Virgin Australia Financially Secure? [Now in Voluntary Administration]

[travelislife]

The impact is largely International flights. Virgin has like no international network. USA flights the impact would be minimal if any. Domestic wise, Cairns and Sydney for tourism, but they don’t overly have a large Cairns network.

Been around the domestic network last few weeks not really seeing any empty flights on Virgin. The domestic business has fairly large margins that can weather this sort of event rather than International.

I would say QF International is going to be posting some form of loss this year.

Jetstar carry large amounts of Chinese tourists around the network also.

Bali won’t be affected. Virus or not, Aussies want that Bintang!

Just quoting post #6 in the thread, which received a number of likes. How quickly things change in just 6 weeks!

 

[p--and--t]

Pauly7, I am delighted that you feel my posts are fun I am unashamed of putting myself out there with predictions... someone has to do it

But I want to alert you to something - your views are very sane - in the concept overall of the past reality But I think, more each day, that the new reality will be so very different. The lockdowns will not be for a few months - due to the inequalities in countries responses and thus debilities - the international travel scene will be mayhem for years.

Your beliefs sound to me to be, as I say, very understandable in terms of the old reality. That era has died. be real. All of the myriad of countries that lived on tourism will not survive this without huge changes - everywhere from Vanuatu to Bali are not rich enough to survive a year+ without tourism.

We in Australia are at the start, as is everywhere. Economic packages to "stimulate" the economy. Makes great sense of this thing was just a few months in longevity. But it will be so much more drawn out. And in that extended timeframe, in a few moths or so, there will be so many other business areas hurting that sheer airlines will lose the focus...

Everyone has their own ideas and aspirations based on historical perceptions.

My prediction is that if you hated the previous airport security theatre, "you ain't seen nuttin yet" and a paradigm shift is about to occur in the industry overall.

Airline travel will eventually restart in a dramatically different form more along the LCC line but at higher prices to restore balance sheets.

Domestic will come first and gradually build with those that are prepared to take a risk and can afford it and/or have a strong necessity.

Discretionary business travel will be scaled back dramatically as management realise they got past this difficult period without it and they also seek to restore their own balance sheets.

International initially will be to a few very limited destinations and may start and stop depending on the perceived risk in the destination country and all incoming passengers must be prepared to be carted away in a bus to a quarantine hotel at their own expense for 14 days for many months to come.

The airlines tailoring products and multiple classes of travel to pander to various levels of DYKWIA will be significantly trimmed back and a new norm of what is premium travel will emerge. Possibly 4 class planes converted to 2 class.

Significant volumes of Joe Blow leisure travel will potentially not recommence until latter half of 2022 as people burnt by the economic effects of the next 6 months re-prioritise their expenditure/catch-up on deferred mortgage payments et al.

 

[Must...Fly!]

If the demand side is going to drop by as much as you suggest then considering the omnipresence of the ME3, I can't see prices skyrocketing.

 

[p--and--t]

If the demand side is going to drop by as much as you suggest then considering the omnipresence of the ME3, I can't see prices skyrocketing.

This is drifting a lot away from VA talk, but.....

Even before Covid was even a acronym EY was cutting back dramatically, closing or selling lounges, offering flight options with buy your own food and in financial trouble. There was plenty of talk of EY and EK being made to merge.

The interesting one is QR. albeit scaled back they are still in the air and seemingly snubbing their nose at the actions of other airlines. Bottomless government pockets and political point scoring maybe?

If some of the dire predictions eventuate of more than 50% of the current airlines worldwide not making it to the other side, the landscape will be very different.

 

[oz_mark]

On the one hand, I hope that VA will survive - I hope that they can get back to a semblance of a domestic network sooner rather than later.

I fear that this will drag on long enough that we may see Qantas give up on international, or perhaps be gone altogether.

I would hope (and I am sure they are) working through a range of options, not just the one that got leaked. Whatever happens, things have changed. And I may need to find my vaccination book...

 

[samh004]

Adele Ferguson has an interesting opinion piece in The Age today.

