The news that Virgin Australia (VA) has officially entered into administration came as expected collateral damage from the COVID-19 crisis. So is this the end of VA as we’ve known it? The answer it appears is both yes and no. But it’s complicated.
With a $5 billion debt, 90% of its aircraft grounded and no return in sight due to ongoing travel bans plus thousands of its staff already stood down or laid off altogether, the plausibility of VA staying afloat in its current form would have taken a miracle at best.
When that $1.4 billion miracle wasn’t forthcoming from the Federal and State Governments, the only way for VA to have a chance to remain viable was to enter into voluntary administration and as the airline says: “recapitalise the business and help ensure it emerges in a stronger financial position on the other side of the COVID-19 crisis.”
While the airline thankfully hasn’t ceased altogether today, the question now is – is this the end of VA as we’ve known it? The answer it seems is both yes and no. But it’s complicated.
Virgin founder Sir Richard Branson said in a letter and Instagram video update this morning that “This is not the end for Virgin Australia and its unique culture, but I believe a new beginning. I promise that we will work day and night to turn this into a reality.”
On the company’s website, the airline says “We know you might be worried about what the voluntary administration news means for us and your flights,”
“Rest assured, we’re continuing to operate scheduled flights as normal which are helping to transport essential workers, maintain important freight corridors, and return Australians home.”
Clearly, there’s a lot to work through in the coming weeks for all involved with a lot of answers sought and patience and optimism required.
So what do we know so far? And what important points do you need clarifying? It’s all a moving beast, of course, but hopefully, the below will help answer some initial questions.
What happens to existing VA flight bookings or credit vouchers?
Right now, it’s estimated there are $1 billion of outstanding VA flights owed to customers via existing bookings or credit vouchers.
Not surprisingly, the airline’s customer service centre has been overwhelmed and is now experiencing seriously high call volumes and wait times from anxious customers. As are travel agents.
According to the airline, bookings and credits are still valid with more details to come in the coming months, once a new owner is (hopefully) found, and the company is restructured.
While VA is flying a minimal domestic schedule, it’s important to note again that the airline is still operating ‘business as (some kind of) usual’.
Details of VA’s updated flight schedule can be found here.
What about Velocity Points?
From today, VA has frozen all Velocity points.
That doesn’t mean you’ve lost them (again – hopefully), but you won’t be able to access or use them until a further announcement is made in four weeks time.
Velocity Frequent Flyer is a separate company under the Virgin Group and is not in administration.
VA states on its website that: “We’ve made the difficult decision to pause all redemptions for an initial period of four weeks, effective immediately. This means your members won’t be able to redeem their Points for rewards during the pause,”
If however, the airline does go under altogether, you may have to farewell your points as they won’t be redeemable – as did customers when Ansett collapsed in 2001.
What happens to Virgin employees now?
As of today, 16,000 VA jobs are now in limbo; however, the administrators at Deloitte have said there are no immediate plans for redundancies.
Paul Scurrah, CEO for Virgin Australia said at a press conference this morning: “The events of the past 24 hours have been incredibly challenging for the wonderful people of the Virgin Australia Group,”
“They are the best in the business,” he said of Virgin’s staff.
“And they’re the best at what they do, and they deserve to have a very bright future, and that’s my intention – to make sure we create that.”
To date, 8,000 VA staff have been stood down without pay since the coronavirus travel bans came into force in March.
Vaughan Strawbridge, an administrator from Deloitte also echoed Mr Scurrah’s comments, saying: “There are no plans to make any redundancies. Wages will continue to be paid and those who have been stood down and are accessing JobKeeper. The intention is to continue to make those payments available to those staff.”
While there can be no absolute guarantees, VA’s optimism is honourable.
Will someone bail out Virgin Australia?
It’s the $5 billion question. And we certainly know it won’t be the Federal or State Governments donning capes and coming to the rescue now.
VA’s overseas airline partner investors, themselves also majorly impacted by the pandemic have not been keen to date to commit more of a stake in the airline either.
Etihad Airways owns 21% of VA while Singapore Airlines, China’s Nanshan Group and HNA each own approximately 20%. Sir Richard Branson’s Virgin Group owns 10%.
Rumours are running hot of who may step in with China Southern Airlines, East Airlines and Air China all believed to be considering bids. Though nothing has been confirmed.
According to the ABC, Deloitte said several parties had expressed interest in the business including private investors, and they were “progressing well on some immediate steps.”
Where’s Sir Richard in all of this?
Virgin brand founder Sir Richard Branson has copped a lot of heat over VA’s predicament to date. But the truth is, the Branson owned Virgin Group only has a 10% stake in VA.
Sir Richard Branson’s Virgin portfolio of airlines, cruise ships and associated lifestyle businesses are also hurting massively due to the COVID-19 global fallout with Branson currently lobbying the UK government for a £500 million (AU$983 million) rescue package for Virgin Atlantic.
While the request has been highly criticised by the British public, in an open letter to Virgin employees, Branson noted that most of his wealth is “calculated on the value of Virgin businesses around the world”.
“[It is] not sitting as cash in a bank account ready to withdraw,” he said.
That said, Branson has now said he is willing to mortgage his private Caribbean ‘Necker’ island if required to help save the Virgin Group.
Does this mean airfares in Australia will skyrocket now?
If Virgin does collapse altogether (let’s hope not), Australia will be left with a Qantas monopoly, and that could spell bad news for domestic airfares and regional accessibility for locals and tourists.
Though, airfare experts say that any airline trying to raise prices in a post-COVID-19 environment with less demand could face a consumer backlash and potential financial ruin.
The general view from economists and financial experts is that Virgin Australia will secure a new owner in the coming months and successfully restructure the business to stay afloat and competitively remain the number two airline in Australia post-COVID-19.
But if they’re right, VA will undoubtedly look drastically different, with reduced routes and a potential new business model and service offering, rumoured to be positioned somewhere between Qantas and Jetstar.
Take from that what you will.
Twenty years on from where Virgin Blue first started in Australia, today sees the closure of one chapter and the beginning of another. How that next chapter plays out for Virgin Australia is anyone’s guess in this uncharted coronavirus era. But we’ll soon see.
“In 20 years, the Virgin Australia Group has earned its place as part of the fabric of Australia’s tourism industry,” Says Mr Scurrah.
“We employ more than 10,000 people and a further 6,000 indirectly, fly to 41 destinations including major cities and regional communities, have more than 10 million members of our Velocity loyalty program, and contribute around $11 billion to the Australian economy every year.”
“Australia needs a second airline, and we are determined to keep flying. We’ll come back leaner, stronger and fitter.”
Paul Scurrah, CEO, Virgin Australia
Find out more: Virgin Australia Enters Voluntary Administration
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