Virgin Australia Financially Secure? [Now in Voluntary Administration]

[eastwest101]

Good on him but the ACCCC are the biggest bunch of toothless tigers in the country.
At this point in time PS and AJ need to put their differences aside and focus on saving the industry even if it means complete co-operation

Hey, thats a bit unfair to the ACCC, the ACCC look like regulatory attack dogs compared to to ASIC !





But back on topic - yep - normally it would be expected that both Scurragh and Joyce would have co-operated with this current situation, such as the case where they were talking about airport owners behaviour. I have never seen Scurragh himself or anyone at Virgin suggest that any and all government assistance should solely go to Virgin Australia, so I don't know why Joyce has gone completely off the reservation/off script in this manner, I would imagine that Qantas PR will have to go into damage control mode, and I reckon that outburst from Joyce has probably damaged both the public reputation and the leverage/goodwill that they previously held with the Federal and State governments. And with things being this bad in the airline industry at the moment, I would say that he's unnecessarily endangered the shareholders, staff and the continuing business by these outlandish statements.

I don't imagine he would have been knocked off his feet with supportive Qantas and Jetstar staff member letters and emails given his history in the company, and especially seeing as these staff members are seeing their peers/colleagues losing their jobs at Rex, Virgin and Tiger among others.

 

[jase05]

I have never seen Scurragh himself or anyone at Virgin suggest that any and all government assistance should solely go to Virgin Australia, so I don't know why Joyce has gone completely off the reservation/off script in this manner, I would imagine that Qantas PR will have to go into damage control mode, and I reckon that outburst from Joyce has probably damaged both the public reputation and the leverage/goodwill that they previously held with the Federal and State governments.

Exactly, all PS has done is ask for extra government assistance as QF are well within their rights to ask for too. I’ve never once heard PS say that only VA should be helped and I’ve actually heard him say several times that all airlines need help in the current climate. AJ seems to have got pretty worked up over though and I think his outbursts haven’t done him any favours

 

[ja1]

Can anyone confirm if Velocity points are still held in trust? ie, the "value" of points is "safe" The previous company structure this was definitely the case, "Velocity Rewards Pty Ltd as trustee of the Loyalty Trust and Velocity Frequent Flyer Pty Ltd " however with all the recent changes in ownership, it is not clear if this is still the case. I tried to search the company, but could not find any recent references to it.

G'day,

It would be a false hope to think about points being held in trust as you described as also being 'safe'. Please don't assume corporate ownership structures are designed to protect *you*.

The structure is designed to minimize liability to the holding company and/or facilitate tax structures and so on.. which isn't a criticism - they set things up within existing rules and frameworks and simply noting that it's very rare to have these sorts of things setup from a customer POV with specific differences around things like investment accounts and so on (which FF points are not..)

So while the VFF may be a separate 'business/company' it forms part of the Virgin group holdings and wouldn't have any meaningful existence outside this group (where would it buy points from? QAN ? I don't think so..).

At this stage you either believe VA survives and your points are worth something or you don't and you transfer it out or redeem for something (or sell them if that was an option, noting it's not allowed under the T&Cs).

 

[flyingfan]

"Badly managed for the past 10 years..." No love lost between AJ and JB and definitely no olive branch there.

 

[hydrabyss]

This is from an article I read yesterday.

By Joyce’s seventh year, he’d delivered $2.6 billion of accumulated losses and was begging Tony Abbott to pick winners and losers by extending him a $3 billion loan guarantee. And after 11 years, Joyce has accumulated net profits of only $1.75 billion – a factoid easy to forget when you see his remuneration ($92 million and counting), but crucial to remember when he critiques other companies “which have been badly managed for 10 years”.

Maybe someone can enlighten me as to why he feels the way he does towards Virgin. Competition keeps the price down and maybe he just does not like competition.

 

[Inlander]

This is from an article I read yesterday.

By Joyce’s seventh year, he’d delivered $2.6 billion of accumulated losses and was begging Tony Abbott to pick winners and losers by extending him a $3 billion loan guarantee. And after 11 years, Joyce has accumulated net profits of only $1.75 billion – a factoid easy to forget when you see his remuneration ($92 million and counting), but crucial to remember when he critiques other companies “which have been badly managed for 10 years”.

Yes and there had been a lot of sales of company assets in that time which have helped.

 

[Jack_OC]

This is from an article I read yesterday.

By Joyce’s seventh year, he’d delivered $2.6 billion of accumulated losses and was begging Tony Abbott to pick winners and losers by extending him a $3 billion loan guarantee. And after 11 years, Joyce has accumulated net profits of only $1.75 billion – a factoid easy to forget when you see his remuneration ($92 million and counting), but crucial to remember when he critiques other companies “which have been badly managed for 10 years”.

Maybe someone can enlighten me as to why he feels the way he does towards Virgin. Competition keeps the price down and maybe he just does not like competition.

