Fixing Virgin Australia – What Should Be Done?

Virgin Australia, once the second-largest carrier in Australia, has become the latest airline to enter voluntary administration.  How will the airline recover from this situation, and how can it grow in the future?

How would you run Virgin Australia? Photo: Andrew Thomas via Wikimedia Commons

Virgin Australia’s current problems

The cause of Virgin Australia’s problems is mainly down to the current aviation crisis. Still, there were some issues with strategic direction over the last decade since it made a profit back in 2012. Since entering administration, the airline has repeated the message that it was perfectly capable of serving its debt with current traffic, and was able to increase its profit margin slowly.

But we can’t ignore the $6bn in debt that the airline has racked up over the years in a bid to compete with Qantas and other foreign carriers.

Another issue that the airline has is its split ownership. With four different majority owners (Singapore Airlines, Etihad, HNA Group, and Nanshan Group) pulling on the strings, the airline has been manipulated in several different directions at once and ended up remaining were it started.

If Virgin Australia is to move forward in a direction (any direction would be good at this point), it will need a single majority owner.

As an armchair airline critic, how would this author fix Virgin Australia?

Virgin Australia has gone into voluntary administration. Photo: Getty Images.

Possible short-term ideas

To begin, the airline needs to focus on profitability, and this means reducing any service or product that isn’t making money.

Virgin Australia should consider scrapping many, if not all, of its international routes. While the Sydney to Los Angeles route performs well and makes plenty of cash, the carrier’s other international routes leave a lot to be desired. The only consideration that should be made is if Virgin Australia owns long-haul aircraft outright. If so, then they can use those as assets and keep a few international routes ongoing.

Additionally, and this is painful for this writer to suggest as they love them, Virgin Australia should scrap its low-cost carrier Tiger Airways. The competition to Qantas’ Jetstar has failed to live up to its profit-making promise and only exists to lower the price on domestic routes and drain Virgin Australia’s pocket.

Lastly, the carrier should consider changing its hub airport if given enough of an incentive to do so (such as New South Wales asking them to move down to Sydney’s new second airport).

These three moves would reduce Virgin Australia’s fleet rather dramatically and free up plenty of costs associated with aircraft lease payments.

Long-term solutions for the airline

With the high costs reduced, Virgin Australia should then move to focus primarily on highly profitable and busy Australia routes. This would include destinations such as Brisbane, Melbourne, Sydney, Canberra, Adelaide, Hobart, and Perth.

Virgin Australia is not a regional carrier, and operating loss-making routes in the name of connectivity should no longer be a priority. If it wants to operate some regional routes, it should look for areas such as Tasmania or Queensland.

Following this, the airline should look at reducing its type of aircraft down to one or two models. As the carrier already operates 77 Boeing 737-800s (some configured for international routes), it should retain that model. Then perhaps it should consider a Boeing widebody, like the five Boeing 777-300ER aircraft it already operates. With one supplier of airframes, Boeing, the airline can streamline maintenance and be in an excellent position to negotiate aircraft leases.

Virgin Australia Boeing 777-300ER. Photo: Getty Images

Lastly, perhaps Virgin Australia should consider scrapping its full-service carrier status and returning to its roots as a low-cost carrier. It would likely come with a rebranding away from the Virgin name, but the airline would survive.

Virgin Australia is currently considering bids for a new owner, and while we are sure they know more about running an airline than us, following some of these ideas may prove fruitful.

What do you think? How would you save Virgin Australia? Let us know in the comments.