Virgin Australia Financially Secure? [Now in Voluntary Administration]

[BNEFlyer]

Media are in agreement:
Bain ready to land Virgin: insider claims

The Australian is in agreement, I would take that with a huge grain of salt.

 

[BNEFlyer]

I think the comments from CAPA Peter Harbinson were the most interesting - summarized here:


Centre for Asia Pacific Aviation executive chairman Peter Harbison said the airline model most likely to succeed in the Australian market would not try to compete with Qantas at the high-end corporate level.

“They’ll have something like a business class but they won’t go for the super luxury,” “They’ll have the basic lounge and a lot less frills and that will appeal to the bean counters because we’re not just talking about a pandemic now, we’re talking about a recession.”

VA don't compete for or target the high-end corporate market now, and if Cyrus are successful they'll still have lounges and Business Class, the lounges aren't super luxury but the A330/777 Business is one of the best around, and there's no reason for them to change that post-admin on the remaining 777's and future 787's.

 

[jakeseven7]

Interesting that Bain think that IT and big data is the solution to VA's profitability problem, wheras most pundits point the finger at poor aircraft leasing decisions, disjointed ownership and lack of focus, the Covid-19 shutdown obviously and less profitable VAi division and Tigerair as being the culprits of a business that was too complicated with too many things and too many unnecessary duplicated parts.

There was an article a few weeks ago about all of VA’s failed international routes and failed domestic route strategy (mostly regional) and they talked a lot about lack of analytic / data grunt at VA1 in really getting down into the data and looking at the numbers of route and equipment feasibility to profitably expand. Perhaps Bain have also uncovered this weakness....?

If you don’t know your numbers you don’t know your business and it’s very clear VA1 from JB onwards did not have a strong handle of this, from all angles.

its all a matter of getting the travel and airline industry back on its feet and profitable in the short term, surviving an onslought from Qantas?Jetstar who have every reason to try to put you out of business permanently, maybe leave the rebranding to whomever they sell the business off to next?

There is obviously a very good chance that whoever buys VA1 will flip it in 3-5 years... let’s just hope they can build a commercially sustainable model in the meantime...

 

[Melburnian1]

The Victorian Premier having just (Saturday 20 June 2020, afternoon) decided to reverse planned easings of COVID-19 restrictions is not good news for Oz's second largest state.

It will mean the inability for Victorians to travel to Qld, SA, Wa and Tas is likely to continue for longer.

This is a negative for airlines including VA and QF.

 

[jakeseven7]

VA don't compete for or target the high-end corporate market now,

Says who? I’m sorry that’s factually incorrect.

VA1 were actively pitching for almost all high end corporate accounts against the QF group, that was the reason behind JB’s cash splash to put in business class, lounges, ‘catering’ etc. He certainly didn’t put that all in for the rats and mice SME customers.

Now - were they SUCCESSFUL in targeting those accounts? Answer to that is no, they barely made a dent. And it appears both Bain and Cyrus have made a sensible decision that it’s not worth continuing to try and compete with the QF brand in this area.

 

[BNEFlyer]

Says who? I’m sorry that’s factually incorrect.

VA1 were actively pitching for almost all high end corporate accounts against the QF group, that was the reason behind JB’s cash splash to put in business class, lounges, ‘catering’ etc. He certainly didn’t put that all in for the rats and mice SME customers.

Now - were they SUCCESSFUL in targeting those accounts? Answer to that is no, they barely made a dent. And it appears both Bain and Cyrus have made a sensible decision that it’s not worth continuing to try and compete with the QF brand in this area.

It's not factually incorrect, they of course courted passengers who wanted lounges and business class, and some corporates went to VA, but they knew they wouldn't get accounts that QF had, and they probably won't be looking to get them in future either.

 

[jakeseven7]

The Victorian Premier having just (Saturday 20 June 2020, afternoon) decided to reverse planned easings of COVID-19 restrictions is not good news for Oz's second largest state.

It will mean the inability for Victorians to travel to Qld, SA, Wa and Tas is likely to continue for longer.

