Could Coronavirus Be The End Of Virgin Australia?

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?

Virgin Australia
Virgin Australia is in some tough circumstances amid the global coronavirus pandemic. Photo: 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.

Virgin Australia
Virgin Australia is saddled with incredible debt. Photo: Virgin Australia

Limited “new”

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.

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Virgin MAX
Virgin Australia only has the 737 MAX on order. Photo: Boeing

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.

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Virgin Australia
There are limited international horizons given Virgin Australia’s current fleet. Photo: Virgin Australia

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.

Delta Virgin
Delta is a transpacific partner of Virgin Australia. Photo: Delta Air Lines

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.

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planes parked at sydney airport getty images
Qantas has a huge hold on the Australian market. Photo: Getty Images

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.

Virgin Australia
The situation at the airline is rough with a 90% domestic capacity cut. Photo: Virgin Australia

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.

Qantas Singapore Airlines
Qantas and Singapore are not partners. Photo: Getty Images

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.

Virgin Australia
Virgin Australia does have some strong backers. Photo: Virgin Australia

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!

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Erik

Highly speculative article. It does make sense for the airline to trim down the services, with several state borders being closed in Australia for a period of time. Labor law in Australia allows companies to stand down employee with no pay in these situations, which of course bad for the employees, will make a huge saving for a company. They own quite a lot of aircrafts, which they can sell and lease back (like what we have seen with Cathay’s 777). The biggest issue will be to control their cost base and generate sufficient cash, which will be hard given bookings are not happening at the moment.

Here2go

Borghetti certainly has held Virgin back, creating a product that was more inline with Qantas/Ansett during the duopoly years, but always the poor cousin to Qantas noting Qantas' product is a superior overall experience. Qantas nailed online experience, check-in (I love their RFID Tags), and their partnership. Virgin has never need able to compete, and shouldn't have tried. They were a fantastic airline as a Virgin Blue. If they matched Southwest in terms of service and simplicity, they'd be a match for Qantas as a different product – not inferior. Instead, they've chosen to imitate Qantas, hence will never be on top of their game.

Cyrus Lesser

As long as they shed variable costs they should have enough to weather the Covid-19 pandemic with their healthy reserves. However, if that period continues for more than 6 months, their financial strength may be irreparably damaged and they could go the way of Ansett. That prospect is Alan Joyce’s wet dream … :O

Mark

Think it’s only a matter of days till they fold .

Dave

I think it was a bad thing rebranding Virgin Blue. As Virgin Blue the profits were there and inturn it put pressure on Qantas to form Jetstar. Virgin already had V Australia up and running and that should have been their chance of breaking into the business market both on the domestic and international routes. Keeping both companies seperate instead of combining the two. If Qantas and Jetstar can compete effectively then so could have Virgin Blue and V Australia.