Later: "[R]umours that if Virgin collapses a new player such as Ryanair will step in is nonsense. For starters, if Ryanair could afford to enter the Australian market, it is a low-cost carrier and it would therefore be competing with Jetstar not Virgin, which is a full service carrier. Anyone trying to compare Virgin to Ansett in the 2000s is wrong. Virgin had already entered the Australian market when Ansett collapsed and even then it took it a decade to build its fleet of aircraft. Turning into a full-service carrier to seriously compete against Qantas took even longer ... "

She basically argues that the government must step in.

Why does a new player need to be a full service carrier competing with Qantas for this scenario to work? Why can't they be an LCC that competes with Jetstar, who command a decent amount of traffic these days? There's probably more room at the bottom than at the top, as you don't need to try as hard with hard and soft product.

I'm also not sure why they needed to compete with Qantas in the way they did. I remember starting to really enjoy the hybrid Virgin Blue that blended LCC parts with full service parts – such as with their PE section, fun lounges and basic loyalty program – but didn't go so far that they would start haemorrhaging money and post losses year after year.

There seems to be this view that for a competitor to take part in the Australian aviation market they need to compete with Qantas, despite the fact that was not the case for nearly a decade. I'd happily go back to the service and attitude of Virgin Blue... okay, maybe not some of the crazy cabin announcements, but there's good and bad.

 

[oz_mark]

There seems to be this view that for a competitor to take part in the Australian aviation market they need to compete with Qantas, despite the fact that was not the case for nearly a decade. I'd happily go back to the service and attitude of Virgin Blue... okay, maybe not some of the crazy cabin announcements, but there's good and bad.

When you say 'competing with Qantas' are you referring to the Qantas of old. If Qantas gets through this, the service levels may be somewhat different from what we may have had in the past.

 

[samh004]

When you say 'competing with Qantas' are you referring to the Qantas of old. If Qantas gets through this, the service levels may be somewhat different from what we may have had in the past.

I mean Qantas (the airline), not Qantas (the group). Impossible to say or see where service will end up. Probably no where exciting, but they currently operate as Qantas (and to a lesser degree QantasLink, regionally) and Jetstar. So my comment was there's no reason any other competitor in the Australian aviation market needs to be full service, when there's also an LCC brand that can be competed with. They might be owned by the same parent, but I generally get treated far worse on Jetstar, even when I set my expectations low

 

[Must...Fly!]

If it got so bad that Virgin's survival was not possible and the government had to pick up QF to survive, why assume a second carrier could come in?

Government could easily attach a condition of government support being the divestment of Jetstar within X months. Two airlines in a relatively simple fashion...

but I don't see such an eventuality. The Virgin brand has value, regardless of the money spent there is expertise and scale within the VA operation - including 9m frequent flyer members, lounge/airport facilities and regulatory approvals. It's a nearly sized airline if one could remove the leased aircraft.

 

[33kft]

Government could easily attach a condition of government support being the divestment of Jetstar within X months. Two airlines in a relatively simple fashion...

How would this benefit anyone? You'd signal to a company that hasn't requested public funding that you'd be prepared to split them up if they did so. No CEO is going to willingly submit to a corporate restructure architected by someone else to manufacture competition when they have other options for capital raising or protection from creditors which don't involve submitting to the will of bureaucrats looking to manufacture a market that doesn't exist.

If they were smart, they'd mainline all the good routes and equipment and hand off all the rest to be spun off into their "competition". And that's only if they were desperate enough to capitulate.

 

[Must...Fly!]

It was just an idle late night thought of what if things got so bad that keeping VA alive was impossible (even by an administrator). Stands to reason that in that world Qantas would be increasingly troubled with it's larger, more expensive fleet. With little way of making a return given international has gone belly up.

Though it is wrong to say the market doesn't exist. VA domestic profitability proves it does and combined with Velocity is one key as to why I think it survives.

 

[justinbrett]

It was just an idle late night thought of what if things got so bad that keeping VA alive was impossible (even by an administrator). Stands to reason that in that world Qantas would be increasingly troubled with it's larger, more expensive fleet. With little way of making a return given international has gone belly up.

