What is Virgin Australia's strategy (post-administration)?

[HS-TQE]

This reminds me from same predictions that REX will get up to 10 planes by 2022 (it didn't) and would increase from there. Also the same predictions from those sources that "VA will be listed by 2023!" (Well those sources was an epic fail).

Considering REX has pivoted from their mainline experiment by acquiring National Jet Express and are now using their Embraer 190s to compliment their mainline ops suggests REX has no clear direction on where they are going in the short term.

 

[jakeseven7]

Rex won’t be doing anything soon, cash available is nearly out, looking at what they have been burning, and what is available according to the latest results, they won’t get through the next FY. Not sure what is next for Rex, but a long term competitor to Virgin is unlikely.

The forecast of Rex’s demise has been around for years they are almost like a coughroach impossible to kill keep scuttling away and annoying all the big players

 

[HS-TQE]

The forecast of Rex’s demise has been around for years they are almost like a coughroach impossible to kill keep scuttling away and annoying all the big players

Well that does depend on REX's Private Equity backer. PAG could easily trigger their obligations to acquire just under 50% of REX if they chose do. Their Singaporean co-owners has recently stepped back from day to day operations recently.

 

[HS-TQE]

On a related note, REX's share price is getting close to their Covid level prices (currently $0.63cents). Could that be one of the reasons why their Singaporean co-owners recently stepped back (and REX also recently got a new CEO with 'Sharpy' no longer the public face).

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[justinbrett]

You could essentially argue that no airline should buy Virgin, one can get what they need from being a partner, why spend billions?

SQ buying just to tear up a QR deal? They would never reap the gains from that, by shelling out billions

But what then? Why would QR buy? It’s not going to make any extra money if it buys VA. Same goes for UA. SQ? It would get some extra pax, unsure if it would justify the capital investment.

And that my point. Why would an airline buy VA? QR and SQ show a marginal motivation, but what of anyone else? Seems like a silly proposition.

 

[jakeseven7]

Isn’t Chris Ellison wanting to buy his own airline?

 

[HS-TQE]

But what then? Why would QR buy? It’s not going to make any extra money if it buys VA. Same goes for UA. SQ? It would get some extra pax, unsure if it would justify the capital investment.

And that my point. Why would an airline buy VA? QR and SQ show a marginal motivation, but what of anyone else? Seems like a silly proposition.

SQ has pretty much got most of Australia covered including some of the regional areas (DRW/CNS). IMO, they don't need to buy VA to get extra feed as they are already covered through multiple gateways.

Considering SQ's past record with Australian investments, wasting money to partially buy VA to eliminate another competitor (QR) would not yield a good return (if any at all). They'd pretty much be on their way to their 4th failure in such a scenario.

 

[Saab34]

The forecast of Rex’s demise has been around for years they are almost like a coughroach impossible to kill keep scuttling away and annoying all the big players

However this time one thing is different, the cash is nearly out.

Another injection would sort that out and let them run for a few more years.

I can’t see them getting access to large amounts of funding looking at the balance sheet.

 

[HS-TQE]

However this time one thing is different, the cash is nearly out.

Another injection would sort that out and let them run for a few more years.

I can’t see them getting access to large amounts of funding looking at the balance sheet.

With Singapore-based co-owner Lim Kim Hai has stepped down from day to day running of REX (replaced by new CEO Neville Howell), and "Sharpy" being moved to Non-Executive Chairman, it would be interesting to see how the new REX leadership team and their private equity co-owners PAG are going to look at REX's financial books from here.

Rex appoints new CEO; announces other leadership changes

Regional Express Holdings (Rex) has announced a change of leadership, with Neville Howell named the new CEO of the airline.

karryon.com.au

 

[RSVKanga]

It’s not going to make any extra money if it buys VA.

Profit/loss does not apply, or matter to a company like QR, owned an oil-rich authoritarian state. QR have access to unlimited oil funds that can offset any losses made in the company, big or small. They operate many routes at a deep loss, some fights even completely empty (eg ADL-MEL) but can afford to run these flights due to their ability to offset the loss with oil funds. Most other airlines can’t even get close to doing this. With that in mind, QR won’t have a problem if they buy Virgin Australia and don’t get much in return. They will just utilise those unlimited oil funds to fix the problem, just like how they deal with those other major loss making components of the business.

But what then? Why would QR buy?

A symbolic swipe. If Qatar Airways want to take their bullying and intimidating behaviour towards Qantas (and the Australian Government) to a whole new level, then buying Virgin Australia would be the perfect symbolic move. Provided they push/lobby/bully/bribe their way through the FIRB and other approvals, I think it would seriously threaten QF’s market share and security in OW and significantly cede Australia’s sovereignty to the State of Qatar. As mentioned above, the financial aspect won’t be a problem.

 

[RooFlyer]

QR have access to unlimited oil funds

Unlimited? No, they don't.

some fights even completely empty (eg ADL-MEL)

Completely empty eh? No, they aren't (I've flown it). BTW, it arrives into MEL in time for a nice lunch in the QF F lounge before heading off to Europe.

But I would like to see QR take a controlling stake in VA just to poke Qantas in the eye . That would make great sport, here on AFF at least.

 

[RSVKanga]

Unlimited? No, they don't.

