Virgin Australia Enters Into Voluntary Administration

Virgin Australia has formally entered into voluntary administration.

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Virgin Australia Aircraft (Image Credit: Virgin Australia)

Virgin Australia has formally entered into voluntary administration.

The professional services firm Deloitte has been appointed as administrator, The announcement was made shortly before 00:00 BST / 09:00 AEST on Tuesday 21 April 2020.

Virgin Australia’s “Velocity” frequent flyer programme is owned by a separate legal entity in the Virgin Australia Group and is not part of the administration process.

There had been speculation about Virgin’s financial health for some time. Profitability has been elusive and the airline has debts of AU$5 billion. Virgin Australia had sought support from the Australian Federal Government of AU$1.4 billion.

The airline has a history and ownership structure that could best be described as “complex”.

It was owned by Etihad Airways, Singapore Airlines, Nanshan Group, HNA Group which each own approximately a 20% share of the airline. Virgin Group owns approximately 10%.

Virgin Australia is currently operating a skeleton domestic network, which is being subsidised by the Australian Federal Government. Unlike when an airline enters into administration in the UK, Virgin Australia will continue to operate flights whilst it is in administration.

It is probable that a buyer that will be found for the airline’s assets. However, it is likely that it will emerge as a significantly smaller airline.

Whilst the Australian Federal Government has decided not to provide financial support to Virgin Australia, Australian Minister for Finance Mathias Cormann told ABC News Breakfast today that it does support the ultimate emergence of a second privately owned domestic airline to ensure Qantas does not have a monopoly.

The administrators have advised at a press conference that there have been a large number of expressions of interest in the airline. It is expected that the ultimate buyer will be known in around 2-3 months.

Sir Richard Branson has penned an open letter to Virgin Australia employees. Whilst Sir Richard hopes this is the start of a new beginning for the airline, it will of course be for the new owners to decide whether to continue to licence the Virgin brand.

About Virgin Australia

Virgin Australia was launched as Virgin Blue on 31 August 2000. It was co-founded by Sir Richard Branson and Brett Godfrey, a former Virgin Atlantic executive.

It initially launched as a low cost short-haul airline, operating just one route, Brisbane – Sydney with a fleet of two Boeing 737 aircraft.

In its early years, the airline’s expansion was aided by the collapse of Ansett in September 2001. It floated on the Australian stock exchange in 2003.

A sister airline, V Australia, launched long-haul routes to Los Angeles from Sydney and Brisbane in 2009. Due to restrictions on the use of the Virgin name on international routes as a consequence of Singapore Airlines’ part ownership of Virgin Atlantic, it could not use the Virgin name.

Under the leadership of John Borghetti, a former Qantas executive who lost out on the top at Qantas to Alan Joyce, the group sought to reposition itself as a full-service rival to Qantas.

Virgin Blue added a domestic business class cabin and airport lounges for premium passengers. All airlines rebranded under the name of Virgin Australia.

Virgin Australia also sought to grow its international presence through a “virtual network” with partners such as Etihad Airways. Virgin Australia also bought TigerAir to give the group a low cost rival to Jetstar.

These measures were well received by passengers. The group benefited from industrial relations tensions at Qantas, which culminated in Alan Joyce grounding the entire airline. However, Virgin became engaged in a bruising domestic capacity war with Qantas, which decided to protect its market share at all costs.

Virgin Australia has also had an ever changing register of shareholders – with competing interests and these have shown no interest in providing further financial support.

The failure of Virgin Australia does leave Virgin Atlantic as the last Virgin branded airline. Whilst there was very little revenue synergy between the two airlines, after the sale of Virgin America and failure of Virgin Connect and Virgin Nigeria, its failure does significantly diminish Virgin’s presence in civil aviation.

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