Though it is wrong to say the market doesn't exist. VA domestic profitability proves it does and combined with Velocity is one key as to why I think it survives.

Except Qantas owns most of its fleet, so rather than having to make repayments on it, it can borrow money against it.

The two airline’s financial positions are chalk and cheese.

 

[pauly7]

But I want to alert you to something - your views are very sane - in the concept overall of the past reality But I think, more each day, that the new reality will be so very different. The lockdowns will not be for a few months - due to the inequalities in countries responses and thus debilities - the international travel scene will be mayhem for years.

Your beliefs sound to me to be, as I say, very understandable in terms of the old reality. That era has died. be real.

Thank you Being sane is a pre-requisite for my job And that’s relevant because it crosses over a lot with this topic and involves future thinking, planning and execution - not past, sorry I’m sure there are better people to talk to about the past

The old reality has not died. It’s hibernating. I know there are a million columnists/bloggers writing a million stories saying we will be changed forever etc but I’m comfortable predicting that we won’t - at the very least not significantly enough to kill certain industries off for years and years...

Humans have an amazing propensity to forget and move forward, to adapt.

My personal belief is that VA will survive, if not exactly how it existed but let’s be honest it had to change significantly anyway otherwise it would have arrived at a similar destination by its own accord.

It is a forgone conclusion that QF will be preserved- period. Again yes maybe their QFi division will be nothing for a while then very slowly build up once effective anti virals (Maybe) and vaccinations (At some point) become widely available.

 

[HS-TQE]

My personal belief is that VA will survive, if not exactly how it existed but let’s be honest it had to change significantly anyway otherwise it would have arrived at a similar destination by its own accord.

I also do think VA (or what remains of VA) will survive in some form. My personal question is will Scurrah call in the administrators to ensure that VA (or what remains) survives in some form.

While filing administration may be unpopular with the major shareholders (since they'll lose 'control' of the company), it may be beneficial in the long run whilst administrators research whether a "mk II" operation from VA's assets is feasible to operate whilst at the same time sorting out the creditors and lessors to pay down the $5B+ debt.

 

[RAM]

It is a forgone conclusion that QF will be preserved- period. Again yes maybe their QFi division will be nothing for a while then very slowly build up once effective anti virals (Maybe) and vaccinations (At some point) become widely available.

For those of us lucky (cursed) enough to have lived through the gyrations of the 80s & 90s in the financial/business world - it is clear that THIS TIME IS NOT DIFFERENT, merely a variation on a theme.

VA's survival depends on two key factors IMHO. One - public perception. Two - political expediancy.

Q will survive = guaranteed, no question, take whatever odds you're offered to the contrary. It is a done deal, the Chairman's Club has much to do with it but not 100%.

Due to the global resourcing issue then CV (China Virus... ) is going to be a multi-year issue unfortunately. Countries like Pakistan, Libya, Iraq, Afghanistan almost guarantee this. Just like it took decades to 'nearly' eradicate small pox - these countries were amongst those most lagging and their respective situations have only deteriorated in the last 20 years. Their supply of low-cost workers to the Asia/Africa/Middle East region = transmission continues.

The distrust of the West, such as in Pakistan, ensures so.

This is the background facing VA & Q.

Despite massive advances in medical technology there is yet to be ONE SUCCESSFUL vaccine developed for any Corona virus. I hope this time will be different but that & $3 gets a cup of coffee. Hope is not a bankable business plan.

So resumption of international tourism is more likely to be a very restrictive or restricted environment. This is far more damaging for Q, especially with their pivot to get out of their Emirates deal (debacle?). Project Sunrise is all about taking back the farm given away to Emirates. For VA, IMHO, the key issue is maintaining their venture with SIA, and VFF deals with SIA, EY especially.

In the international environment outlined - the partners bear 95% of the adverse conditions/costs while VA maintains the 'virtual network'.

Absent a vaccine, then international tourism may well only resurface in any meaningful & bare breakeven way on a 3 year time frame. If I'm right then VA will get 'Govt' help because Q will not survive without it. VA with some funding can survive far longer than Q can with an international new order. To date, not that I've seen, there has been no 'other side' detailed analysis by anyone on Q nor seemingly any airline with such an international baseline.

