Virgin Australia Financially Secure? [Now in Voluntary Administration]

[Must...Fly!]

I'd suggest that much of what Qantas has is a direct and indirect result of the government's ownership of the airline prior to the privatisation. Perhaps if AJ started an airline group from nothing in 2001 he would have had some bigger problems to deal with today.

VA failed with regional expansion even with great aircraft, while some of that might be down to going to the wrong places, fact is many of those places simply can't support a big duopoly at reasonable frequencies, and Qantas had first mover advantage - one that it never paid for off its own back. And indeed it uses the position to further strengthen itself by taking advantage of incentives from local councils (e.g. Bendigo). I don't begrudge them this, but let's not pretend it is all because of great entrepreneurial spirit within the airline, or of its CEO.

From a customer perspective, prior to VA's move upmarket to become a full service airline, it became obvious to all that Qantas could not be trusted to provide a respectable service on its aircraft without competition. Who remembers the economy-plus 2-3-2 "business class" on the A330s? That's not to mention what happened to the food...

 

[p--and--t]

I'd suggest that much of what Qantas has is a direct and indirect result of the government's ownership of the airline prior to the privatisation. Perhaps if AJ started an airline group from nothing in 2001 he would have had some bigger problems to deal with today.

VA failed with regional expansion even with great aircraft, while some of that might be down to going to the wrong places, fact is many of those places simply can't support a big duopoly at reasonable frequencies, and Qantas had first mover advantage - one that it never paid for off its own back. And indeed it uses the position to further strengthen itself by taking advantage of incentives from local councils (e.g. Bendigo). I don't begrudge them this, but let's not pretend it is all because of great entrepreneurial spirit within the airline, or of its CEO.

From a customer perspective, prior to VA's move upmarket to become a full service airline, it became obvious to all that Qantas could not be trusted to provide a respectable service on its aircraft without competition. Who remembers the economy-plus 2-3-2 "business class" on the A330s? That's not to mention what happened to the food...

But wasn't Qantas privatised 27 years ago and so much water under the bridge and potential for various CEOs and world events along the way to crash the company that surely what happened prior to 1993 is merely academic.

We absolutely need competition in normal circumstances, But in a market economy and with a Liberal government, surely its not their role to pick winners and losers (or survivors) and provide handouts to one and not the other.

No matter what one thinks of AJ, surely a stance of (1.) no handouts for anyone and let capitalism work or (2.) "equivalent handouts" if you are going to intervene; would be two logical options to put on the table for a CEO responsible to the board and shareholders

Edit: Same as for PS, logical for him to do whatever to try and save his company

 

[dajop]

Let's be clear though, AJ's posturing is not to get a handout from the government, or a "level playing field". It's to ensure VA doesn't survive so it can monopolise air travel in the country when it emerges from COVID-19 hiatus. Clear and simple. Any shareholder should demand no less from him. I don't think the government will listen though.

 

[p--and--t]

Let's be clear though, AJ's posturing is not to get a handout from the government, or a "level playing field". It's to ensure VA doesn't survive so it can monopolise air travel in the country when it emerges from COVID-19 hiatus. Clear and simple. Any shareholder should demand no less from him. I don't think the government will listen though.

I will be a bit more generous and say he will be fighting tooth and nail on behalf of shareholders and staff to ensure VA doesn't come out of this due to government interventions any better off than the comparative positions between the two companies before the restrictions.

 

[ozstamps]

The Feds appear to have done a double back flip in the past 24 hours according to Fairfax. This may save Virgin if it transpires.

Run company losses for 7 years, due to erratic and often misguided management, and then get saved by a Virus perhaps. Strange world.

The sharemarket seems to have spoken on this - Virgin stock skyrocketed more than 16% on Tuesday while Qantas scrip rose just 0.6%.

Bailout for Virgin is Alan Joyce's worst nightmare

Even during a once in a lifetime crisis Qantas boss Alan Joyce remains strategic and plays a long game. Until a week ago the devastating pandemic that will cost his airline billions in lost revenue also presented an opportunity to see off its weaker domestic competitor, Virgin Australia.

