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

[ThatMrBlake]

Exactly what do you & @ThatMrBlake want Bain/Virgin to do to grow? Place an order for a dozen or so new widebodies and announce plans to fly to LAX, JNB and SIN? Extra 50% capacity on Golden Triangle routes? Join Star Alliance? Take over REX?

When you are going to sell something (as Bain is committed to do), you try to keep a stable product# & not do anything out of the ordinary, as you will only restrict your potential buyer base. If you are going to sell your house, you don't sign a contract to put additions on just before sale. Leave it to the new owners to decide what they want to do with the house, airline or whatever. I dare say if a buyer does have expansion plans, they will first bed down their purchase for a while.

As someone who sits on the buy and sell side of companies the size of Virgin - they lack any attractive growth story. I’m not actually suggesting they enter long haul, I’m merely suggesting that the upside of any purchase of VA is limited. Some level of growth opportunities will need to be presented in a sale process and without any clear ambition I’m betting that page of the IM presentation is currently blank.

On the outside there is no good investment case and only high risk opportunities for meaningful growth. Sure it’s nice, lean and somewhat profitable - this is the good times, it won’t take much for VA to swing red again

 

[RSVKanga]

Sure it’s nice, lean and somewhat profitable - this is the good times, it won’t take much for VA to swing red again

I think this applies to not only VA but the long list of previous “No 2” carriers that tried to be Australia’s second-largest premium long haul international airline and failed. It’s also safe to say that this applies to future attempts as well.

The truth is Australia is no different to countries like New Zealand, Malaysia, France, The Netherlands, Germany, Italy etc where there is only room for one long haul/widebody international carrier. For Australia, that space has been occupied by our national carrier since 1920. Yet even today many people continue to think that Australia is like the UK, Japan, China or the US where there is room for 2-3+ major long haul international airlines and that somehow Australia could/should have that as well? How many examples of past and present failures and difficulties do they need before they admit that Australia is simply not like those economies?

There is only room for one long haul premium international carrier in Australia. Something tells me that population, relative level of demand (in the international aviation market only a tiny % travel to/from Australia) and composition of the economies (eg tourism or corporate oriented) might be major, but not the only factors in determining whether economies can sustain more than one airline.

 

[ben95]

where there is only room for one long haul/widebody international carrier.

I largely agree that there’s only really room for 1 long haul international airline based in Australia flying far and wide with a premium product - that place has been taken by QF and will remain QF.

But I think there’s still a business case for the No.2 carrier to have a small fleet of smaller wide body at reasonable lease/purchase cost (I’m thinking of 5x mid life A330/787 that VA2 can refurb, especially carriers like CX are starting to retire their A330s as they reach 15+ years) to fly domestic trunk routes plus a few value oriented destinations nearby like Tokyo/Hawaii/Korea/Singapore that’s a bit too far for 737s. Jetstar/Scoot has both proved that LCC can make wide body operations profitable, I think if VA have a focused and realistic strategy (something other than compete head to head with QF going to HK), backed by solid domestic wide body ops, then it can be viable.

 

[jakeseven7]

I largely agree that there’s only really room for 1 long haul international airline based in Australia flying far and wide with a premium product - that place has been taken by QF and will remain QF.

But I think there’s still a business case for the No.2 carrier to have a small fleet of smaller wide body at reasonable lease/purchase cost (I’m thinking of 5x mid life A330/787 that VA2 can refurb, especially carriers like CX are starting to retire their A330s as they reach 15+ years) to fly domestic trunk routes plus a few value oriented destinations nearby like Tokyo/Hawaii/Korea/Singapore that’s a bit too far for 737s. Jetstar/Scoot has both proved that LCC can make wide body operations profitable, I think if VA have a focused and realistic strategy (something other than compete head to head with QF going to HK), backed by solid domestic wide body ops, then it can be viable.

Interesting scenario to discuss - but very risky because again QF have the corporate / business / premium ground and they also have Jetstar deployed on those exact routes you mention to scoop up the cost conscious customers.

Add to VA2’s competitors in this scenario a full deck of other national carriers who by and large are pretty good middle road/premium operators PLUS on some of those routes some nasty little LCC/ULCCs as well!

Starts to look very crowded and tough for a smaller middle of the road ‘value’ hybrid airline like VA2 with minimal brand presence outside of its home base.

Not impossible but feels very risky! Which is probably why the ‘patchwork cobbled together alliances’ approach is probably the only realistic scenario we are going to see, at least until they are sold off.

 

[dajop]

There is only room for one long haul international carrier in Australia.

