Virgin Australia Financially Secure? [Now in Voluntary Administration]

[Mr Pumblechook]

I expect that to go or be reducted. If the company goes into DOCA that's an existing liability.
The purpose of Administration is to remove liabilites.
The one main liability they will try to maintain is staff liabilites (accurred annual leave) etc.

What fundings the company has is dealt with any pre Administration liabilies and to "wind up" or recaptailise the company. Though with a DOCA, it's an injection of money for the company to operate. Once the DOCA is agreed, and they receive the money in their bank account is the second they are operating in DOCA and move forward.

I agree and I think that will necessitate a rebrand. You can't tell Joe Blow VA is taking his $2000, giving nothing in return, and will be happy to take another $2000 if he really does want to travel

 

[woodborer]

Not really. I expect which ever parts of Virgin go into Administration will do so with a planned scenario outcomes. Such as Plan A, Plan B. I expect Plan A is a DOCA, though if they have interested investors then it's what that syndicate looks like and will most likely change.

I suspect this is the most likely path.

I also think Australia needs to revisit its rules on this to find better ways of going through a restructure

 

[Bagpuss]

An added layer of complexity is that Velocity Frequent Flyer is a trust. Virgin Australia owns the corporate trustee and presumably has fixed entitlement to all its profits, and makes it likely that the assets of the trust aren't available to Virgin Australia and thus aren't available in any administration process - they do not 'own' the assets held in trust.

Travel Bank doesn't sit under Velocity, it sits under Virgin Australia. As a Velocity Member you can simply acces it via the Velocity website:

Travel Bank Terms and Conditions

Travel Bank terms and conditions | Virgin Australia

www.virginaustralia.com

3.6. Velocity Frequent Flyer members who have a Travel Bank can use their Velocity Frequent Flyer username and password to enquire about their Travel Bank.

Travel Bank is actually located here : https://travelbank.virginaustralia.com/tbank795

Welcome to Virgin Australia Travel Bank

 

[dajop]

Not really. I expect which ever parts of Virgin go into Administration will do so with a planned scenario outcomes. Such as Plan A, Plan B. I expect Plan A is a DOCA, though if they have interested investors then it's what that syndicate looks like and will most likely change.
They obviously will get bashed in the media by going into Administration and there are standard playbooks which will come into this, some of which are already in the news. Expect AJ/Qantas to not be so happy as lessors, airports are going to have to take a haircut and Qantas wont get that. There will be usual media tactics. Though they haven't done really wrong doing to end up in Administration as it has only come about now because of COVID (they haven't had a boardroom bust up or anything.)
Utimately from a Virgin side, they need to know what their correct business model is, how much money they need to survive and have a good robust plan.
If the company operates in DOCA is has to abide by set condiitons to its noteholders/shareholders. You may find that these groups pump money into the company, it's actually a loan at an agreed rate and term. Likely to me PKI's about profits etc.
Under DOCA, Virgin also couldn't sell any assets owned assets at the time of DOCA to obtain any additional funding down the track as any money raised would need to be handed back to the noteholders/shareholders.

All very good and well. I wasn't looking at this from a company POV, but a customer point of view. If the trust in the brand is completely eroded, it doesn't matter how much debt you get rid of, and what structure the new company takes, people won't commit to the brand and you won't be able to attract enough business to make the restructured organisation profitable. By destroying Velocity, you are killing the golden goose, that actually makes money, but more importantly has a membership base that includes your previously most profitable customers. You tell your average Velocity Platinum, sorry you lose your 600,000 points and you won't have status with the new airline, you are handing QF a customer on a plate. I remain skeptical that ditching Velocity liabilities is a formula for success.

 

[antycbr]

It used to be, but was coming under significant yield pressure as Qantas started opening up capacity in the secondary US cities (SFO), sucking away some of the premium LAX trunk traffic and combined with a plummeting AUD, ex AU traffic was dropping and becoming more reliant on ex US traffic. VA is barely known in the US and probably suffered disproportionately from this as the shift of traffic source happened.

There were unsubstantiated reports on the media LAX was becoming an issue for them towards the end, I don’t recall VA actually calling that out in their results but could be wrong.

I agree and I think that will necessitate a rebrand. You can't tell Joe Blow VA is taking his $2000, giving nothing in return, and will be happy to take another $2000 if he really does want to travel

I think that a rebrand would be cost prohibitive compared to honouring the travel bank. You may see some restrictions around when you use them but it would burn so much goodwill with the travelling public to not honour them in some form.

A rebrand also takes months/years and costs a fortune. One of the things on the table will be to get Branson's marketing fee waived or moved to a profit based formula.

 

[andrewpf]

I'm genuinely curious to know how their partnership with Delta works around revenue sharing?