Thus a government bailout for Virgin - particularly one that involves the state ultimately converting a loan into Virgin shares - is Joyce’s worst nightmare.

A back-of-the-envelope calculation suggests the $1.4 billion loan Virgin is seeking would convert into a stake of a little less than 70 per cent based on the current share price

<REDACTED FURTHER ARTICLE CONTENT>

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Bailout for Virgin is Alan Joyce's worst nightmare

Alan Joyce, who has been singing loudly that the well capitalised Qantas doesn’t need any assistance, is now putting up his hand for a $4.2 billion loan.

www.smh.com.au

 

[andrewpf]

With Australia's tourism industry hurting so badly, surely the last thing that a government would want is a reduction in airline competition that will dampen demand in the medium term through higher fares.

The other thing worth considering - Virgin is a QLD based business, and QLD is electorally critical for the Government. How many flight crew and staff are based out of the State?

Finally, arguably it is the Government's responsibility to ensure that large businesses do not go out of business during this crisis. Particularly a business so directly impact by Government restrictions. The Government are in part responsible for the restrictions that have culled people's ability to fly (obviously totally the right decision), and so lets not pretend this is a mess of Virgin's making.

Virgin started the year with $1 billion in reserves, a new CEO, and plans to make the business profitable. To argue they should be left to collapse because of COVID because they would have collapsed anyway seems to mistake their actual pre-crisis position for Qantas' wishful thinking. Governments around the world are intervening to ensure their air carriers remain viable. If Australia (a giant continent with no other true competing travel modes) wants to keep a second airline, and to keep 10,000 Australian jobs in one go online, then it makes sense to make sure Virgin Australia survives the pandemic.

 

[Cubiscus]

Absolute last thing the market needs is a monopoly (see domestic travel prices in most of Canada for an example) so I'd back a loan converted to equity or paid back.

I recall in 2013 when Qantas went cap in hand, and now we have the posturing to ensure VA don't get money.

 

[jakeseven7]

The other thing worth considering - Virgin is a QLD based business, and QLD is electorally critical for the Government. How many flight crew and staff are based out of the State?

Just a point, Virgin is already heavily subsidised by the QLD State Government

 

[jakeseven7]

Absolute last thing the market needs is a monopoly (see domestic travel prices in most of Canada for an example) so I'd back a loan converted to equity or paid back.

I recall in 2013 when Qantas went cap in hand, and now we have the posturing to ensure VA don't get money.

I don't see that. I see AJ doing his job and fighting for his company and their staff to make sure that if not now, QF are lined up for a rescue deal if/when they need it and to make sure that there is no unfair advantage given that could eventually hurt QF and its employees. If the roles were reversed VA would be doing exactly the same thing. All is far in love and the corporate business world!!

Can we page @pauly7 our resident expert consultant back to this thread to share any 'observations'

 

[Must...Fly!]

The Feds appear to have done a double back flip in the past 24 hours according to Fairfax. This may save Virgin if it transpires.

Run company losses for 7 years, due to erratic and often misguided management, and then get saved by a Virus perhaps. Strange world.

The sharemarket seems to have spoken on this - Virgin stock skyrocketed more than 16% on Tuesday while Qantas scrip rose just 0.6%.


.

Bailout for Virgin is Alan Joyce's worst nightmare

Alan Joyce, who has been singing loudly that the well capitalised Qantas doesn’t need any assistance, is now putting up his hand for a $4.2 billion loan.

www.smh.com.au

AFR is indicating that the government is set to reject the opening request. But I am not a subscriber, however I can get the following

The federal government looks set to reject Virgin Australia's initial request for a $1.4 billion bailout loan, as Qantas pressures its debt-laden rival by insisting any government assistance be proportional and tensions between the two airlines reach new heights.

Finance Minister Mathias Cormann says the government is committed to having two competitive domestic airlines.

Government set to reject Virgin's $1.4b opening gambit

Finance Minister Mathias Cormann says the government is committed to having two competitive domestic airlines.

www.afr.com

As for a double backflip being done - I'm not so sure.

With the greatest of respect to Exeuctive Traveller/AusBT. The headline they put out took the quote way too far from McCormack.