They have a point in the first sentence - i.e. it's true that QF was struggling initially and AJ asked for govt assistance. However, there was more to it than that - at the time there were restrictions on QF's ability to accept investment from outside of Aus (in contrast to VA which is largely owned by other airlines, which in turn are largely owned by foreign governments). AJ's point was that you can't have it both ways - either QF is a quasi "national" airline subject to restrictions on foreign investment (in which case the govt has an obligation to support it), or they are not, in which case they should be free to accept investment from wherever they see fit, just like VA. Ultimately, the govt refused any help, and I think that is part of the reason why he would object to the govt now helping VA.

The second sentence in this excerpt is just bizarre: "net profits of only $1.75 billion – a factoid easy to forget when you see his remuneration ($92 million and counting)". I would imagine most Boards would happily pay a CEO $100 million if it meant turning the company around in the manner that AJ has done at QF. Also, his "remuneration" is largely based on the growth of the QF share price during his tenure, this isn't cash paid out by the company. His actual salary and bonuses are just a fraction of that $92 million.

 

[ja1]

At this point, thinking out loud..

- With VA's international grounded in about a week
- With local border closures (strictly speaking, they aren't closures as they aren't turning people away? the requirement is to self isolate/quarantine if you do cross a border), domestic will significantly reduce

- The next milestone/checkpoint seems to be around mid april (~10th -> 14th) where we'd get an idea if distancing has helped enough to slow down infection

I'm assuming this applies equally to VAH and QAN but for VA:

- They've reduced cash burn based on operational costs
- They've reduced cash burn based on government charges/levies

So do they have sufficient liquidity to continue paying commitments
- assuming yes at this point
- assuming their biggest liability is debt payments ?

They seem to have two large tranches of debt ($3.5b and $1.5b if I've read the numbers correctly)

They have a coupon payment due in April and in May (2020) and the 2023 bonds are now trading at about half their issue value (so the market clearly has doubts).

So while all the commentary has been interesting, the actual test is to see what VA does in April and May in terms of paying the interest on those bonds.

The share price is completely irrelevant (probably for both airlines at this point!) as they aren't using equity to raise money (as that's pretty worthless at the moment and there aren't any buyers anyway)

 

[muppet]

The second sentence in this excerpt is just bizarre: "net profits of only $1.75 billion – a factoid easy to forget when you see his remuneration ($92 million and counting)". I would imagine most Boards would happily pay a CEO $100 million if it meant turning the company around in the manner that AJ has done at QF. Also, his "remuneration" is largely based on the growth of the QF share price during his tenure, this isn't cash paid out by the company. His actual salary and bonuses are just a fraction of that $92 million.

$1.7b over 7 or 8 years is pretty bad from a return on equity viewpoint.

Agree he’s done a good job with the cost base but the business is fairly cyclical. Does well when the economy does, AJ not much to blame for good or bad times.

As we can see now, short term juicing the share price (and by extension his own income) doesn’t mean much in the long run.

 

[hydrabyss]

They have a point in the first sentence - i.e. it's true that QF was struggling initially and AJ asked for govt assistance. However, there was more to it than that - at the time there were restrictions on QF's ability to accept investment from outside of Aus (in contrast to VA which is largely owned by other airlines, which in turn are largely owned by foreign governments). AJ's point was that you can't have it both ways - either QF is a quasi "national" airline subject to restrictions on foreign investment (in which case the govt has an obligation to support it), or they are not, in which case they should be free to accept investment from wherever they see fit, just like VA. Ultimately, the govt refused any help, and I think that is part of the reason why he would object to the govt now helping VA.

The second sentence in this excerpt is just bizarre: "net profits of only $1.75 billion – a factoid easy to forget when you see his remuneration ($92 million and counting)". I would imagine most Boards would happily pay a CEO $100 million if it meant turning the company around in the manner that AJ has done at QF. Also, his "remuneration" is largely based on the growth of the QF share price during his tenure, this isn't cash paid out by the company. His actual salary and bonuses are just a fraction of that $92 million.

I remember hearing about the foreign investment problem now you mention it.

 

[burmans]

$1.7b over 7 or 8 years is pretty bad from a return on equity viewpoint.

Plenty of investors would suggest you shouldn't invest in airlines full stop, so this reads more like a criticism of that than Qantas specifically. While Qantas may not be a great investment as compared to the overall market it is when compared to airlines worldwide.

 

[Inlander]

Plenty of investors would suggest you shouldn't invest in airlines full stop, so this reads more like a criticism of that than Qantas specifically. While Qantas may not be a great investment as compared to the overall market it is when compared to airlines worldwide.

Most transport industry operations are by nature high geared operations ( debt to equity) , as the capital and/or lease cost of the gear is substantial. Additionally, the fixed costs are quite high as well . They main area you can attack is the variable costs .

 

[Jack_OC]

$1.7b over 7 or 8 years is pretty bad from a return on equity viewpoint.