Room for 2 such carriers, as long as they are owned by the same company and therefore can coordinate routes

 

[elanshin]

As someone who sits on the buy and sell side of companies the size of Virgin - they lack any attractive growth story. I’m not actually suggesting they enter long haul, I’m merely suggesting that the upside of any purchase of VA is limited. Some level of growth opportunities will need to be presented in a sale process and without any clear ambition I’m betting that page of the IM presentation is currently blank.

On the outside there is no good investment case and only high risk opportunities for meaningful growth. Sure it’s nice, lean and somewhat profitable - this is the good times, it won’t take much for VA to swing red again

I think what you're not factoring in here is the fact that it's been proven notoriously difficult to break into the Australian domestic market. Having thag on lockdown is a huge value for a suitors that wants a slice of the Aus market.

Sure if you're talking standard institutional investors I would agree that this is a bit risky, but potentially as a play for QR? Or one of the big US airlines, this may be exactly the shell they want. Solid domestic ops that coming in as the investor can compliment with their own existing widebody ops.

 

[RooFlyer]

As someone who sits on the buy and sell side of companies the size of Virgin - they lack any attractive growth story. I’m not actually suggesting they enter long haul, I’m merely suggesting that the upside of any purchase of VA is limited. Some level of growth opportunities will need to be presented in a sale process and without any clear ambition I’m betting that page of the IM presentation is currently blank.

On the outside there is no good investment case and only high risk opportunities for meaningful growth. Sure it’s nice, lean and somewhat profitable - this is the good times, it won’t take much for VA to swing red again

We'll have to disagree then. My view is that VA2 are a solid base for someone with cash to build upon and up. The variety of potential investors/buyers makes the number of scenarios quite large.

The truth is Australia is no different to countries like New Zealand, Malaysia, France, The Netherlands, Germany, Italy etc where there is only room for one long haul/widebody international carrier.

Not quite. France, for instance has Air France and French Bee, who flies to USA, at least, and has a fleet of A350s, mirroring VA2's current servicing of Japan (without the widebodies). Italy has a couple too.

That's a strange list you make.

Australia is very different from all the countries you listed, except for France - the rest are geographically small and the European countries of course act more or less like one nation, with an excellent rail network for domestic travel.

But if you want to talk small countries - Japan has two major international airlines, Sth Korea had 2 until the forced covid-induced merger of Asiana into Korean Air (but the 2 are still operating separately). As well as small, they have high populations, like France and Germany, so belong in your list.

A much better analogy for Australia for you to have chosen is Canada - where Air Canada and Westjet are both international/widebody airlines. Westjet & Westjet Encore service 28 countries! In fact the analogy is quite good; Qantas & Air Canada the dominant legacy players, Westjet and potentially VA3 operating particular routes and providing an attractive alternative to the high cost legacy players.

 

[elanshin]

We'll have to disagree then. My view is that VA2 are a solid base for someone with cash to build upon and up. The variety of potential investors/buyers makes the number of scenarios quite large.


Not quite. France, for instance has Air France and French Bee, who flies to USA, at least, and has a fleet of A350s, mirroring VA2's current servicing of Japan (without the widebodies). Italy has a couple too.

That's a strange list you make.

Australia is very different from all the countries you listed, except for France - the rest are geographically small and the European countries of course act more or less like one nation, with an excellent rail network for domestic travel.

But if you want to talk small countries - Japan has two major international airlines, Sth Korea had 2 until the forced covid-induced merger of Asiana into Korean Air (but the 2 are still operating separately). As well as small, they have high populations, like France and Germany, so belong in your list.

A much better analogy for Australia for you to have chosen is Canada - where Air Canada and Westjet are both international/widebody airlines. Westjet & Westjet Encore service 28 countries! In fact the analogy is quite good; Qantas & Air Canada the dominant legacy players, Westjet and potentially VA3 operating particular routes and providing an attractive alternative to the high cost legacy players.

I actually believe Australia already has a "second" Int'l carrier. It's just not Australian (SIA group). So in essence it's going to be trying to be the 3rd carrier.

That's why it's so hard to fight the scraps. Between JQ and TR, they've sponged a huge amount of cheap travellers. SQ and QF sponge up a huge amount of premium aussie travellers. This leaves a sliver to build from.

I do believe the demand and opportunity is there, but not as VA2 alone. It really needs another top tier airline that can lend it some new planes (not old handme downs) to create a modern value proposition.

