MIAMI – The COVID-19 pandemic has taken a significant scalp out of the Australian aviation industry as Virgin Australia today files for administration.
The airline has done this voluntarily after recording around £2.55bn in debt as well as having a £714m bailout request from the federal government being rejected.
On top of this, the Queensland Government had offered A$200m to help bail the airline out but came on the conditions including such federal backing, debt restructuring, shareholders contributing, its headquarters remaining in Brisbane and ongoing regional flights to be secured.
The Australian carrier also had to shut down its New Zealand operations on April 4, sacrificing 600 jobs in that region.
Virgin Australia had also suspended trading on the Australian Stock Exchange late last week amid its deteriorating financials.
April 16 then saw the Australian government announce it would subsidise rescue flights for the carrier and Qantas. It is understood that 10,000 direct and 6,000 indirect jobs will be affected by this move.
All seemed to be fine with the carrier on its social media, with it announcing limited scheduling until June 7 around four days ago to bring home stranded passengers.
The airline has not released an official statement as of yet, but Gavin Coote at ABC News has received confirmation of accounting firm Deloitte that it has been appointed the administrators in this insolvency process.
MPs in Australia have already come out and criticised the country’s leader, Scott Morrison for not doing enough to help the airline.
“Scott Morrison has let Virgin Australia fall on his watch. His failure to act sees 16,000 workers out of a job. This avoidable outcome is devastating for those workers and their families, and our regional economies,” Catherine King said, the Shadow Secretary of State for Infrastructure Regional Development and Transport.
The CEO of the carrier, Paul Scurrah, will keep his job while the administrators does its work.
The Guardian had also reported that there has been one bidder from the airline previously, dubbed BGH Capital, who believes that the assets can be salvaged to transform the debt out of the stricken carrier.
More Boeing 737MAX Orders Gone
With the airline filing for administration, it also means that the 23 Boeing 737 MAX aircraft that had been ordered are certainly under jeopardy.
The deal, valued at $2.19bn, was placed in 2012, before expanding to 38 later on in the decade, and then cut down back to 23, with some order deferrals into 2021.
It could be suggested that these deferrals were as a result of negative financials in the company as well as the ongoing 737 MAX crisis taking further effect.
A Bumpy Few Years For Virgin Australia
In 2018/19, the airline reported a A$349.1m loss, with it decreasing ever so slightly to A$315.4m for 2019/20.
The group had to also spend A$152.6m in 2019/20 on the asset impairment of Virgin Australia and Tigerair’s international businesses.
There was some level of hope in the last financial year, with its cash balances increasing to A$1.7bn from A$324.5m, but obviously was not enough to deal with its ever-increasing debts.
It was the same with revenues, with the carrier recording a 7.5% jump to A$5.8bn and had recorded 25.5m passengers in 2019, up from 24.9m in 2018.
Where it all began
The airline was just shy of its 20th anniversary, having commenced operations in August 2000 as its previous name of Virgin Blue, which commenced with two aircraft on a single route.
Following the collapse of Ansett Australia in September 2001, its market share domestically began to rise.
In order to have any level of growth going into the start of the next decade, the airline had decided to begin codesharing agreements with United Airlines. It had also signed domestic deals with Regional Express Airlines.
The next big codeshare came from Garuda Indonesia in November 2007, beginning its Asian expansion.
In the same year, Vietnam Airlines also approached the carrier and signed an agreement with the firm, thus solidifying more Asian connectivity.
In 2008, Virgin Australia implemented a premium economy class throughout its entire fleet, with it being installed in the first three rows of the cabin, offering priority check-in, larger baggage allowances, lounge access, increased legroom, and all-inclusive flight services.
December 2010 saw the Virgin Blue name enter into alliances with Etihad Airways and Air New Zealand, before seeking approval with Delta for co-operation on trans-Pacific services. This was later rejected by the U.S. Department for Transportation at first, before being approved in June 2011.
In 2011, the airline began to get into the duopoly of the Australian market by introducing a new aircraft livery, new uniforms, and new onboard menu options. And thus, Virgin Australia was born.
On top of this, aircraft such as the Airbus A330 and Boeing 777-300ER were acquired in order to compete with Qantas.
During the rebrand, it was at that point that the Virgin Blue name would have been scrapped so then it could attract more business travelers away from Qantas.
In that same year, it had also rolled out the use of a business class product across its entire network.
Air New Zealand had also announced at the time that it would take a shareholding stage, valued between 10 to 14.99% of the carrier.
As the years passed, other firms such as Singapore Airlines, HNA Group and others began investing money into the carrier, with Air New Zealand eventually dropping out in 2016, selling its remaining 2.5% stake to the Nanshan Group.
The airline has since grown to a fleet of 98 aircraft, serving 56 destinations from its hubs of Brisbane, Melbourne and Sydney.
What remains clear is that even in the wake of negative financials in a pre-COVID19 environment, Virgin Australia was still able to function.
It is when there is a huge widescale disruption to the very infrastructure that has kept the carrier afloat is when we begin to see more carriers go under.
The general theme for last year was volatility, especially with so many airlines like Thomas Cook and others going under. It seems that 2020 will now begin to continue that trend as we approach what is seen as the peak of the virus. Only time will tell how the industry will survive, and how.