This is a negative for airlines including VA and QF.

Not really the thread for it but just so media hyperventilating isn’t spread, the only restriction due to increase tomorrow that was paused was the lifting of 20->50 capacity restaurants.

Then they’ve put back in a limit of 5 persons visiting a household and gatherings because of feedback from the contact tracing team that that is where a lot of transmission was occurring and the suburbs they called out it happening in have large new migrant populations with very large families. So that makes sense. They also flagged hot spot shut downs for those suburbs which also makes sense and was on the national roadmap anyway.

But bringing it back to VA1 collapse - yes anything that spooks the border restrictions opening will continue to bleed VA to death, agreed.

 

[BNEFlyer]

There is obviously a very good chance that whoever buys VA1 will flip it in 3-5 years... let’s just hope they can build a commercially sustainable model in the meantime...

That's certainly true if Bain are successful, though it would probably be much sooner than 3-5 years.

 

[jakeseven7]

It's not factually incorrect, they of course courted passengers who wanted lounges and business class, and some corporates went to VA, but they knew they wouldn't get accounts that QF had, and they probably won't be looking to get them in future either.

Im sorry you are Just factually incorrect again, VA1 had a specific division of corporate business dev/sales and account managers who’s entire function and job purpose was to secure blue ribbon corporate accounts as a part of the strategic move upmarket to compete with QF for them. I even know a few personally and happy to introduce you to one to confirm this if you are still in doubt

I do agree moving forward though they won’t be doing this - Bain and Cyrus have clearly outlined that VA2 won’t compete in this area.

 

[BNEFlyer]

Im sorry you are Just factually incorrect again, VA1 had a specific division of corporate business dev/sales and account managers who’s entire function and job purpose was to secure blue ribbon corporate accounts as a part of the strategic move upmarket to compete with QF for them. I even know a few personally and happy to introduce you to one to confirm this if you are still in doubt

I do agree moving forward though they won’t be doing this - Bain and Cyrus have clearly outlined that VA2 won’t compete in this area.

I've got my own contacts there but thanks anyway

 

[jakeseven7]

I've got my own contacts there but thanks anyway

Most welcome, but clearly your contacts are not in the teams doing (well rather ‘used to be doing the work). Don’t get me wrong I agree with you they failed spectacularly in this area and moving forward they are right to not bother trying - but they definitely did try.

The corporate team tell me they just faced a huge ongoing battle with domestic network breadth, depth, lack of international (a lot of blue ribbon corporates do alot of international flying and QF was easier obviously).

So Bain and Cyrus are probably right to abandon corporates.

 

[BNEFlyer]

Most welcome, but clearly your contacts are not in the teams doing (well rather ‘used to be doing the work). Don’t get me wrong I agree with you they failed spectacularly in this area and moving forward they are right to not bother trying - but they definitely did try.

The corporate team tell me they just faced a huge ongoing battle with domestic network breadth, depth, lack of international (a lot of blue ribbon corporates do alot of international flying and QF was easier obviously).

So Bain and Cyrus are probably right to abandon corporates.

As we all know many businesses fly based on price, so provided VA keep competitive in that perspective, and still have lounges, Business, statuses etc. they can keep servicing corporate customers, just not actively pursue accounts. Though the future of business travel was looking bleak even before Covid.

 

[MarkD]

Nothing like a good old fashioned pissing contest to brighten up a dull Saturday afternoon. Thanks guys

 

[eastwest101]

I've got my own contacts there but thanks anyway

Sounds like VA1 under JB didn't even know whether they were competing for high margin corporate clients or not if two different people who know ex-VA insiders can't agree on this . But I tend to think that pursuing high end corporate and high yield pax was the definately the intention at some point, you don't install business class seats in E190s, B738s, A332s and B777s and rebuild lounges in airports just for laughs, you expect and are aiming for a higher yield for those nice things. Difficult to say if they landed enough of those corporate/high yield/government accounts and pax to make a difference, probably not, and many reasons for that.