Like i see something like ZIP (maybe not exact copy) from JAL group as possibly where VA3 Int'l could look like and ill be highly interested if theres no frills lieflat at a sharp price to Asia. Economy has also similar no frills, but you modernize the seats, offer free in-flight wifi (starlink?). If that was in the air today, it'd be biting chunks into JQ and TR with the right routes and prices.

 

[MooTime]

I think you’ve got that backwards. VA’s share was 31.4% in March 24 and has hovered in the low 30s since the start of the pandemic. Pre-pandemic, including Tiger, the market share was around 37%.

QFs share hasn’t really changed at all, hovering in the low 60s both pre and post pandemic, 61.8% in March 24. It had a small period of up to 70% in 2021 but that’s an anomaly as the charts below show.


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Source: https://www.accc.gov.au/system/files/domestic-airline-competition-in-australia-may-2024-report.pdf

https://www.accc.gov.au/system/files/Airline%20Competition%20in%20Australia%20-%20December%202022%20report.pdf

Nope, def VA increased their share upto 37%.
The article was even shared here on AFF.

Seems in more recent time like 2024 that figure may have dipped again.

Usual roller coaster share trading graph.

Anyway appreciate your research.

 

[HS-TQE]

Like i see something like ZIP (maybe not exact copy) from JAL group as possibly where VA3 Int'l could look like and ill be highly interested if theres no frills lieflat at a sharp price to Asia. Economy has also similar no frills, but you modernize the seats, offer free in-flight wifi (starlink?). If that was in the air today, it'd be biting chunks into JQ and TR with the right routes and prices.

Pretty sure that ZIP's "J" is an 'hard product' upmarket version of AirAsiaX, the (ill-fated) Batik Long Haul and VietJet Long Haul with an actual "lie-flat" seat.

The point of difference between ZIP and the SE Asia Long Haul LCCs is that the SE Asia LCCs has the outdated "sloped flat" seat model in their J classes (the later 2 getting their A330s from AirAsiaX and reupholstering the J seats) with a slightly better soft product than ZIP by providing a complimentary meal + drink.

 

[justinbrett]

Nope, def VA increased their share upto 37%.
The article was even shared here on AFF.

Seems in more recent time like 2024 that figure may have dipped again.

Usual roller coaster share trading graph.

Anyway appreciate your research.

The data from ACCC is clearly shown in my post covering pre pandemic up until now.

Whatever you are quoting (noting you haven’t sourced your claim) is either incorrect or out of context.

 

[Harrison_133]

Nope, def VA increased their share upto 37%.
The article was even shared here on AFF.

Seems in more recent time like 2024 that figure may have dipped again.

Usual roller coaster share trading graph.

Anyway appreciate your research.

Right figure, wrong context. The 37% figure referred to the market share Virgin had on routes between the largest cities, not market share overall.

From the June 2023 ACCC report:

Virgin Australia’s market share is less impacted by seasonal trends than Qantas and Jetstar. The airline flew 33.2% of domestic passengers in April 2023, which was roughly in line with its market share over the past year. Despite going through voluntary administration in 2020, Virgin Australia’s market share is more than 3 percentage points above 2019 levels. As an airline group, however, its market share has declined since that time due to the exit of its low-cost subsidiary Tigerair. Virgin Australia maintained its lead on the larger city routes with a market share of 37.7% in April.

 

[RSVKanga]

Not quite. France, for instance has Air France and French Bee, who flies to USA, at least, and has a fleet of A350s, mirroring VA2's current servicing of Japan (without the widebodies). Italy has a couple too.

French Bee is not a premium carrier, it is a budget airline. Yes, it does mirror VA2 which is a semi-budget airline. It’s nowhere near the 2-3+ premium airline system that exists in the US, China, Japan and the UK.

There is also no other premium long haul airline in Italy that has a network as large as their national carrier. They’re in the same boat as Australia.

But if you want to talk small countries - Japan has two major international airlines

If you had read the whole post you may have noticed that I did indeed touch on Japan. Japan is five times larger than Australia population wise, and has significantly higher corporate and tourist demand to/from the country than Australia. I can guarantee you there are much more people flying to/from Japan in the international aviation market than people flying to/from Australia. It’s likely that these facts are potential reasons why they can sustain two long haul international carriers that have a premium offering and large network.

Australia is very different from all the countries you listed, except for France - the rest are geographically small and the European countries of course act more or less like one nation, with an excellent rail network for domestic travel.

That’s a very weak point you make, because geographical size has nothing to do with this. Russia is the world’s largest country and even they can’t sustain having more than one long haul premium international airline. Even before Russia’s invasion, S7 airlines never had widebody aircraft and they flew to nowhere near the amount of international destinations as Aeroflot did with its decent long haul network. There’s only room for one premium long haul carrier there as well.

