Virgin Australia Financially Secure? [Now in Voluntary Administration]

[travel_bug]

Flying became fun for me when I attained lounge access. I suspect lounges aren’t part of any LCC model.

Slightly off topic but I wonder should VA MkII go the LCC course, if there could be space in the market for a Priority Pass-esque subscription service for the domestic lounges. I imagine it would also help the airports capitalise on any otherwise empty space that’s already set up.

 

[p--and--t]

Funnily enough, folk with starry Ansett eyes seem to forget that parts of their fleet were grounded twice over safety issues....

Correct. More than 20years ago and no longer around, from a time when I would argue flying was accessed by a much smaller market, and there were only two very similar choices.

Tiger was 11 years ago in a much expanded market, with much more frequent descretionary travel across a much broader demographic, far more media attention and 4 choices of airline to fly.

 

[jakeseven7]

Slightly off topic but I wonder should VA MkII go the LCC course, if there could be space in the market for a Priority Pass-esque subscription service for the domestic lounges. I imagine it would also help the airports capitalise on any otherwise empty space that’s already set up.

If VA2 ditches their lounges I certainly hope they upgrade the ‘food’ offering VA1 slopped out and ban hot dogs

 

[drron]

Funnily enough, folk with starry Ansett eyes seem to forget that parts of their fleet were grounded twice over safety issues....

Though I doubt the safety issue really resounded with most TT pax rather the fact that so many flights were cancelled or very late.
We did notice at MCY in the days when TT flew there that they would often cancel their Sunday flight with the next flight on Thursday.Many very vocal when that occurred.

 

[Captain Halliday]

apart from the fact that NOBODY calls me "Dave",

I'm sorry Dave. I'm afraid I can't do that

Flynny, this Dave thing might just take off.

 

[DavidFlynn]

Flynny, this Dave thing might just take off.

Hahahaha! Flynny was my school nickname so no drama there!

 

[HS-TQE]

If VA2 ditches their lounges I certainly hope they upgrade the ‘food’ offering VA1 slopped out and ban hot dogs

I wonder if No1Lounges could take over the VAd lounges if VA mk2 takes the LCC path.. They already basically operate the VA/EY joint lounges in SYD/MEL and the separate MyLounge in BNE (with VA paying for their branding on the front).

I'm aware there may be other third party lounge operators that could be interested at expanding into Australia if the opportunity arose from the possibility that VA mk2 goes the LCC path.

The third-party lounge (in the existing VAd lounge space) could also be open to regionals (REX, Airnorth, etc) and FIFO (Alliance, Cobham, etc), in addition to the usual walk-up/pre-book customers.

 

[antycbr]

The theory is that Virgin Australia could be and indeed would be profitable if not weighed down by debt and if it could negotiate more favourable contracts (from pilots to leasing, WiFi, suppliers etc), and that the administration process could achieve this, pretty much wiping out debt and terminating a lot of aircraft leases for starters, as well as potentially shrinking Virgin Australia back to a smaller airline, sort of a 'clean sheet' approach, and building slowly and steadily up from there.

Chopping the indulgences of the Borghetti era back but keeping the core operation.

I wonder if No1Lounges could take over the VAd lounges if VA mk2 takes the LCC path.. They already basically operate the VA/EY joint lounges in SYD/MEL and the separate MyLounge in BNE (with VA paying for their branding on the front).

I'm aware there may be other third party lounge operators that could be interested at expanding into Australia if the opportunity arose from the possibility that VA mk2 goes the LCC path.

The third-party lounge (in the existing VAd lounge space) could also be open to regionals (REX, Airnorth, etc) and FIFO (Alliance, Cobham, etc), in addition to the usual walk-up/pre-book customers.

If you remove lounges you’d be losing most of your business and premium leisure travellers straight to QF.

If you lose lounges for status you might as well fly JQ as they have network and frequency that VAmk2 can’t match and unlikely to beat JQ on price. At several ports you can even get access to the QF lounge if you join QFclub.

