Is it the end of Virgin Australia?

Virgin Australia has officially entered voluntary administration after failing to strike a bailout deal with the federal government.

Deloitte will help Virgin restructure its $5 billion debt and recapitalise the business, after hiring global investment bank Houlihan Lokey earlier this month to advise on how this process should play out, according to Travel Weekly.

Frequent flyer program Velocity is not in administration and Virgin will continue to operate all scheduled international and domestic flights currently transporting essential workers, and will maintain important freight corridors and return Australians home.

It is hoped Virgin Australia can come out of administration as soon as possible.

“We are committed to working with Paul [Scurrah] and the Virgin Australia team, and are progressing well on some immediate steps,” said Deloitte’s Vaughan Strawbridge.

“We have recommended a process of seeking interest from parties for participation in the recapitalisation of the business and its future, and there have been several expressions of interest so far.”

The decision to enter voluntary administration was about securing the company’s future and emerging on the other side of the COVID-19 crisis, stated Virgin Australia chief Paul Scurrah.

The cash-strapped airline earlier this week asked the Australian Stock Exchange to suspend trading of its shares after the federal government rebuffed its request for a $A1.4 billion loan. It then extended the pause on Thursday to buy some more time for either the government or outside investors to come to the rescue.

virgin australia

The government was not prepared to give any more money to Virgin Australia on top of the $165 million in funding allocated to help keep Virgin and Qantas flying domestically, the $715 million relief package for Aussie airlines announced last month, and a $300 million lifeline for the regional aviation sector.

Prime Minister Scott Morrison, Deputy Prime Minister Michael McCormack and Treasurer Josh Frydenberg all told the media the government wanted Virgin to be saved by private investors or Virgin shareholders.

“They’ve got deep pockets,” Treasurer Josh Frydenberg told ABC radio on Thursday.

“We want to see Virgin continue, we want to see two airlines in the domestic market, but we’re not in the business of owning an airline.

“Where our focus has been is on providing industry-wide support.”

Virgin’s major shareholders – Etihad Airways, Singapore Airlines, Nanshan Group and HNA Group – passed up the opportunity to provide an equity injection. Richard Branson’s Virgin Group owns just over 10 per cent of Virgin Australia. Mr Branson has already put up his luxury island resort in the Caribbean as collateral in a desperate attempt to rescue Virgin Atlantic from collapse but has so far been quiet on any bailout ideas for Virgin Australia.

In an open letter to staff globally, Mr Branson said Virgin Australia was “fighting” for life and that the airline and others in his group needed government loans to get through “this catastrophic global crisis”.

“We are hopeful that Virgin Australia can emerge stronger than ever, as a more sustainable, financially viable airline,” he said.

“If Virgin Australia disappears, Qantas would effectively have a monopoly of the Australian skies. We all know what that would lead to.”

Virgin’s collapse may not be all doom and gloom
The fate of Virgin Australia may be in the hands of administrators, but strong interest from major investors such as Wesfarmers and the Macquarie Group has created a sense the current situation may be the start of a story, rather than the end of one, says UniSA aviation industry expert, Associate Professor Kate Quigley.

She suggests the outcome of the Virgin Australia scenario may signal the start of new era for the aviation industry, as the impact of the COVID-19 crisis forces operators to develop new, more resilient business models.

“The aviation industry has always been challenging, as there are large costs involved in keeping a fleet of planes in the air, and that often requires a very high level of debt,” said Assoc Prof Quigley.

“So, I wouldn’t be surprised to see some other airlines around the world go the same way as Virgin Australia, because the only way those companies can make debt repayments is to have their planes flying, and that is impossible at the moment.

“However, where one operator drops out, there becomes more space for other operators to work in, and for those companies with clever, innovative ideas, there is a really exciting opportunity to reshape the aviation industry for the better going forward.”

The Australian government may not have bailed out Virgin Australia but Assoc Prof Quigley claims that by doing so, it may have prevented the local aviation industry from adapting to the post-COVID environment.

“A bailout might have saved jobs in the short term, but Virgin Australia was already struggling before this pandemic, so if the Government were to prop up a problematic business model, many other struggling businesses might then expect the same type of support, rather than addressing their operational issues,” she said.

“Instead, there is now a space in the Australian airline industry for an innovative new operator to establish a viable business model that responds to the current situation.

“Whether that is a reborn version of Virgin, or a move into the market by one of the many international operators who already had a stake in Virgin, or a new operator entirely, they will be able to structure that business differently than the old Virgin model, adapting to the new marketplace, and ensuring competition remains in the Australian industry.”

“Without a second airline to compete against Qantas, the risk is obviously that they might start to price gouge, and then the public carries the burden.

“Even before this pandemic, many people felt domestic prices were too high, so they would fly to Bali or Fiji instead of Cairns, and we don’t want to see that worsen. 

“But, significantly for whoever fills the Virgin void, Australia may well come out of lockdown before international travel resumes, so more Australians could be exploring Australia than ever before, and the domestic market might see a post-pandemic boom.”

Your rewards points are safe
Virgin Australia took time out this week to reassure its Velocity Club members that their points were safe and that and money held in Global Wallets was also protected.

“We are writing to reassure you that the announcement by Virgin Australia does NOT jeopardize the funds in your Global Wallet Account or your ongoing ability to continue to use the Global Wallet Card as usual,” siad Virgin in a letter to Velocity Club members.

“Your Velocity Global Wallet program, account and card(s), will continue to operate without any interruption in service, as they have since the program was introduced in 2013.

“We will ensure your Global Wallet Account continues to provide you with great value. In the coming weeks we will be adding new features and benefits, including additional rewards. We will be sending detailed updates in the coming weeks.

“It is important to highlight that the money in your Global Wallet Account is held by Cuscal and is completely separate from the assets of either Virgin Australia or Velocity. Further, neither Virgin Australia nor Velocity have access to the funds in your Global Wallet Account.”

Do you fly with Virgin Australia? Are you confident it can bounce back from the pandemic?

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Written by Leon Della Bosca

Leon Della Bosca has worked in publishing and media in one form or another for around 25 years. He's a voracious reader, word spinner and art, writing, design, painting, drawing, travel and photography enthusiast. You'll often find him roaming through galleries or exploring the streets of his beloved Melbourne and surrounding suburbs, sketchpad or notebook in hand, smiling.
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