Virgin gets shareholders loans

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cove

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I noticed Virgin still have a cash flow issue and needed to get their major shareholders to chip in funds in the last week.
Considering they sold a piece of their frequent flyer points business and have pretty low fuel costs it left me wondering where the cash is bleeding. Any thoughts on what is happening?
 
I just hope the 3 main shareholders don't have a falling out as this is not the first time the business has needed to get saved. It is definitely time for VAH to start making money. They may need to do another management change to stop the rot.
 
cove said:
I noticed Virgin still have a cash flow issue and needed to get their major shareholders to chip in funds in the last week.
Considering they sold a piece of their frequent flyer points business and have pretty low fuel costs it left me wondering where the cash is bleeding. Any thoughts on what is happening?
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Reporting isn't as granular as QF and other airlines so difficult to see where the haemorrhaging is and who to strike off the books.
On the revenue generation side - Virgin is ancient in their commercialization of big data. This might explain why they're rumoured to make only half of what QF loyalty does per member.
 
I did see their fuel hedging is out of the money but that can change pretty quickly.
i thought the sale of a piece of their frequent flyer points business was a possible big mistake unless they needed the cash injection.
 
Monday's AFR discussed this on the back page. A couple of points that I recall:
  • The partial sale of velocity was required for cash injection, but has cost them income
  • VA international is losing money (possibly significantly)
  • They made jam with the grounding of Qantas from corporate customers, but there are some hints that is unwinding.

I reckon most with any regular VA flying would understand that last point to have a hint of truth.

BTW, any reason this is in the credit card promo area?
 
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Stephen Bartholomeusz in Business Spectator also wrote an interesting article re Virgin.

In summary, factors such as the ambitious program to reposition Virgin, a different fuel hedging strategy to Qantas, and a lesser natural hedge against the USD compared to Qantas all contributed to Virgin's situation. The difference between Virgin's Negative free cash flow of -$253 million and Qantas' Positive free cash flow of +$770 million, is marked.
In addition Virgin is undercapitalised with Capital of $1 billion, against Interest Bearing Liabilities of $3 billion.
The current shareholder loan is buying time while Virgin and its airline shareholders look at what capital structure is required for the future.
 
Each of the big three shareholders are subject to the 3% creep rule every 6 months and subject to Government approval if they want to buy more as they are all "foreign" investors.
I don't know how much royalty Virgin UK get. Can anyone see that number in the reporting?
Their fuel buying is not helping them this year.
They need more business passengers who pay.
 
Maybe it was jetlag when I started this one.
Virgin was under pressure to have to ask Virgin UK to pony up a temporary loan.
Last time Virgin UK had to buy shares at 20 cents in the previous rescue. History may repeat itself.
Mrscove thinks I have enough credit cards! Such a cruel thought is what I was thinking.
 
I suspect the international business is flushing cash away given their reliance on the US market which has largely collapsed with the falling dollar and based on many anecdotal contributions recently. The capital expenditure in expanding facilities has been immense in recent years and they are still handing out (roughly) like-for-like status perks with much lower thresholds than Qantas. Quite a few more generous inclusions too currently. I've never understood why Borghetti is lauded as such an extraordinary genius when until this first half the up-market Virgin had never made money once and the old LCC model had been profitable pretty consistently.
 
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The interesting part is whether the parent can actually inject money into the international subsidiary, given it has different ownership (in order to keep its international rights), if international is indeed still losing money
 
QFflyermelbourne said:
I've never understood why Borghetti is lauded as such an extraordinary genius when until this first half the up-market Virgin had never made money once and the old LCC model had been profitable pretty consistently.
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First, customers extremely rarely care about whether a company is profitable or not. They are self-centred enough to only care about what the company delivers to them, i.e. the experience. The fact that JB brought a new real competitor to at least the Australian domestic market to face against Qantas is marked as a triumph; that's difficult to argue against.

It's also not as if JB's effort was a flash in the pan, either. We can criticise about their financial position now (or even previously) but they are still here, for whatever reason. They also have two big partners behind them with money, so if JB's exploiting that kind of "security" then so be it. If JB goes into an era of massive cost cutting and job slashing, then maybe that changes the picture.

Also, many are still very bitter about QF not recognising the potential of JB and would rather punish QF by supporting the good that JB has brought to VA, to the point of being blind of VA's issues. The same goes for those who thought AJ should be have been shot for his decision to ground the airline.
 
Having shares in a company that you cannot control can be a problem. Virgin should be profitable by now but it really has not happened so far.
 
gotta be international related - too much competition on both transpac and european routes, they may need to wind back these services and eventually drop them and open more profitable routes (easier said than done obv).
 
trippin_the_rift said:
The armchair expert in me wonders how you could NOT be making record profits in 2016 with fuel so cheap
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Hedging not being free is likely to have at least something to do with it. Any sensible airline would have assumed prices would be higher and hedged accordingly.
 
junbugging said:
Hedging not being free is likely to have at least something to do with it. Any sensible airline would have assumed prices would be higher and hedged accordingly.
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Like Cathay? They have some of the highest oil prices right now and still managed to make a lazy $1B USD profit
 
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