Considering that he Virgin web site was still so buggy and badly executed (to the point where it couldn't even calculate fares correctly at one point ) and the roll out and integration into Sabre being such a good idea, executed so badly, might mean that perhaps the entire IT capability of Virgin was an ongoing issue with the business to the point where it was an impediment to decision making or just simply "out to lunch" and prevented correct decisions being made. This might actually make sense with some of the peculiar decisions and the perception was that while,data speaking the airline was incompetent/not as good as Qantas at least the lived experience in the air and with the front line VA people may have papered over these cracks? Goes to the thinking of other posters where if the business can't measure what they are doing then they have no idea of what they are doing right or wrong and no idea if things in the business are getting better or worse..... So maybe Bain might be onto something there.

Speaking of lounges - whomever takes over VA2 will be in a completely different bargaining position in relation to airport owners than before, airlines will definately have the stronger bargaining position, and they will be telling airport owners how much rent reductions they will be expecting for lounge space, and they will be big rent reductions backed up with the threat of just walking away, because its a different travel and retail industry now than what it was earlier and airport owners will be the ones taking big haircuts next even if VA2 completely fails to launch. They can't exactly afford to rip down existing lounges and replace them with foot massage parlors, clothes shops and cafes at the moment can they?

I can't see any new owner of VA2 wanting to spend money to pull out and refit aircraft interiors, thats seems silly and expensive. Just like they won't be able to afford new uniforms, new branding, new paint schemes for the remaining aircraft etc etc. Just not a high priority for them I would imagine. Once travel restrictions are lifted, if you can't make money flying fully owned and depreciated B738s in a low-med fuel price environemnt in the golden triangle in Australia (with large distances and no fast rail) then you don't deserve to be in the airline business....

I can see some similarities with the commercial television businesses in Australia - they were so busy trying to cut each-others grass and one-up their competitors and they were expending all theur energy on hurting their competitors that they weren't able to respond to the internet and online streaming, which came in and rendered them dinosaurs in the space of a few years. I think its the same with airlines in some way, and this might prompt the airlines to try to co-operate a (little) bit more with each other, against common enemies such as government stupidity and monopolist airport owners for example.

 

[jakeseven7]

Nothing like a good old fashioned pissing contest to brighten up a dull Saturday afternoon. Thanks guys

Hahaha welcome, although a quick google also would have answered the question for them anyway

 

[RAM]

I would not be surprised if the detailed costings were not 'available' easily for VA. There are very few companies that REALLY know the full-cost-to-company of what they do broken down to regions/products/customers etc.

For example telcos & systems integrators have for some decades now pushed Interactive Voice Response (IVR) as a wonderful cost saving technology. Perhaps it is when compared with tins & string or shopfronts.

Looking into one (then top 20) Australian company I uncovered many 'data' failings, some of which led to the closure of an entire division unfortunately. In reality what they thought were the detailed 'fine grain' costings were just assumptions made by around 14 people around Australian & overseas based on their 'knowledge' (read beliefs unsubstantiated by any actual accounting information).

One area that I used to illustrate the point was IVR. On a small scale it can save a LITTLE money, but compared with risk to reputation/delays/system issues - is that benefit really that great. One example was when after going through around 7 levels of menu & 3 lots of ID (11 minutes into a call on avg) you needed to speak with a human - as the cost to add a very common (as it turned out) request customers made - was not included. Something like 17% of calls went this way. Trouble was this type of data was not provided by the system unless you pushed the international supplier VERY hard. Try to increase call handling capacity from 50 contiguous calls to 55 say, and the hardware costs jumped nearly 30% etc etc.

Full cost accounting is often discussed and then delegated to some person or team who have a short time to come up with the result. For VA (Q or any company with more than 1,000 staff/contractors & operate from multiple locations - to accurately gauge the total attributable costs & revenues may involve something like 5,000 to 9,000 different cash/cost relationships. Simple example - what is the cost to VA for adding a new pair across their systems - accounting, financial, marketing, HR, legal, regulatory etc etc. Then there are the costs for associated businesses such as Velocity adding it as a possible redemption.....