Speaking at the unveilling of a new $298m package for regional carriers, Deputy Prime Minister and Transport Minister Michael McCormack (pictured above) said "it is not the government's intention to nationalise airlines."

So it is not their intention. The headline stated "Govt rules out nationalising Virgin Australia".

There is a difference between your intentions and your actions. This is a politician talking, remember!

 

[Cubiscus]

Alan is doing what's best for Qantas, which is a monopoly situation.

 

[amaroo]

At the rate this thing is going Govs might end up owning everything.

 

[oz_mark]

Alan is doing what's best for Qantas, which is a monopoly situation.

The very best situation for Qantas would be a very weak competitor. A monopoly position brings its own problems....

 

[Must...Fly!]

And yet the worst outcome for the taxpayer would be Alan Joyce's so called fair outcome.

Anyone want to guess what Qantas would use $4.2 billion in cash for? I certainly do...

 

[pauly7]

Alan is doing what's best for Qantas, which is a monopoly situation.

I can’t tell from your post if you are joking but that would be an absolutely terrible outcome for Qantas.

There would be a whole world of pain never seen before inflicted on them by the government from regulatory and compliance through to the very real chance they would be forced to split the group up (eg maybe sell Jetstar and see that come back at them...).

After a short lived ‘monopoly’, any new competitor that would enter would have some massive advantages over a failed VA in this scenario, more than likely starting with little debt, inheriting a ‘made ready’ market, skilled workforce probably very much on the cheap and possible access to assets at fire sale prices. They would even have an upper hand over most suppliers to negotiate from ground zero.

The intent from the QF position is that assistance is equitable, as much as possible in these bizarre times.

The media is loving this story so there is a lot of hyperbole out there right now, let calm heads prevail

 

[toowongman]

After a short lived ‘monopoly’, any new competitor that would enter would have some massive advantages over a failed VA in this scenario, more than likely starting with little debt, inheriting a ‘made ready’ market, skilled workforce probably very much on the cheap and possible access to assets at fire sale prices. They would even have an upper hand over most suppliers to negotiate from ground zero.

This is intriguing. Random example - Lindsday Fox sees an opportunity and decides to have another lash at an airline. He owns an airport with hangars for storage and maintenance, the global market for aircraft is through the floor, and as you say staff and suppliers ready to go and negotiating from zero. Shift all necessary staff into one building in Melbourne, if the business works build them a new one at Avalon. Interesting times ahead.

 

[webregs]

Absolute last thing the market needs is a monopoly (see domestic travel prices in most of Canada for an example) so I'd back a loan converted to equity or paid back.

I recall in 2013 when Qantas went cap in hand, and now we have the posturing to ensure VA don't get money.

Here's a thought. Let Virgin collapse if it is in fact badly run but then subject Qantas to pricing controls (as all monopolies should be) until such time as a competitor enters the market. Seems only fair on the basis of free marketing.

 

[HS-TQE]

The government rejected VA's request for the $1.4B loan last night.

Paywall: Government set to reject Virgin's $1.4b opening gambit

Post automatically merged: Apr 1, 2020

The government rejected VA's request for the $1.4B loan last night.

Paywall: Government set to reject Virgin's $1.4b opening gambit

 

[andrewpf]

The government rejected VA's request for the $1.4B loan last night.

Paywall: Government set to reject Virgin's $1.4b opening gambit

Post automatically merged: Apr 1, 2020

The government rejected VA's request for the $1.4B loan last night.

Paywall: Government set to reject Virgin's $1.4b opening gambit

For those without paywall access, the crux of the article is:

"It is not our plan to take a stake in an airline," Mr Cormann told the ABC. "But let me also say that on the other side of all of this, we are committed to ensuring that through our policy settings and the like that on the other side, that we have two competitive airlines."

 

[Bagpuss]

Here's a thought. Let Virgin collapse if it is in fact badly run but then subject Qantas to pricing controls (as all monopolies should be) until such time as a competitor enters the market. Seems only fair on the basis of free marketing.

I think the relaity is that Virgin would go into Voluntery Administration. This would then allow them offload legacy contracts and reduce leased aircraft. The company would liekly rise up from the ashes, probably as a new airline possibility without the name Virgin.