Keep Virgin Australia in the Skies

[dajop]

To bail out private businesses?

Isn’t it time we did away the notion that an Australian government taking an action to support VA in some manner would be doing so just “to bail out” a private business? That has little to do with it.

They would do so to primarily to avoid monopoly rents putting a brake on an economic recovery - in terms of both a business input cost and something that may be very important in stimulating or dampening domestic tourism.

Now they could also do this by regulating a monopoly (if QF were to remain the sole mainline player). but that can be difficult to do, although forced divestiture of JQ could be an option.

It’s difficult to tell right now what the post-COVID world will look like - demand could be well and truly stuffed as businesses learn to optimise video and teleconferencing, thus eliminating the need for travel and tourists may not be comfortable with the travel risks, even domestically. So in face of such reduced demand, it may we’ll be the right thing to let VA cease to be. But until that picture is clearer, a marking time approach is at least worth considering.

 

[33kft]

That has little to do with it.

Sorry, but VA being insolvent and requiring a rescue has little to do with what exactly? All of the economic impacts you've listed are the primary concern here, we are in agreement, but the fact that VA cannot sustain itself through this period either through its own reserves, through investment from current equity holders, through investment from new investors or through loans against assets is why this is necessary, and the health of the business plays a much bigger role in this than you're suggesting.

 

[Must...Fly!]

Sorry, but VA being insolvent and requiring a rescue has little to do with what exactly? All of the economic impacts you've listed are the primary concern here, we are in agreement, but the fact that VA cannot sustain itself through this period either through its own reserves, through investment from current equity holders, through investment from new investors or through loans against assets is why this is necessary, and the health of the business plays a much bigger role in this than you're suggesting.

The being the case, in your opinion is Australia a big enough market to allow two airlines without significant government intervention in the market?

 

[Jamesaurus]

Isn’t it time we did away the notion that an Australian government taking an action to support VA in some manner would be doing so just “to bail out” a private business? That has little to do with it.

They would do so to primarily to avoid monopoly rents putting a brake on an economic recovery - in terms of both a business input cost and something that may be very important in stimulating or dampening domestic tourism.

Now they could also do this by regulating a monopoly (if QF were to remain the sole mainline player). but that can be difficult to do, although forced divestiture of JQ could be an option.

It’s difficult to tell right now what the post-COVID world will look like - demand could be well and truly stuffed as businesses learn to optimise video and teleconferencing, thus eliminating the need for travel and tourists may not be comfortable with the travel risks, even domestically. So in face of such reduced demand, it may we’ll be the right thing to let VA cease to be. But until that picture is clearer, a marking time approach is at least worth considering.

Yes I agree that stopping a monopoly is one of the strongest arguments in favour of Virgin.

The below article quotes "The industry would like to see what Etihad and Singapore Airlines' position is. There's been a fair bit of silence from them."- It might be wishful thinking but yeah I'd like to see the foreign owners step up with their own cash:

If Virgin Australia fails, it's 'a bloody disaster'. Who will take its place and do consumers lose out?

Until a new airline can come in, pass various regulatory hurdles and establish itself as a formidable competitor to almighty Qantas, the fear is that Australian consumers may lose out with higher fares and reduced flight options.

www.abc.net.au

If it took 3 years for VirginBlue to capitalise on Ansett's demise, then I personally would cop the short term monopoly of qantas for a similar duration, rather than have my taxes prop up the Emerati, Singaporean, Chinese investors..

 

[dajop]

Yes I agree that stopping a monopoly is one of the strongest arguments in favour of Virgin.

The below article quotes "The industry would like to see what Etihad and Singapore Airlines' position is. There's been a fair bit of silence from them."- It might be wishful thinking but yeah I'd like to see the foreign owners step up with their own cash:

In normal times, you would expect foreign owners to step up with the cash or let it go. But cash is a problem for just about every airline right now, no-one is interested in propping up a carrier in Australia that in a world with drastically reduced international travel that means they probably don't need a strategic partner in Australia in the foreseeable future.

SQ and EY didn't invest in VA to milk at as a cash cow, they did it to strengthen their own position in the market - by tapping into the big number of domestic road warriors who make occasional overseas travel. There version of QF's "golden handcuffs". It seemed to be working well for SQ - whose services had expanded from about 12-13or so a day into Australia when the VA investment started to 20+ a day just before COVID hit. In reality, now they will probably have a fraction of that in the post COVID world so don't need them any time soon. They don't care about Australian jobs, Australian domestic tourism nor handing a domestic monopoly to QF if international travel remains stuffed for a considerable period of time.

