Hot on the heels of Qantas announcing it would temporarily lay off 2,500 workers, local rival airlines Virgin Australia and Regional Express (Rex) have bowed to the inevitable and confirmed that they would also temporarily stand down workers. It is another low water mark for Australia’s domestic airline industry and the people who work in it.
Australia’s domestic airline industry among the border closure & lockdown casualties
Having squandered any advantage gained in 2020, Australia’s blundering political class has now mired the country in lockdowns and border closures. Headline-hungry provincial politicians are destroying the joint, and the domestic airline industry are among the casualties.
After enjoying a strong rebound earlier this year, Australia’s domestic airlines are back where they were last year. Qantas aimed to be back flying around 100% of its 2019 capacity now. They are now back to less than 40%. Rex says recent border closures and lockdowns have seen an 80% drop in business. Virgin Australia says just 7% of its network remains unaffected by travel restrictions, and they are flying only 25% of their planned schedules this month.
These figures are likely to worsen before they improve. Border closures are likely to remain in place for months. The problem with these temporary lay-offs is that no one knows who long they will last. Rex says its temporary lay-offs will run to September 12. But December 12 would be more on the money.
At least 4,000 airline industry employees temporarily out of work
Virgin Australia hasn’t been specific about how many of their workers would get stood down. The airline says there is no “headline number.” However, sources say more than 1,000 Virgin Australia are temporarily out of work. This follows 3,000 Virgin Australia employees permanently losing their job last year.
Many former Virgin Australia employees found roles at Rex. That airline bullishly commenced Boeing 737 flights in March. However, those Boeings are now grounded. Rex confirmed to the Australian Stock Exchange (ASX) late on Friday that 500 employees would find themselves temporarily out of work. Rex attributed the move to “the devastating consequences of lockdowns and border closures.”
Combined with the Qantas stand-downs earlier this month, it brings the number of Australian airlines workers temporarily out of work to at least 4,000.
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No “headline” stand-down figure says Virgin Australia
As publicly listed companies, ASX rules oblige Qantas and Rex to lodged notices when market-sensitive decisions occur. This includes standing down employees. Those notices provide some insight into the reasoning behind decisions and some hard data.
As a private company, Virgin Australia is under no such obligation. Virgin Australia hasn’t issued a formal statement regarding its stand-downs. Instead, after talking to unions, Virgin Australia’s CEO Jayne Hrdlicka wrote an all-staff email that promptly leaked.
While saying the airline’s priority was getting its planes and employees back in the air, Ms Hrdlicka expects the current situation to last at least 12 weeks.
“The arrangements do involve reduced hours and/or temporary stand-downs for frontline staff at all bases.”
Saying there were no hard and fast figures for the number of staff to be temporarily stood-down or for how long for, Ms Hrdlicka continued.
“The number of people we will require to work will vary from week to week, and we anticipate this may continue until the end of October.”
Income support for stood down workers while airlines struggle
The decision to stand down employees at all three airlines follows the Australian Government making income support available to domestic airline industry employees who have lost work due to lockdowns. Stood down employees receive AU$750 (US$550) per week in income support. Unlike previous income support, this goes straight to the employee’s bank account rather than via the employer.
While that is certainly better than nothing, it falls way short of what many out-of-work employees would earn if flying or servicing those flights.
Meanwhile, the three airlines are facing a cash crunch. Revenue from domestic ticket sales has all but dried up. Instead, passengers are busy hitting the refund button as border closures see flights canceled. Further, consumer confidence regarding planning, booking, and paying for future travel is hit hard.
Scuttlebutt has it Qantas may be heading for another capital raising. Rumors suggest Rex may look to Singapore, where its biggest shareholders are based, for a cash top-up. Also on the cards is Virgin Australia returning to their US-based private equity owners for another handout.
Are private equity owners providing Virgin Australia with life support cash?
One in-the-know source has told Simple Flying that Virgin Australia has already received at least US$73 million in working capital from its US owners Bain Capital. That same source points out while Virgin Australia is a smaller airline than Qantas, its stand-downs constitute a far higher proportion of the total workforce. The source suggests things are grim at the airline. He argues Virgin Australia is now a closed book regarding the public reporting of financial transactions, and cash injections can be recorded and blurred in many legitimate ways.
However, with a private equity style flip almost inevitably on the cards for Virgin Australia once the airline industry does recover, Bain Capital may be obliged to keep pumping the cash while the majority of Virgin Australia’s fleet sits parked.
Both Qantas and Rex are due to hand down their annual reports this month. That will shed some light on the state of affairs at both those airlines.
However, none of this will provide much certainty for Australia’s airline industry workers out of work. It’s not just this group of employees facing uncertainty, either. Thousands of Qantas International employees remain on government income support while Australia’s international borders stay shut and Qantas suspends its international flying.
The collapse of Australia’s domestic airline market is unfortunate given that it was rebounding well as recently as May. Now, the open-ended question is how long this will last.