Virgin Australia Could Be Profitable In 3 Years Under The Reign Of Cyrus Capital

After a week or two of relative quiet, there has been a flurry of noise concerning the sale of Virgin Australia over the weekend. There are now just two potential buyers. One, Bain Capital, hasn’t exactly been media-shy when it came to publicizing its plans for the airline. But the second, Cyrus Capital, has kept a much lower profile.

Cyrus Capital wants a smaller, leaner, mid-market Virgin Australia. Photo: Brisbane Airport Corporation.

Media blitzkrieg by Cyrus Capital

Until this weekend, Cyrus Capital senior advisor Jonathan Peachey has launched a media blitzkrieg, introducing the firm (relatively unknown in Australia) and outlining its plans for Virgin Australia.

Despite previously saying little, the New York-based firm had suggested it would keep Virgin Australia running as a premium full-service airline. That has been jettisoned. Now, Cyrus Capital plans a simpler, leaner, mid-market hybrid airline.

“The business…should sit below that very top tier which Qantas plays so strongly in, and above and maybe overlapping slightly where Jetstar sits,” Mr Peachey told the Sydney Morning Herald.

Is the new market position any different from the old one? Photo: Getty Images

A multi-faceted strategy back to profitability for Virgin Australia

Some might say, well, what’s new there? Despite this, Cyrus Capital believes it can have Virgin Australia back in the black within three years. It has developed a multi-faceted strategy to achieve this.

The fleet will be simplified, and the Tigerair brand will end. The Virgin brand will stay. Cyrus Capital has a history with Virgin, having previously been a partner and investor in Virgin America. Richard Branson is currently associated with both the Cyrus Capital and Bain Capital bids.

According to Mr Peachey, the bulk of Virgin Australia’s management will be retained. Included on this list is the current CEO, Paul Scurrah. The well regarded Mr Scurrah has only been CEO for 12 months. Most of the problems at Virgin Australia predate his arrival.

Culture is key

With employees making up the bulk of Virgin Australia’s creditors, Cyrus Capital is planning on making a strong pitch to them to get their support. Both bidders have said accrued entitlements will be honored. But Cyrus wants to tap into culture and the “fun” of working for the Virgin brands.

“The cultural element which Virgin brings to the table really is key,” Mr Peachey told The Australian.

Cyrus Capital also flagged government support as important to profitability. Cyrus Capital isn’t saying what kind of government support they seek. Previous appeals for cash have gone unsatisfied. While the Australian Government has provided short term assistance via subsidies and fee waivers in 2020, it has historically left aviation to market forces.

Richard Branson is onboard and the Virgin culture will remain key to the future airline. Photo: Virgin Australia

There’s also going to be a renewed focus on revenue management to maximize profitability.  However, in the airline business, that’s hardly a revolutionary idea.

“We think there’s a really sweet spot in the middle where Virgin can play very strongly. We believe Virgin Australia can be the best airline in Australia. It doesn’t have to be the biggest. Virgin America wasn’t the biggest, but it can be the best, and we think it will be,” Mr Peachey told the Financial Review.

Clarity welcome, but not a revolutionary change

Most people will welcome Cyrus Capital clarifying their plans for Australia’s second airline. But their ideas are hardly revolutionary. A smaller, mid-market, more efficient airline was always going to be on the cards. Potential bidders like Cyrus and Bain are doing what Paul Scurrah was attempting to do before Virgin Australia collapsed – excising inefficiencies and wastage.

Combined with a reduction in debt, a three-year timeframe back to profitability isn’t unachievable. Now, regular Virgin Australia loyalists will be watching and waiting to see what parts of the airline are put out to pasture.