to create Australia’s largest motoring association travel group with 21 locations serving almost two million members across the country.

Hunter Travel Group’s existing 19-strong Helloworld Travel and Cruise Travel Centre businesses remain under separate HTG ownership, and HTG will manage both businesses to leverage an annual TTV in excess of $200 million. The transaction is set to be finalised on 1 July this year, with RACQ outlets to maintain existing shop front branding and retail teams. “However there will be a new framework of enhanced systems which will make the service delivery more efficient,” Brett Dann promised.

Flight Centre warning

Slower than expected trading conditions, particularly in the Australian leisure market, were cited by Flight Centre last month as one of the key reasons for a profit downgrade, with the company now expecting its full year result to be between $335 million and $360 million — about 14% less than the previously forecast range of up to $420 million. The company said the challenging local trading climate had coincided with a “period of significant change and disruption” over the last two years, including the deployment of its new Sabre GDS platform, the introduction of a new Enterprise Bargaining Agreement governing front line sales staff wages, and the shock consolidation of its brands which saw the demise of Cruiseabout.

“While these changes are now embedded and additional plans are in place to address short-term market challenges relating to soft TTV growth, costs and margin contraction within the leisure business, the benefits that are expected to flow from these initiatives are not yet being realised,” the company said. MD Graham Turner noted that despite the challenges in the local market, strong trading in the USA and UK highlighted the company’s “emergence as a world leader in corporate travel and our changing earnings profile”.

Qantas MEL divestment

Flight Centre wasn’t the only travel and tourism business to report tough conditions last month, with Qantas also revealing it was working hard to offset the impact of significantly higher fuel costs compared to last year. Revenue for the three months to 31 March was up 2.3% to $4.4 billion, despite the timing of Easter this year which shifted some sales into the fourth quarter.

The carrier also announced it had come to an agreement with Melbourne Airport for the sale of its terminal in the Victorian capital for $355 million.

The transaction includes a 10-year access agreement for Qantas domestic services. However “options to operate some international flights from Terminal 1 outside of peak domestic times will be assessed,” the company said — with these services presumably to be operated by other carriers under the new ownership. The month also saw the announcement that QF would deploy its new 787-9 aircraft on the Sydney-San Francisco route, putting another nail in the coffin of the airline’s venerable 747 fleet.

Other Qantas news last month included the innovation of a “Points Plane” — a service on which all seats will be sold as rewards under the QF Frequent Flyer Program. The first service will utilise an A380 flying from Melbourne to Tokyo Narita on 21 October 2019, with Qantas Loyalty CEO Olivia Wirth saying if the concept was successful more Points Planes would operate more regularly to domestic and international destinations “in the near future”.

And finally Qantas confirmed the appointment of its Chief Financial Officer, Tino La Spina, as the replacement for Head of International, Alison Webster, who departed abruptly last month.

Silversea book-cooker

Silversea Cruises hit the headlines for all the wrong reasons last month, as details of a long-running alleged fraud by a former employee were aired in court. A criminal case against Mary Ann Abellanoza saw her charged with almost 100 offences including “deliberately obtaining a financial advantage by deception” and “dealing with the proceeds of crime”.

Abellanoza allegedly misappropriated more than $3.5 million from Silversea’s Australian office over a four-year period, in an elaborate scam involving the issuing of fake invoices and direction of payments to creditors and the Australian Tax Office into bank accounts she and her husband held. Silversea has launched civil action to recover the money, which Abellanoza apparently told her husband was due to gambling windfalls.

Virgin profit downgrade

Virgin Australia has announced a network review which is expected to see the axing of a number of poorly performing routes, after reporting that its underlying earnings are expected to be down at least $100 million on last year’s results. The downgrade to a forecast $35.6 million loss puts the carrier firmly into the red, with CEO Paul Scurrah citing “the uncertainty of revenue trading conditions in the domestic market” along with fuel and foreign exchange impacts worth more than $160 million.

“Demand has weakened in both the corporate and leisure sectors, driven by lower levels of consumer and business confidence, consumer spending and the impact of the Federal Election,” he said. “While we have continued to grow revenue, this announcement shows that our business needs to become more resilient to challenges such as weaker demand, high fuel prices and the foreign exchange environment”.

Other actions being taken include a restructuring of Virgin’s Boeing 737 MAX order, in the light of the global grounding of these aircraft following two fatal crashes. Scurrah has deferred delivery of the first VA 737 MAX 8 from November this year until July 2021, and also converted an additional 15 of the MAX 8 variant to the larger MAX 10s. “The restructure results in a significant deferral of capital expenditure and provides access to the superior economic benefits of the MAX 10 aircraft,” the airline said.

The changes mean the first of 25 Boeing 737 MAX 10 aircraft will now arrive in July 2021, while the beleaguered MAX 8 variant, of which Virgin has 23 on order, are now scheduled to arrive in February 2025.

 

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