 

[RooFlyer]

French Bee is not a premium carrier,

Ah - now we have the addition throughout of 'premium' as part of the qualification of "international/widebody" carriers. Sure, if you keep moving the goalposts (definitions), you'll be right in the end .

Oh, you also 'forgot' United Kingdom in your list of small countries in Europe. Gosh, how many international/widebody airlines there?

List of airlines of the United Kingdom - Wikipedia

en.wikipedia.org

Spain also has a couple of "international/widebody" airlines.

Your argument

The truth is Australia is no different to countries like New Zealand, Malaysia, France, The Netherlands, Germany, Italy etc where there is only room for one long haul/widebody international carrier.

can't be sustained.

Oh, Canada? The country most like Australia in respect of size and population of any in this discussion.

Point is, structured and funded correctly, there is absolutely no reason why Australia couldn't sustain 2 locally based "international/widebody" airlines - except maybe for the argument that @elanshin made above - that SQ group acts as a defacto local carrier.

 

[RSVKanga]

Oh, you also 'forgot' United Kingdom in your list of small countries in Europe. Gosh, how many international/widebody airlines there?

List of airlines of the United Kingdom - Wikipedia

en.wikipedia.org

Spain also has a couple of "international/widebody" airlines.

Again, did you even read the whole post? I mentioned the UK in the list of countries that have 2-3+ international carriers, not the countries that could only sustain one.

Oh, Canada? The country most like Australia in respect of size and population of any in this discussion.

Canada is 52% larger than Australia population wise. There are more people flying to/from Canada for business and tourism than people flying to/from Australia, and the country is located next to the largest economy in the world. I’m not sure why you think Canada is comparable to Australia in regards to this argument.

in your list of small countries in Europe

Perhaps you could have debated my example of Russia, the world’s largest country, also only being able to sustain one premium long haul airline with a major network, which was used to debunk the point you made about geographical size being a factor in play.

Point is, structured and funded correctly, there is absolutely no reason why Australia couldn't sustain 2 locally based "international/widebody" airlines

Ansett Australia and the old Virgin Australia couldn’t agree more! This is certainly not beating a dead horse! Definitely not.

 

[elanshin]

Again, did you even read the whole post? I mentioned the UK in the list of countries that have 2-3+ international carriers, not the countries that could only sustain one.


Canada is 52% larger than Australia population wise. There are more people flying to/from Canada for business and tourism than people flying to/from Australia, and the country is located next to the largest economy in the world. I’m not sure why you think Canada is comparable to Australia in regards to this argument.


Perhaps you could have debated my example of Russia, the world’s largest country, also only being able to sustain one premium long haul airline with a major network, which was used to debunk the point you made about geographical size being a factor in play.


Ansett Australia and the old Virgin Australia couldn’t agree more! This is certainly not beating a dead horse! Definitely not.

We can sustain it. Again how much traffic is going through SIA group. I actually wonder just how much seats they have from Aus <> SIN . It's probably a shockingly large number. (Likely can rival QF group operations that travel to Asia / Europe).

 

[antycbr]

Everyone talking about the value proposition of VA’s flying business, how about Velocity?

 

[RSVKanga]

Again how much traffic is going through SIA group. I actually wonder just how much seats they have from Aus <> SIN . It's probably a shockingly large number.

SQ group is not Australian-based and is therefore not relevant to this argument.

 

[jakeseven7]

We can sustain it. Again how much traffic is going through SIA group. I actually wonder just how much seats they have from Aus <> SIN . It's probably a shockingly large number. (Likely can rival QF group operations that travel to Asia / Europe).

(I know it’s not your point but) So the new VA2i is going to have to siphon away not only customers from the QF group but also players like Singapore, Qatar and Cathay as well.

I just don’t see it happening. I think the current low/value domestic carrier is all we are going to see (with a smattering of random short haul internationals like they do already).

And if they do try = super high risk.

 

[HS-TQE]

All this talk about VA entering SIN is as likely as "SQ TAEK OVAH OF VA!!!11!!!!", basically not required unless if there's some state government subsidy from WA Regional Town (e.g Broome or Port Hedland) for a seasonal service.

Considering QR is the 'usual suspect' for a stake in VA (which can be up to 50% subject to FIRB clearance, considering VAH is a private company), DOH is probably only likely if QR needs to work themselves around the current (or future) Australia/Qatar bilateral, and may possibly be a JV if QR wants to 'share' the risk with their potential future "subsidiary"