The financial community is 'hoping'.

I suspect AJ & co have run the numbers on such a scenario and seen that Q is in serious trouble which is why they're desperate to kill VA as quickly as possible before the focus turns to Q. Q's much vaunted cost structure does not work if load factors are below 70-75% for international with all planes maximising flying hours.

Whilst much focus has been on VA, and the rumours, Q's sale & leaseback of the terminals and some other facilities has a VERY nasty impact on their cost structure that was not there previously (Q grounding etc). Given the paucity of international QFF redemptions that existed pre-CV, the post-CV world I see will have maybe 1/40th the number available.

Meanwhile if VA makes it through the current domestic lockdown, & their advisers/strategists seem far more switched on than previously, then slowly building up the very profitable few pairs such as SYD MEL can see them once again generating positive cashflow & I bet this is what they've revealed to the Fed Govt in talks to date.

Given the Fed Govt traditional 'leakage' to Q then Q knows VA's plan well and it's only hope is to drive VA under before such a scenario plays out.

So, if VA can hold on until July then Q is going to look very shaky.

Or I may be wrong....

 

[jakeseven7]

For those of us lucky (cursed) enough to have lived through the gyrations of the 80s & 90s in the financial/business world - it is clear that THIS TIME IS NOT DIFFERENT, merely a variation on a theme.

VA's survival depends on two key factors IMHO. One - public perception. Two - political expediancy.

Q will survive = guaranteed, no question, take whatever odds you're offered to the contrary. It is a done deal, the Chairman's Club has much to do with it but not 100%.

Due to the global resourcing issue then CV (China Virus... ) is going to be a multi-year issue unfortunately. Countries like Pakistan, Libya, Iraq, Afghanistan almost guarantee this. Just like it took decades to 'nearly' eradicate small pox - these countries were amongst those most lagging and their respective situations have only deteriorated in the last 20 years. Their supply of low-cost workers to the Asia/Africa/Middle East region = transmission continues.

The distrust of the West, such as in Pakistan, ensures so.

This is the background facing VA & Q.

Despite massive advances in medical technology there is yet to be ONE SUCCESSFUL vaccine developed for any Corona virus. I hope this time will be different but that & $3 gets a cup of coffee. Hope is not a bankable business plan.

So resumption of international tourism is more likely to be a very restrictive or restricted environment. This is far more damaging for Q, especially with their pivot to get out of their Emirates deal (debacle?). Project Sunrise is all about taking back the farm given away to Emirates. For VA, IMHO, the key issue is maintaining their venture with SIA, and VFF deals with SIA, EY especially.

In the international environment outlined - the partners bear 95% of the adverse conditions/costs while VA maintains the 'virtual network'.

Absent a vaccine, then international tourism may well only resurface in any meaningful & bare breakeven way on a 3 year time frame. If I'm right then VA will get 'Govt' help because Q will not survive without it. VA with some funding can survive far longer than Q can with an international new order. To date, not that I've seen, there has been no 'other side' detailed analysis by anyone on Q nor seemingly any airline with such an international baseline.

The financial community is 'hoping'.

I suspect AJ & co have run the numbers on such a scenario and seen that Q is in serious trouble which is why they're desperate to kill VA as quickly as possible before the focus turns to Q. Q's much vaunted cost structure does not work if load factors are below 70-75% for international with all planes maximising flying hours.

Whilst much focus has been on VA, and the rumours, Q's sale & leaseback of the terminals and some other facilities has a VERY nasty impact on their cost structure that was not there previously (Q grounding etc). Given the paucity of international QFF redemptions that existed pre-CV, the post-CV world I see will have maybe 1/40th the number available.

Meanwhile if VA makes it through the current domestic lockdown, & their advisers/strategists seem far more switched on than previously, then slowly building up the very profitable few pairs such as SYD MEL can see them once again generating positive cashflow & I bet this is what they've revealed to the Fed Govt in talks to date.