Yes they do. Qatar won’t run out of oil until about the year 2400. I’d consider that virtually unlimited.

Completely empty eh? No, they aren't (I've flown it). BTW, it arrives into MEL in time for a nice lunch in the QF F lounge before heading off to Europe.

Yes, you noticed the error. But the flight in the other direction (MEL-ADL) is indeed completely empty.

 

[jase05]

Make up your mind will you.
One minute Project Sunrise is going to dominate the market share and force out the Middle East airlines and the next minute QR by purchasing a tiny little airline is going to threaten QF’s market share
Im confused, which is it?

 

[RooFlyer]

Yes they do. Qatar won’t run out of oil until about the year 2400. I’d consider that virtually unlimited.

You sorta skipped over the word 'funding'. As in 'access to unlimited oil funds'.

Yes, you noticed the error. But the flight in the other direction (MEL-ADL) is indeed completely empty.

Gosh, bolding and 'indeed' together. No, its not. Else we wouldn't be hearing the stories of people sleeping on the airport floor

 

[HS-TQE]

Here we go again...

 

[Princess Fiona]

ADMIN HAT

The topic of this thread is VA’s strategy.
Any further off topic posts will be deleted.

ADMIN HAT

 

[MooTime]

If VA can prove over a couple 2/3 years that they make profit, whatever% ROI.
Then that'll make sense to whatever prospective buyers require if sufficient.

And by buying / taking over that % can only increased by filtering pax's preferred routes.

Anyway there will be a buyer at a certain time at a certain price. That there is no doubt.

 

[Digicola]

Rereading the article about VA and the evolution of their business class had me thinking about VA’s strategy and I must say I’m slightly worried for them.

As it stands VA is running into a wall, customers want a good network, good and reliable service, value for money and a strong frequent flyer program.

VA pretty much flies to almost everywhere it can fly to in Australia (or almost does), meaning going international is its only avenue for growth. Theres only so much additional flying that can be done on 737s especially since Bali bilats are well and truly capped now. The solution of course is to go longhaul but they’d need a critical mass of widebodies for it to make sense, in the past the LAX operation was supposedly a money spinner but overcapacity and weak demand due to the strong USD make it less attractive. In Asia you’d have HND of course, then… more SIN? DOH? HKG? VA would have to rely on partners quite a bit as their share of the Oz pie is much smaller than QFs.

As it stands the bulk of the fleet is getting older which will increase costs and increase reliability issues. No matter what their decision is its a huge capex that will have to be absorbed eventually.

The current hodgepodge arrangement might be working for now but I see it becoming increasingly difficult to simply rely on partners as VA would have relatively little bargaining power in regards to perks and redemption opportunities. NH hasn’t granted lounge access, UA lounge access is limited to SYD/MEL and only when linked to an intl itinerary in the US, the HNA group airlines offer basic perks (and its always an uphill battle to have them honoured). Alliance membership isn’t a silver bullet and comes with responsibilities but it could be a possible pathway.

The current fleet plan doesn’t take VA anywhere. I reckon VA would have done better going down the airbus path and getting A321LR and XLRs for flights to Asia. Would have helped keep a unified fleet and cherry pick destinations with smaller gauge so as to not flood the market with capacity. Now I really wonder what VA can/should so going forward especially if the goal still is to limit investment and squeeze as much value for an ipo/resale. Investors rarely look at a business with little growth prospects and think « gee thats worth more than what the owners whant »

 

[Saab34]

I wouldn’t write the whole model off completely, they do have a profitable domestic 737 operation, and we would need to see some numbers from this current FY to make any determination on business health. Really interested to see some passenger data also, Jetstar hinted at a slight pullback recently.

While International ops is somewhat important, they really need to nail down and focus on the domestic plan, and increasing its margin towards 20%. MAX10 will be very important to earnings. Sadly that’s a long way off. I did raise concerns with fleet issues in the back half of this decade, they will need to pull a lever somewhere, they can’t just sit and not grow for 5 years. I can’t see Virgin kicking off long haul ops for a long time, as you mentioned, it’s very hard to see what markets they can enter, most are now already well established with other players, and for the USA for example, we see moving into the new era of more direct options, not just LAX, further diluting traffic and yields into California.

 

[jakeseven7]

Rereading the article about VA and the evolution of their business class had me thinking about VA’s strategy and I must say I’m slightly worried for them.

As it stands VA is running into a wall, customers want a good network, good and reliable service, value for money and a strong frequent flyer program.

The current fleet plan doesn’t take VA anywhere. I reckon VA would have done better going down the airbus path and getting A321LR and XLRs for flights to Asia.

Undoubtedly… but VA2 would be waiting a very long time for those aircraft - Airbus are in very high demand thanks to the ongoing disaster that is the Boeing MAX.

Unfortunately VA2 put all the eggs in the MAX basket and hitched their fleet strategy on them…I think they had signed on the dotted line though before all the crashes and mid air door falling offs and quality issues started appearing - so it’s pretty rotten luck really… They are stuck with a product that literally everyday people are hoping doesn’t break in a new way and hurt more people!

And then there is staffing, VA2 are already struggling to hold onto their current pilot base, they’d all need re-training, would be a pretty huge disruption for them to manage.

I think it would be tough for them to do a significant change in fleet strategy now.