For example, if I book a VA codeshare flight on Delta metal, how much difference is there financially compared to if I booked directly with Delta but entered a Velocity FF number?

At the moment (i.e. pre-COVID) QF/AA and UA both seem to have more variety in trans-pacific connections than VA/DL. Would there be more opportunity for Delta to replace VA (and add extra services down the line) in the new world perhaps?

 

[Plutonus]

Travel Bank doesn't sit under Velocity, it sits under Virgin Australia. As a Velocity Member you can simply acces it via the Velocity website:

I didn't mention Travel Bank. The post of yours I quoted didn't mention Travel Bank. The quote included in your post was about Velocity.

I was merely highlighting it is unlikely that the assets and liabilities of Velocity can be lumped with the entity that owns the trustee of Velocity and dealt with under administration of that entity, because the assets do not belong to the trustee nor its underlying interest holder.

 

[Bagpuss]

All very good and well. I wasn't looking at this from a company POV, but a customer point of view. If the trust in the brand is completely eroded, it doesn't matter how much debt you get rid of, and what structure the new company takes, people won't commit to the brand and you won't be able to attract enough business to make the restructured organisation profitable. By destroying Velocity, you are killing the golden goose, that actually makes money, but more importantly has a membership base that includes your previously most profitable customers. You tell your average Velocity Platinum, sorry you lose your 600,000 points and you won't have status with the new airline, you are handing QF a customer on a plate. I remain skeptical that ditching Velocity liabilities is a formula for success.

I dont think I said people would loose all their points and status.

I would more expect your points are mildy devalued in some form or another and you KEEP your status and staus credits.
Everyone has to take a haircut!

... Better than loosing everything. If anyone is concerned about points, they you should be using them.

 

[dajop]

I would more expect your points are devalued in some form or another and you KEEP your status and staus credits.
Everyone has to take a haircut!

Yes, that would acceptable I am sure. Although no need to take a haircut on the points balance, just do what every other airline does - massively increase the number of points required for awards - which achieves the same effect without appearing to do so...

 

[burmans]

All very good and well. I wasn't looking at this from a company POV, but a customer point of view. If the trust in the brand is completely eroded, it doesn't matter how much debt you get rid of, and what structure the new company takes, people won't commit to the brand and you won't be able to attract enough business to make the restructured organisation profitable. By destroying Velocity, you are killing the golden goose, that actually makes money, but more importantly has a membership base that includes your previously most profitable customers. You tell your average Velocity Platinum, sorry you lose your 600,000 points and you won't have status with the new airline, you are handing QF a customer on a plate. I remain skeptical that ditching Velocity liabilities is a formula for success.

All this assumes loyalty has some value. While there are no doubt some who travel Virgin because of loyalty (and overweight in this forum) I'd estimate about 2/3 to 3/4 of travelers are looking for a way to get from A to B at the cheapest price ( assuming roughly equal service). I'd also suggest VA are likely to ditch the current model of trying to compete at the top end with Qantas and move back towards what was a more successful Blue model, so that Velocity Platinum may no longer be their target demographic.

 

[Bagpuss]

All this assumes loyalty has some value. While there are no doubt some who travel Virgin because of loyalty (and overweight in this forum) I'd estimate about 2/3 to 3/4 of travelers are looking for a way to get from A to B at the cheapest price ( assuming roughly equal service). I'd also suggest VA are likely to ditch the current model of trying to compete at the top end with Qantas and move back towards what was a more successful Blue model, so that Velocity Platinum may no longer be their target demographic.

I'd imagine Gold will give you domestic lounge access only.
Platnium will give you international lounge access, when flying on a codeshare etc.

 

[dajop]

All this assumes loyalty has some value. While there are no doubt some who travel Virgin because of loyalty

I specifically didn't use the word loyalty. I used the word trust. We know "loyalty" programs aren't about "loyalty" they're about marketing, but trust is different. Many who travel Virgin today have no loyalty to them, but probably trust them. If you betray that trust, then it doesn't take long, especially in the modern social media era, to seriously damage a brand, even amongst many who seek the lowest fares.

If they do go down that path, they may be better off ditching the brand altogether. Although there were many compounding factors in past shenanigans, resurrection of airline brands in Australia has not gone well (Compass Mk II, Tesna/Ansett Mk II, even at a stretch Australian airlines, although that was really superceded by Jetstar International). Notably the one success story (until a month ago) in Australian Aviation that has risen from the ashes (so to speak) of administration - ditched its three previous brand associations (Kendell, Hazelton, Ansett) and established a new identity (Rex).

 

[eastwest101]

I specifically didn't use the word loyalty. I used the word trust. We know "loyalty" programs aren't about "loyalty" they're about marketing, but trust is different. Many who travel Virgin today have no loyalty to them, but probably trust them. If you betray that trust, then it doesn't take long, especially in the modern social media era, to seriously damage a brand, even amongst many who seek the lowest fares.

