Nearly every day, there are new reports and estimates about how bad it is getting for airlines. On March 25th, Virgin Australia announced a major domestic capacity cut. Alongside this, low-cost carrier Tigerair Australia will temporarily suspend operations. Combined, this is a sign of major trouble at Virgin Australia. But, the real question remains, how will this end for Virgin Australia?
The situation at Virgin Australia
For one, the carrier is saddled with debt. The Sydney Morning Herald reports that the carrier’s debts are around $5 billion AUD and that the airline has approximately $1 billion AUD in cash. Most of that cash is likely being depleted to support the carrier in the interim until the situation returns to normal.
Aside from its hyped-up launch to Tokyo, Virgin Australia has not done much new. The airline has no ultra-long-haul plans, a limited order book that consists solely of the beleaguered 737 MAX, and has not expanded its limited long-haul network. And, where it has, it suffered wildly.
A lot of Virgin’s limited plans have to do with the crushing debt the carrier is under. While the airline is seeking a review of its widebody fleet, it is unclear what aircraft the airline will take nor how many. However, even the launch of new prestigious routes could take a toll on the airline’s financials.
Virgin Australia does have some partners that it could lean on. In the United States, Delta operates a hub out of Seattle. Perhaps Virgin Australia could leverage that and begin Seattle’s only nonstop service to Australia.
Qantas has a firm grip on Australia
Australia’s aviation market is dominated by Qantas. In comparison, Virgin Australia has plenty of work to do. However, with Qantas pursuing options to launch ultra-long-range Project Sunrise flights and flying to more international destinations than Virgin Australia, this crisis will do little to help Virgin cut into Qantas’ market share.
Could COVID-19 doom Virgin Australia?
This pandemic certainly puts incredible pressure on the airline. 90% of domestic capacity will be cut, low-cost arm Tigerair is taking a suspension on operations, and the airline is standing down 8,000 of its 10,000 employees. It takes a lot for an airline to weather a crisis like this. Whether Virgin Australia can do this remains to be seen.
One thing that is backing up the airline is its owners. Two of the largest shareholders in Virgin Australia Holdings is Etihad Airways and Singapore Airlines. While Etihad’s dealing with its own financial struggles, another airline failure, after Jet Airways, would look quite disastrous. Furthermore, Singapore Airlines and Qantas are no good friends. Losing a partner in Australia would heavily increase Qantas’ share– especially on lucrative Europe to Australia routes.
This is followed closely by the HNA Group. Although, the HNA Group is dealing with some of its own issues now. And, then comes the Virgin Group. Now, if some of these decide to back out, a number of entities could make their way to owning a share of Virgin Australia. Perhaps Delta could get behind them after already holding a share in Virgin Atlantic– assuming of course that Delta is in a better financial state as well.
While the situation is tough, it is unclear for how long the situation will remain this way. The longer it takes, however, the tougher a spot Virgin Australia is in. It is very difficult to see Virgin Australia exiting this crisis in a strong position if it drags on.
What impact do you think this coronavirus pandemic will have on Virgin Australia? Let us know in the comments!