Given the Fed Govt traditional 'leakage' to Q then Q knows VA's plan well and it's only hope is to drive VA under before such a scenario plays out.

So, if VA can hold on until July then Q is going to look very shaky.

Or I may be wrong....

Interesting! But I think you are wrong In the second half of your post but I do agree with your statement early in your post that QF will absolutely survive. They will be prioritised. It’s too strategically imperative to the economy.

QF aren’t desperate to kill off VA - that’s already been put to bed a few hundred posts ago. That result would have horrifying controls put on them that would probably rip apart their operation. They are advocating on making sure that everyone gets proportionate assistance - and to date that is exactly what the government has done for the airlines and exactly what the government should continue to do.

QF can essentially isolate QFi If they needed to, QFd is a formidable operation that has been thrashing VA for years now, they have got their cost base down to a similar level and extract a far better yield than VA can. And almost luckily for QFi now - they aren’t locked into huge wide body orders that would have been difficult to manage in a sustained depression in international travel. All of us moaning that QF management didn’t order heaps of airframes faster will now be cheering that decision!

Flipping back on topic because this thread is about VA not QF (who are safe anyway).

A MAJOR issue for VA is going to be their stupid stupid massive order of 737 Max’s that they did not need. Another JB legacy that has placed a noose around their neck. Sure they can try and defer (again) but at what cost....? What a mess.

 

[Bagpuss]

A MAJOR issue for VA is going to be their stupid stupid massive order of 737 Max’s that they did not need. Another JB legacy that has placed a noose around their neck. Sure they can try and defer (again) but at what cost....? What a mess.

It may not be too bad actually. It depends on what deals they do with lessors (assuming they are mainly leased). I wouldn’t be surprised if they exit the leases on all A330’s with the MAX 10 as the replacement.
There maybe scope to rejig the order to take less B737 MAX’s, sellback the B777’s and take some B777X aircraft and return as a Boeing operator.
There could be scope to sell of some of the owned B737’s and still take the MAX’s. As they are currently due for delivery from mid next year so they would hope for the market to recover.
Don’t forget airlines will be seeking efficient aircraft.

 

[hydrabyss]

It may not be too bad actually. It depends on what deals they do with lessors (assuming they are mainly leased). I wouldn’t be surprised if they exit the leases on all A330’s with the MAX 10 as the replacement.
There maybe scope to rejig the order to take less B737 MAX’s, sellback the B777’s and take some B777X aircraft and return as a Boeing operator.
There could be scope to sell of some of the owned B737’s and still take the MAX’s. As they are currently due for delivery from mid next year so they would hope for the market to recover.
Don’t forget airlines will be seeking efficient aircraft.

I came across this article today which mentions some of the European airlines strategies.
https://www.businessghana.com/site/news/Business/210389/Air-travel-faces-continued-turbulence

 

[jakeseven7]

It may not be too bad actually. It depends on what deals they do with lessors (assuming they are mainly leased). I wouldn’t be surprised if they exit the leases on all A330’s with the MAX 10 as the replacement.
There maybe scope to rejig the order to take less B737 MAX’s, sellback the B777’s and take some B777X aircraft and return as a Boeing operator.
There could be scope to sell of some of the owned B737’s and still take the MAX’s. As they are currently due for delivery from mid next year so they would hope for the market to recover.
Don’t forget airlines will be seeking efficient aircraft.

How are VA going to pay for all their shiny new planes they don’t need ?

 

[p--and--t]

For all those forecasting things will be back to normal and honky dory in a few months or by xmas, I'll just leave these reports about the largest player in Europe and the third largest airline in the world

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The German flag-carrier [Lufthansa] followed up on Tuesday with an announcement that it has made a bold move to cut capacity permanently. It also believes aviation will not return to the way it was, as little as three months ago. More than 40 of its aircraft, most notably the big 380s and the old, polluting 7474s, are being retired or sold off. Its subsidiaries, Austrian, Swiss and Brussels Airways, are doing likewise.

"It will take several months until the global travel restrictions are completely lifted and years until the worldwide demand for air travel returns to pre-crisis levels," is the insight from Frankfurt.

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