I think taking VA low cost will also destroy the residual value in Velocity.


It’s a complicated equation that VA havent managed to get right yet but I think a hybrid with status/lounges, Y- unbundled, Y and J is what would keep me with VA. Otherwise my discretionary leisure either stops or moves to QF and JQ.

 

[melb78]

I think if they turn VA in a lcc they might as well give up it all up to QF and destroy all the. hard work it has taken VA where it is now apart of being heavily in debt.

 

[glasszon]

The reality is covid-19 will lead to a drastic reduction in demand for the foreseeable future: Who's going to fly internationally if you have to quarantine for 14 days at each end?

At this point I don't see how VA2 will launch without VA1 going into liquidation unless the govt steps in to provide bridging finance. I can't imagine any bidders will place a high enough binding bid that will convince the creditors if the bidders are seriously concerned about VA1's ability to make it to the next creditor's meeting.

 

[tomlee1986]

The reality is covid-19 will lead to a drastic reduction in demand for the foreseeable future: Who's going to fly internationally if you have to quarantine for 14 days at each end?

At this point I don't see how VA2 will launch without VA1 going into liquidation unless the govt steps in to provide bridging finance. I can't imagine any bidders will place a high enough binding bid that will convince the creditors if the bidders are seriously concerned about VA1's ability to make it to the next creditor's meeting.

I wont be surprised even domestic demand will drop too (in business travel) - because of companies might prefer using technology for meetings instead... less cost and more efficient to them

 

[BNEFlyer]

Slightly off topic but I wonder should VA MkII go the LCC course, if there could be space in the market for a Priority Pass-esque subscription service for the domestic lounges. I imagine it would also help the airports capitalise on any otherwise empty space that’s already set up.

It wouldn't make any sense to go back to an LCC. The cost alone should nix that idea, but VA are a good alternative to QF and should continue to be a competitor to QF.

 

[ja1]

The theory is that Virgin Australia could be and indeed would be profitable if not weighed down by debt and if it could negotiate more favourable contracts (from pilots to leasing, WiFi, suppliers etc), and that the administration process could achieve this, pretty much wiping out debt and terminating a lot of aircraft leases for starters, as well as potentially shrinking Virgin Australia back to a smaller airline, sort of a 'clean sheet' approach, and building slowly and steadily up from there.

VA has secured debt and unsecured debt.

Out of $2.8b in assets, it has pledged $2.5b to secure debt.

It has a lot of unsecured debt.. but it isn't as easy as you describe to 'wipe out' the debt and then continue trading - or this approach would be the default approach for every bankruptcy proceeding and it would all be completed within a week..

If the creditors (i.e the people owed money) don't feel like they are getting some sort of return they may feel that they would get a better return through liquidation rather than bankruptcy and seek to wind up the company, sell whatever assets are available and get $0.15/$1 rather than $0.

Wiping out secured debt is of course a lot harder as they have a claim on an asset and can simply assert that claim (and then there might be not be any debt but VA has lost a chunk of the assets it needs to operate..)

 

[DavidFlynn]

Quite correct in all that – my statement was a simplification of how Virgin 2.0 could be closer to profitability than Virgin 1.0.

 

[burmans]

It wouldn't make any sense to go back to an LCC. The cost alone should nix that idea, but VA are a good alternative to QF and should continue to be a competitor to QF.

The whole trouble with this logic is this. They may be a good competitor to QF in the premium sector but they aren't making a profit doing so. They tried to compete with QF in this market, they lost and they'd be stupid to keep trying. LCC isnt the only option but I'm pretty confident that new VA wont be the same as old VA in taking on QF directly like they tried to.

 

[BNEFlyer]

The whole trouble with this logic is this. They may be a good competitor to QF in the premium sector but they aren't making a profit doing so. They tried to compete with QF in this market, they lost and they'd be stupid to keep trying. LCC isnt the only option but I'm pretty confident that new VA wont be the same as old VA in taking on QF directly like they tried to.