 

[moa999]

whose services had expanded from about 12-13or so a day into Australia when the VA investment started to 20+ a day just before COVID hit. In reality, now they will probably have a fraction of that in the post COVID world so don't need them any time soon. They don't care about Australian jobs, Australian domestic tourism nor handing a domestic monopoly to QF if international travel remains stuffed for a considerable period of time

SQ still has some interest in ensuring a competitive 2nd airline so they can offer codeshares for passengers visiting a couple of Australian cities (they don't need it for in and out).
And they also have a strong interest in Velocity remaining viable, much like EKs access to the QFF program.

But the Singapore populous wouldn't be happy with Singapore bailout money being funneled to Australia.

The real issue here is no-one knows how long this goes on.

- Australia could get to zero within a couple of months and domestic travel restarts to say 50% prior levels and with a vaccine, international by the end of the year.
- Or it could take years to find a vaccine, and despite international quarantine we keep on having domestic hotspots flare up every few weeks, and there is limited domestic or international travel for a long time.

There is a massive difference in $ terms on the funding needed for both scenarios.

 

[Must...Fly!]

Quite right in that we don't know what the future looks like. One of the problems for all airlines in slimming down is that the aircraft value will have depreciated somewhat, especially given the MAX situation still bubbling away. The demand for narrowbody airframes, particularly used ones, is likely to be quite small.

I am just speculating, but there could be opportunity for lessors to pay for conversion for some 737NG fleet in the world to freighters. It's clear there could be an ongoing lack of capacity in the market if domestic (& short haul international) air travel does not return to prior levels. There are opportunities to come out of this crisis, but it's going to significantly depend on the ability of everyone in the industry to cooperate and take a slice of pain.

I intend to email my local federal MP & senator tonight expressing support for a government loan to Virgin...I don't own any shares or have anything owed to me (other than a relatively modest amount of Velocity points) but I just think it would be best for the employees, the country, and as long as everyone takes the hit they need to (particularly lessors), it shouldn't have to cost the taxpayer a dime over the 3 year period.

 

[amidon7]

Not a VA freq-flyer, but agree that we need two airlines. Signed.

 

[hydrabyss]

Not a VA freq-flyer, but agree that we need two airlines. Signed.

I also agree that we need two airlines, I'm just not sure if the other airline needs to be Qantas.

 

[UP4014]

Every business should have a risk assessment on how external events effect trade. So I would love to see what risk assessment and mitigation Virgin had written down they would do in the event of pandemic. My employer has a huge array of risks in a risk register, about 270 odd.

For an airline this is a foreseeable event (with no excuse after the cessation of flying on 9/11) but not say for your local take away. If their only mitigation to a shut down in flying is to ask the govt for money the board have been asleep at the wheel. Perhaps it was "we will speak to our shareholders and banks to come to an arrangement" in which case presumably that has failed.

I would say QF has certainly been more prepared, stand downs early as bad as that is to preserve cash and immediately talk to your banks, suppliers about keeping the aircraft and airport leases ticking over at minimum cost.

Cash is the blood flow to any business, and a delay in stemming the bleeding will kill the patient, I guess the patient was already sick.

 

[Must...Fly!]

How on earth do you mitigate away a once in 100 year event that effectively shuts down your business for x number of months, where you have no idea what x is?

I'm sure many of Virgin's risk register items had the phrase "improve long-term financial stability of the airline" as a key risk mitigation - they were well on the way to actioning plans to do just that. Bad timing but doesn't mean it's not worth saving.

 

[dajop]

For an airline this is a foreseeable event (with no excuse after the cessation of flying on 9/11)

In Australia, there was hardly cessation of flying. It dampened appetite for saving AN. Personaly I flew on 13 Sep, and within 2 months had taken 26 flights. We went from ~400 flights a week between SYD & MEL down to ~250? Not from 500 flights down to 12!

Not to say they shouldn't have had a plan for dealing with a pandemic risk. I was first involved in a pandemic preparedness in 2007, developing procedures for business continuity etc.

 

[Must...Fly!]

Not to say they shouldn't have had a plan for dealing with a pandemic risk. I was first involved in a pandemic preparedness in 2007, developing procedures for business continuity etc.

I had a light involvement with pandemic in a former role, in the transport environment. There is a limit to what an organisation can do and one quickly comes to the conclusion that the health gurus are the ones that will decide what happens, no matter what you do short of adding more cleaners. And putting in the plan "setting aside billions in cash" isn't really a useful bit of planning, either.