If they do go down that path, they may be better off ditching the brand altogether. Although there were many compounding factors in past shenanigans, resurrection of airline brands in Australia has not gone well (Compass Mk II, Tesna/Ansett Mk II, even at a stretch Australian airlines, although that was really superceded by Jetstar International). Notably the one success story (until a month ago) in Australian Aviation that has risen from the ashes (so to speak) of administration - ditched its three previous brand associations (Kendell, Hazelton, Ansett) and established a new identity (Rex).

Yep I think that's an important distinction to make trust vs loyalty.

Loyalty is "OK I can accept the devaluation of points and maybe status given there is a business restructure, whether the paint on the side of the plane says VA or something new...." people may whinge about it and look at their future loyalty but its part of the "loyalty" game, if they honour any outstanding travel bank amounts then I will consider giving them some business in the future.

Trust is "OK you have stolen a travel bank balance of $ xx.00 from me/my company, and you are not going to honour it. Why would I give you more money in the future? I would likely be a passionate and active nett negative score promoter, and use any outlet available and make every public noise and leverage to sway other people not to trust or book with the rebranded VA or whatever new identity they may choose to relaunch as. I will resolve to use any other option and book any other airline rather than give more money to the relaunched VA/New corporate identity, even if they are higher priced, or an inconvenient schedule. I will re-arrange all my credit cards and loyalty earning methods to a new non-Velocity loyalty scheme.

There was another airline that was proud of and publicised how bad its customer service was - its called Tiger and look where it is now.

 

[moa999]

I expect that to go or be reducted. If the company goes into DOCA that's an existing liability.
The purpose of Administration is to remove liabilites.
The one main liability they will try to maintain is staff liabilites (accurred annual leave) etc.

All depends on the terms of the Velocity Trust.
As I understood it from prior financials it had a cash balance roughly equal to the points liability - circa $500m

Even to a much smaller new airline I suspect that Velocity membership and program is a lot more valuable than that cash alone, so you'd be better keeping it together and selling it.


Staff is another matter as at a guess any buyer in today's market is going to want a right sized Virgin that's say 50-75% smaller.

If it does happen that way its a big issue for Qantas as they are bloated in comparison and can't cut costs without going through admin themselves
(And afaik QFF isn't in a trust)

 

[Cubiscus]

Virgin have made some political progress over the past week, Labor loading up the pressure on the government each day now.

 

[Bagpuss]

If it does happen that way its a big issue for Qantas as they are bloated in comparison and can't cut costs without going through admin themselves
(And afaik QFF isn't in a trust)

If Virgin gets re-capatalised which really is going to end up wiping off debt. I actually think Virgin will be a very strong airline at least domestically.
I think Qantas is going to be in a World of pain, especially as there are some predications some travel markets such as the UK wont come back until late next year.
Virgin's international fleet is very small, Qantas' is much bigger. Qantas will probably offload it's 380's and if they take the loan they've been offered it will be secured against all their B787's. Though I expect they will use the B787's to replace A330's. But this is a Virgin Australia forum.

 

[moa999]

Virgin have made some political progress over the past week, Labor loading up the pressure on the government each day now.

Think it's just Labor playing negative politics
No-one is going to cut them a blank check - and without knowing how quickly Australia and the world recovers from Covid 19, you simply don't know how much money they might need.

Qantas will probably offload it's 380'

The only buyer is the scrapyard and they don't offer much.
At a rough guess they paid US$250m per aircraft probably at an average x-rate of 0.85, so let's say A$300m. On average halfway through 20-yr life so they've still got a balance sheet value of A$150m.

So some pretty big writedowns if you did scrap them.

 

[Bagpuss]

Virgin have made some political progress over the past week, Labor loading up the pressure on the government each day now.

Kind of disagree. They are getting their name in the news a lot.
But you now have state governments claiming they will pour in funding.
If they bail out Virgin expect Qantas to jump, also NewsCorp (Foxtel), every private company really.

 

[Bagpuss]

you simply don't know how much money they might need.

Correct. They have a bond payment October 2021? Which is about $500 million. So if there is little travel this year they are simply slowly sinking.
According to reports 50% of their expenditure is fixed so they are burning through money. Still gotta pay those airfcraft leases and pay for them to be maintained etc.

 

[antycbr]

The Australian is reporting "it's on" with a board meeting happening today

- International Airline + Private Equity
- Creditor Scheme of Arrangement or temp administration
- Government backed provided PRC based firms excluded apart from debt
- Continuing INT+DOM service

https://www.theaustralian.com.au/business/dataroom/virgin-australia-airline-private-equity-partnership-eyes-buyout/news-story/6bff600143fdaf133fa3c93959710a1b