Agree he’s done a good job with the cost base but the business is fairly cyclical. Does well when the economy does, AJ not much to blame for good or bad times.

As we can see now, short term juicing the share price (and by extension his own income) doesn’t mean much in the long run.

The contrasting fortunes of VA and QF over the past 12 years would suggest otherwise.

Describing the QAN share price performance under AJ as "short term juicing" is ridiculous. At the end of December, it was up >50% over 2 years, >100% over 3 years, >200% over 5 years and an incredible 600% over 6 years.

That kind of share price growth in a large business over a sustained period doesn't just happen because the economy is doing well. We are all aware of some of the difficult and controversial decisions that AJ has taken. It certainly wasn't clear to me at the time if those decisions would work out, but they got results and I think he deserves credit for that. BTW, I have never owned shares in QAN or indeed any airline, and I'm not about to change that any time soon. I've also never particularly warmed to AJ in terms of how he comes across (not that I've ever met him in person). I just think objectively he has done a very good job.

EDIT: the pros and cons of AJ are probably a fair bit off topic here. Sorry for taking the thread in this direction - my initial post was in response to the question "Maybe someone can enlighten me as to why he feels the way he does towards Virgin", but I didn't really mean to get into a performance review of AJ so I'll leave it there!

 

[ja1]

The contrasting fortunes of VA and QF over the past 12 years would suggest otherwise.

Describing the QAN share price performance under AJ as "short term juicing" is ridiculous. At the end of December, it was up >50% over 2 years, >100% over 3 years, >200% over 5 years and an incredible 600% over 6 years.

Lets look at it in an asx200 context - the index from ~2009 till Dec 2019 was up 351%.

So this lends some weight to your argument (that AJ's outperformed the market by a lot) - he's basically returned almost double what the median return was..

However '600%' isn't quite incredible in the context of what the whole market is doing. He's done really well (no argument there) but the market as a whole has done pretty well also!

 

[jakeseven7]

I think people need to calmly go back and read between the lines of AJ's words and think about the strategy that is sitting behind them, what he is obviously positioning for and against.

They have been said in that manner for a very precise purpose and some chicken littles on here are reading them very very literally and playing into the QF PR plan...

Now back on topic?

Any VA news? Tiger being shut down yet?

 

[hydrabyss]

I think people need to calmly go back and read between the lines of AJ's words and think about the strategy that is sitting behind them, what he is obviously positioning for and against.

They have been said in that manner for a very precise purpose and some chicken littles on here are reading them very very literally and playing into the QF PR plan...

Now back on topic?

Any VA news? Tiger being shut down yet?

I must be getting old as I had to google what a chicken little was.

 

[HeavyElectricity]

Rod Sims weighs in on Virgin Australia stoush with Qantas, calling for 'cooperative spirit'

ACCC chairman says Qantas boss Alan Joyce’s comments about ‘survival of the fittest’ amid coronavirus crisis are ‘unhelpful’

www.theguardian.com

 

[ozstamps]

Plenty of investors would suggest you shouldn't invest in airlines full stop

I never woud have. More relevant - the world's most famous and successful investor vocally shunned airlines for years

Warren Buffett had long shunned airlines and had been so opposed to investing in airlines in the past that he told shareholders in a 2007 note that “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville Wright down.”

"The airline industry's demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it."

He changed his mind big time in recent years -

He is now Delta Air Lines’s largest shareholder with a stake of 70.91 million shares as of 31 December, according to Berkshire Hathaway’s latest 13F filing with the Securities and Exchange Commission.

Berkshire also owned 42.5 million shares of American Airlines, 53.65 million shares of Southwest Airlines and 21.94 million shares of United Airlines, making him the second-largest shareholder in each of those airlines

Berkshire already owns about 10% of the four leading U.S. carriers: Delta Air Lines (DAL), American Airlines Group (AAL), United Airlines Holdings (UAL), and Southwest Airlines (LUV). Berkshire recently added to its stake in industry leader Delta.

The result of this change of heart - He has lost about $US 5 BILLION in the past month or so, on these airlines.

Interesting observation. They might bounce back, and they might keep sliding due to USA lockdown, so even $5 Billion might look modest in a fortnight.

 

[Must...Fly!]

Huge schedule changes either being or been loaded. Example of MEL-PER currently 2 daily until Friday then no service available until next Tuesday.

SYD-MEL looks the same so I think VA is in the process of implementing a massive restructure of operations.

 

[mrmerc500]

Huge schedule changes either being or been loaded. Example of MEL-PER currently 2 daily until Friday then no service available until next Tuesday.

SYD-MEL looks the same so I think VA is in the process of implementing a massive restructure of operations.

It does seem to be the case, Hugh reduction with no direct MEL - OOL flights, SYD - OOL & PER - SYD down to 1 daily, PER - BNE route suspended until mid May.

This is going to play havoc with interstate FIFO workers connecting in Perth with longer lay overs expected & transit more SYD & MEL.