 

[oz_mark]

Every business should have a risk assessment on how external events effect trade. So I would love to see what risk assessment and mitigation Virgin had written down they would do in the event of pandemic. My employer has a huge array of risks in a risk register, about 270 odd.

Was "business would be shut down for months" one of those risks?

 

[UP4014]

In Australia, there was hardly cessation of flying. It dampened appetite for saving AN. Personaly I flew on 13 Sep, and within 2 months had taken 26 flights. We went from ~400 flights a week between SYD & MEL down to ~250? Not from 500 flights down to 12!

Not to say they shouldn't have had a plan for dealing with a pandemic risk. I was first involved in a pandemic preparedness in 2007, developing procedures for business continuity etc.

I was using that as an example to show there is no reason why the high paid end of Virgin shouldn't have considered all the pitfalls of being in transport. As we could have had something similar which would shut down out skies for a period.

 

[UP4014]

Was "business would be shut down for months" one of those risks?

That's exactly what we should know, how good is or was their risk assessments of what can go wrong in the airline world.

So you have to consider every risk if you're the risk manager and go through the mitigation options with management.

With an airline I would think you would consider 9/11 type scenarios where flying is shut down but also pandemics, gastro outbreaks happen in the cruise industry all the time so while shutting down one or two ships may not put a cruise company out of business it does flag these are issues with this and raise pandemics.

My guess is with Virgin a risk like this was too hard to deal with so they put in the high risk too hard to mitigate against and their option would be to shut up shop and go do something else. But, that's what we need to know, was their risk management carried out competently. If they are facing up to what can put them out of business are they dealing with something that might say kill only one person. We don't know.

 

[RAM]

That's exactly what we should know, how good is or was their risk assessments of what can go wrong in the airline world.

So you have to consider every risk if you're the risk manager and go through the mitigation options with management.

With an airline I would think you would consider 9/11 type scenarios where flying is shut down but also pandemics, gastro outbreaks happen in the cruise industry all the time so while shutting down one or two ships may not put a cruise company out of business it does flag these are issues with this and raise pandemics.

My guess is with Virgin a risk like this was too hard to deal with so they put in the high risk too hard to mitigate against and their option would be to shut up shop and go do something else. But, that's what we need to know, was their risk management carried out competently. If they are facing up to what can put them out of business are they dealing with something that might say kill only one person. We don't know.

It seems NO airline in the world had prepared adequately for China deliberately misleading the world about a contagious deadly virus.

Worth looking at Taiwan who (intelligence services or relatives perhaps?) picked up on CV in the first days of December, negotiated with the Chinese Communist Party to send a medical team to Wuhan (13 Dec) and despite being 'managed' by the CCP saw enough to immediately shut down all air links with Wuhan (multiple daily flights to Taipei) as well as restrict other Chinese traffic by Dec 14/15 respectively.

NY Times has a great in-depth article. BTW China & friends vetoed Taiwan being a WHO member, Australia acquiesced as did not want to offend China!

Qantas' cash flow projections going out 12, 18 and 24 months if no major international tourism rebound/borders re-opened mean it will be bankrupt if it has any domestic route competition. So AJ in fighting to kill off VA (& asking all Q staff to help by contacting MPs etc) so Q can survive. After a one month shut-down it takes between 350-580 man hours to prepare a plane for operation again. The longer non-operational the bigger the maintenance-restart costs. The 100+ Q international route planes are a major millstone for Q that VA does not have.

VA can quite profitably use its 5 B777s as hybrid cargo planes due to the B777's massive cargo capacity vs an A380 for example. Q has around 6 B737F and leases 3 other freighters.

If VA makes it past June then Q is in serious trouble.

 

[dajop]

If VA makes it past June then Q is in serious trouble.

Q, the company would be in serious trouble, but perhaps not the brand. They company could go bankrupt and they could sell the brand to VA

 

[Cryptarcadian]

Signed.

For many reasons I hope VA survives, not least for the VA staff in the air and on the ground. They were the reason VA has been my favourite airline, and them being in this predicament is completely separate to any criticism of VA's ownership structure or prior management foibles.

However we got here though, in my eyes there is no alternative but to support VA if we want a competitive aviation sector with 2 airlines anytime soon… and however "soon" COVID-19 may take to resolve, it won't be the 10 or 20 years we'd wait for a new airline to hit its stride. Yes, use my taxpayer dollars if it comes down to it (but equity should be on the cards in that case).

 

[AIRwin]

https://www.facebook.com/video.php?v=451925435600693