Possibly not, they may try to be a hybrid like JetBlue (but with lounges) or VX when they started up. I just don't think VA will be as changed as some people are thinking they should be.

 

[HappyFlyerFamily]

The whole trouble with this logic is this. They may be a good competitor to QF in the premium sector but they aren't making a profit doing so. They tried to compete with QF in this market, they lost and they'd be stupid to keep trying. LCC isnt the only option but I'm pretty confident that new VA wont be the same as old VA in taking on QF directly like they tried to.

Agree.

They should just do LCC and premium economy style business where it’s too costly to change seating layout.

Premium economy might be a way to redeem those Velocity and grab Velocity’s cash.

 

[DavidFlynn]

100% speculation from the peanut gallery here, but I also come down on the side of hybrid (never was a fan of the 'new-world carrier' terminology), middle-of-market positioning. If Virgin 2.0 wants to take on Qantas it'll need lounges on the ground and some form of 'premium' product in the air.

I do suspect that a Euro-business style product could be acceptable on the triangle if it had much-lower-than-QF fares to match, but it wouldn't fly on east-west compared to the Qantas A330 Business Suites.

Bottom line – if the answer to the "Virgin 2.0 positioning" question was an easy one, it'd have been done already.

 

[HS-TQE]

A Euro-Business (where the middle seat is blocked with a divider) also provides flexibility for the aircraft, it doesn't dedicate the a/c to certain routes and the divider can be removed whenever the aircraft rotates off the Golden Triangle and the next rostered route is a low yielding tourist one.

E.g BNE-SYD-MEL-SYD-OOL, where the dividers can be removed during the turnaround to OOL for example.

Saying that, (speculation wise), I think most bidders except maybe the Indigo Partners LCC comglomerate probably couldn't afford to rip out the J seats straight away, despite most of them leaning in the LCC direction (although not confirmed with some bidders).

 

[DavidFlynn]

A Euro-Business (where the middle seat is blocked with a divider) also provides flexibility for the aircraft, it doesn't dedicate the a/c to certain routes and the divider can be removed whenever the aircraft rotates off the Golden Triangle and the next rostered route is a low yielding tourist one.

Agreed. The model is proven across Europe. The key would be determining the price point (and broader product offering) at which Virgin could still expect to win over enough business class travellers, especially corporates, from Qantas, to make this work.

One of my big areas of interest in the Virgin 2.0 model will be east-west. I saw – we all saw – first-hand how the east-west premium experience changed for the better when Virgin Blue became Virgin Australia. A transcontinental turf war between Qantas and Virgin took us in a few short years from a bit of a mish-mash of QF product and the 2-3-2 business class seating of the QF A330s (I recall when a new A330 arrived, there was a media walk-through and a lot of expectations about if this might contain a new business class product, but nope, we got that plastic 'personal workspace' in the middle seat) to what we have today.

Did we go too far – could we have done with really good recliners instead of long-haul grade flat beds with direct aisle access, whopping great video screens etc? Some argue that's the case, and I can see where they are coming from. Naturally from a cost and fleet flexibility proposition, it made more sense for Qantas to outfit all A330s with the same Business Suite rather than have different products for the -200s and -300s.

Never the less, we got what we got and it came about through competition. Now if Virgin 2.0 ditches the A330s and doesn't replace them with something which is at least a lot better than the current B737 business class recliner, that's pretty much an end to competition on the prime east-west corridor.

Again, more speculation: there's a school of thought which suggests that if Virgin's new owners ditch the A330s they could jump-start Borghetti's 'Perth Product' on some 737s, basically create a sub-fleet under the old 'Coast to Coast' marketing brand (never quite got why this was abandoned early on). It'd be a big capex hit, but sans A330s would arguably be the best way to remain competitive against Qantas for east-west.