Aviation

Tigerair scratched, thousands of jobs cut and a simplified fleet: Virgin Australia’s six-point blueprint for success

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

CEO and managing director Paul Scurrah said the plan will help to re-establish Virgin 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 Aussies.

“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,” he said.

“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.”

The plan is anchored around six key points, which are explained in detail below:

1. Overhaul the cost base, and simplify everything, starting with the fleet

Virgin will move to an all-Boeing 737 mainline fleet for domestic and short-haul operations which will see the removal of ATR, Boeing 777, Airbus A330 and Tigerair Airbus A320 aircraft.

Image source: Virgin Australia

The group’s regional and charter fleet will remain while the company reviews options at Virgin Australia Regional Airlines, including different operating models to support continued regional and charter flying.

Virgin will also undertake a supplier contract review across its operations including products, services and facilities to better align with the company’s future size and requirements and lower costs.

As previously confirmed, Virgin will move its corporate headquarters to 275 Grey Street in Brisbane’s Southbank. This follows a consolidation of its corporate offices in Sydney.

Given current international travel restrictions, the airline will continue to suspend flights to Los Angeles and Tokyo with the intention to recommence and grow long-haul flights when sufficient demand returns.

Customers will continue to have access to international markets through the airline’s codeshare partners.

As suspected, the Tigerair brand will be discontinued, “as there is not sufficient customer demand to support two carriers at this time”, according to Virgin.

However, the group noted that Tigerair Australia’s Air Operator Certificate will be retained “to support optionality to operate an ultra-low-cost carrier in the future when the domestic market can support it”. 

2. Focus on customer value

Virgin said it aims to be “the best value carrier in the market, not a low-cost carrier” that will serve business travellers and customers travelling for a holiday and visiting loved ones, and maintain a two-class cabin offering.

Virgin will continue with its network of domestic and short-haul international destinations, including frequent capital city connections and services to leisure and regional markets as part of the company’s future network plans.

The airline will also maintain a network of lounges in key domestic locations with a plan to re-open when demand returns.

Virgin currently operates a reduced network of services to 28 towns and cities across Australia and will continue to add destinations and frequencies in line with demand and to support the nation’s economic recovery from COVID-19.

Yesterday, the airline resumed services between Brisbane and Hamilton Island which will operate on Tuesdays, Thursdays and Saturdays, and will add approximately 4,500 seats to the market each month.

In response to COVID-19, Virgin has introduced a range of health and wellbeing measures including a pre-departure eligibility questionnaire, contactless check-in, expanded social distancing measures, and more frequent cleaning onboard and at the airport.

In line with the latest medical advice and government restrictions, Virgin recently made masks more available and is further encouraging their use on all flights across Australia.

3. Harness culture 

There’s no denying that Virgin’s culture is unique and is the heart and soul of both the airline and Velocity Frequent Flyer, and it appears that won’t change under new ownership.

The group said will continue to “reinvigorate” the Virgin Australia brand and its passion for customer service, while embracing the diversity, talent and strength of its people.

4. Investment in world-class digital and data technologies

Virgin said it will invest significantly in the comprehensive digital re-platforming of both the airline and Velocity Frequent Flyer program.

“It will accelerate the group’s vision for the future, to not only improve Virgin Australia’s commercial capability and guest experience, but significantly enhance the employee experience and increase the pace of profitable revenue growth, enabling faster and bigger job growth opportunities,” the group said.

5. Strong balance sheet and investment capital for both transformation and growth

Virgin has promised to emerge from voluntary administration with a strong balance sheet “worthy of an investment-grade rating”, providing resilience and future growth potential.

The group is confident that, with the backing of Bain, it will be able to withstand any material future shocks to the industry.

6. Jobs and future growth

Virgin said its focus now is to preserve as many jobs in the immediate term as possible, while building a business that is healthy and sustainable “for decades to come”.

As a result of the above-mentioned changes, including the transition to a single Boeing 737 fleet for domestic and short-haul flying, Virgin expects approximately 3,000 jobs will be impacted, primarily across the operations functions and corporate roles.

The group commenced formal consultation with unions and employee groups today, and it said all options including voluntary redundancy, redeployment, leave without pay and flexible work arrangements will be explored to retain as many jobs as possible.

Image source: Virgin Australia

“While devastating for our people, making these changes now will secure approximately 6,000 jobs once market demand recovers, with potential to increase to 8,000 jobs in the future,” Virgin said.

“Team members who remain stood down as the group waits for domestic and international travel restrictions to ease, or are on leave without pay, will continue to receive the JobKeeper payment until it expires in March.

“All team members that leave the business will depart with care and respect. Their entitlements will be paid in full and the group is working with over 100 partners to identify short and long-term redeployment opportunities.”

Travel credits and support for passengers

Bain has promised to carry forward all travel credits and Velocity Frequent Flyer points under its ownership, with Virgin to provide customers with the value of their travel credits post-administration.

To preserve value for customers with credits for bookings made prior to administration, booking dates will also be extended to 31 July 2022 for travel until 30 June 2023.

Virgin said further information about the use of credits will be provided to customers in due course.

Customers and travel agents will be notified directly of any flight cancellations associated with the announcements made today, according to the group.

Tigerair Australia customers and those affected by any cancellations will be provided a travel credit for use on Virgin Australia-operated services.

All-important creditors’ meeting nears

The second meeting of Virgin creditors is due to take place on 26 August, where they will vote on Bain’s proposed deed of company arrangement.

While it’s expected that the private equity firm will become the new owner of Virgin, bondholders may end up tabling an alternative DOCA proposal to creditors, with the Federal Court recently ruling that they are well within their right to make a play for the beleaguered airline.

Industry bodies react

Australian Federation of Travel Agents CEO Darren Rudd welcomed Virgin’s conditional credit policy, saying the industry body has been proactively pushing this stance on behalf of customers and consumers since the airline was placed into administration.

“This included securing commitments from the shortlisted bidders which AFTA was successful in achieving,” he said.

“We appreciate and acknowledge the commitment of the new Virgin Australia team to doing the right thing by consumers.

“I had a very constructive meeting with Virgin Australia Group CEO and MD Paul Scurrah and chief commercial officer John MacLeod in Brisbane recently, and AFTA looks forward to continuing to work collaboratively with Virgin.

“Competition in Australia’s skies is critically important from a trade and consumer perspective, and for our economy.”

The Transport Workers’ Union’s national secretary, Michael Kaine, said the union would work to support Virgin workers amid job losses.

“Today will be a difficult day for Virgin workers, and we will support them in the days and weeks ahead as details emerge on job losses,” he said.

“This has not been an easy process and Virgin workers have worked hard to ensure that instead of going down the route of a low-cost model where more jobs might have gone, Virgin will be able to retain its place in the market and hold onto the vital experience and skills of many of its workers.

“The notion that Virgin could survive as a competitor to Jetstar and others at the lower end of the market was entirely baseless and something that Virgin workers have opposed strenuously.

“We are pleased that this idea has been sidelined, with common sense prevailing that this would only have played into the hands of Virgin’s competitors.”


Featured image source: iStock/mccawleyphoto

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