I've only come across one company that took the time to accurately trace all costs/revenues to the point that they could project the impacts of adding/deleting a single product variant. It all comes down to garbage in leading to garbage out unfortunately.

Since the 1980s there has been an often unhealthy belief that cutting costs is the holy grail. One area where this has been notable in for external auditors - but I'll leave them alone as I don't wish to be sued...

Toyota Motor Corp was held up to be the pinnacle of cost-cutting success and for an extended period (over a decade) it worked well. Turning a traditional Japanese job-for-life bureaucracy subsidised by the Japanese Govt into a world beating company.

Then their drive to cut costs another 2% pa every year at every level led to small problems which grew into major problems that culminated in Toyota recalling more vehicles over a ten year period than the next 3 largest car manufacturers combined - opening the door for a global surge in Korean car manufacturers. Mercedes suffered a similar fate with their computerised engine management systems - only tested in Germany not anywhere else in the world (cost-saving went wrong in a big way).

From what I've heard & seen - Bain & Co may believe a little too much in their own PR when it comes down to full-costing in fine granular form. Time may tell.

Admittedly have not noticed any evidence that Velocity is doing much more than the most basic 'big data' work on its 7+ million account holders - so any extra will increase its revenue (if done properly). For example despite fcrediting points since Velocity began for 3-5 family members travelling overseas +/- 3 days dep date and +/- 3 days return date, & always booked over a 2 week window 9 months ahead - none of us have ever received an email promoting VA flights, car hire partners nor accomodation.

Last week's deluge on one day is not doing it properly.

Perhaps VA Mk2 will be like the CBA once David Murray took over the show. His legacy still continues today with the underlying IT system for the retail/trading bank merged. Adjusted for dividends - since float CBA is up over 30 fold - and NONE of the talking heads nor high-profile fund managers stayed in more than 5 yrs. For many it was one of the major reasons Australian Equity fund under-performed as they got more & more underweight as CBA performed. Conversely NAB was the market darling for them, overweighted & underperformed. VA Mk2 vs Q anyone?

 

[jase05]

This might throw a spanner in the works with bond holders apparently considering a last ditch bid to control VA

Virgin bondholders in recapitalisation plan

The battle for Virgin Australia is set to take another twist with the airlines bondholders poised to launch a multi-billion-dollar recapitalisation plan for the airline this week, potentially as early as today.

amp.theaustralian.com.au

 

[jakeseven7]

This might throw a spanner in the works with bond holders apparently considering a last ditch bid to control VA

Virgin bondholders in recapitalisation plan

The battle for Virgin Australia is set to take another twist with the airlines bondholders poised to launch a multi-billion-dollar recapitalisation plan for the airline this week, potentially as early as today.

amp.theaustralian.com.au

Oh dear, will distract and delay but from my read, snowballs chance in ....... of getting up!

 

[TheInsider]

Free link here (a little different): Bondholders in last ditch bid to control Virgin Australia

 

[RAM]

Free link here (a little different): Bondholders in last ditch bid to control Virgin Australia

Thanks for that!

The most relevant part of the article IMHO was...

"Faraday has brought in Rob Sherrard, who co-founded Virgin Australia 20 years ago (then called Virgin Blue), and lawyers from Corrs Chambers Westgarth to its 50-person team."

The daily fees charged per person have been known (by groups in other instances) to be up to $10,000 or more. Plus GST of course!

I wonder who will get the lion's share of whatever payout this move may generate?

Is this a greenmailing attempt along the lines of pay us off or we'll drag this out (while our 50 person team gets paid) until it results in liquidation and VA is defunct as the Air Certificate gets cancelled?

Odd, I thought being an unsecured debt holder means (legally) that if a company goes under then you lose everything - not that you make everyone who is secured lose more?

This is obviously a credible offer as they're supposedly going to go double or nothing by putting more equity into VA Mk2 (if the report is accurate). Given the amount needed perhaps they'll be required to go 8x or nothing given the highly optimistic 10 cents in the dollar value ascribed to their 'unsecured debt' that was paying 5x or more the interest rate available on bank term deposits.

I won't even mention the timing of this....