Thursday, 6 August 2020

The Virgin Australia Group's future as an iconic Australian airline

Virgin Australia rebirth 

The Virgin Australia Group has just announced its rebirth plan for a stronger, more profitable and competitive business, as it prepares to exit voluntary administration under the ownership of Bain Capital.

They want to re-establish the carrier as an iconic Australian airline, part of the process for that will be transforming to an all-Boeing 737 mainline fleet for domestic and short-haul operations.  Whilst Virgin Australia Regional Airlines (VARA) will continue to operate other types of aircraft for long-haul/charter flights. Long-haul routes to LAX and TKO are suspended indefinitely and whilst longer flights would be key to the airline's development in future,  at the moment there isn't the demand or money. 

Budget offering Tigerair will be disbanded and the airline will consolidate its head office functions all in one location in Brisbane. 

The move to an all Boeing 737 fleet means that just over 3000 jobs will be lost, but the carrier thinks this move will save about 6000 jobs directly and thousands more indirectly. 

A key cost-cutting review will take place from top to bottom as it looks at products, services and facilities to better align with the company’s future size and requirements and lowering costs significantly.

It will invest in more IT as it moves more functions online and helps transforms the way it works and what it offers customers as it moves forward. 

Virgin Australia Group CEO and Managing Director Paul Scurrah said together with Bain Capital, the plan will help to re-establish Virgin Australia as an iconic Australian airline, bringing strong competition for travellers while securing approximately 6,000 direct jobs and indirect employment for more than 30,000 Australians.

“Our aviation and tourism sectors face continued uncertainty in the face of COVID-19 with many Australian airports recording passenger numbers less than three per cent of last year and ongoing changes to government travel restrictions,” said Mr Scurrah.
“Demand for domestic and short-haul international travel is likely to take at least three years to return to pre-COVID-19 levels, with the real chance it could be longer, which means as a business we must make changes to ensure the Virgin Australia Group is successful in this new world.

“In a country as big as Australia, strong competitive airlines are critical in helping restore the economy, which is why in the face of the worst crisis our industry has ever seen, a well-capitalised Virgin Australia Group with a solid and sustainable future is a great outcome for Australians and the nation’s economy.

“Even when we do see a return to pre-COVID-19 levels of travel, successful airlines will be influenced by demand and look very different than the way they did previously, requiring long-term capital, a lower cost base and be more focused on providing exceptional experiences through a combination of great people and world class technologies.

“Working with Bain Capital, we will accelerate our plan to deliver a strong future in a challenging domestic and global aviation market. We believe that over time we can set the foundations to grow Virgin Australia again and re-employ many of the highly skilled Virgin Australia team.

“Our initial focus will be on investing in the core Virgin Australia domestic and short-haul international operation alongside our 10-million-member strong Velocity Frequent Flyer program, continuing to offer an extensive network of destinations, a domestic lounge network and value for money for customers.

“Bain Capital recognises the importance of Virgin Australia’s loyal customers, and that’s why they will be provided the value of their travel credits post administration with validity significantly extended to ensure they have plenty of opportunity to book tickets to their favourite destinations.

“While these changes are important to manage the impact of COVID-19, they involve some very tough decisions. We expect approximately 3,000 roles will be impacted as a result of the changes announced today. However, our intention is to secure approximately 6,000 jobs when the market recovers with aspirations for up to 8,000 in the future. To those that leave the business, I want to thank them for the role they’ve played in making this a great airline. They will be closely supported through our alumni program, have all their entitlements honoured and be provided with a two-year extension of employee travel benefits and early access to retiree and long service benefits.

“Our people have shown incredible resilience under tough circumstances. They are what set the Virgin Australia Group apart and make us so unique. We hope to welcome many of them back as we start to grow again in the future.

“Virgin Australia has been a challenger in the Australian market for 20 years, and as a result of this plan and the investment of Bain Capital we are going to be in a much stronger position to continue that legacy.”

The future is looking a lot brighter for Virgin Australia,  at least for as long as Bain Capital remain interesting in operating what will be a loss-making airline for the next four years. Hopefully,  during that time it will find another investor or outright purchases to take the firm off its hands.  

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