Terry McCrann: Virgin 2.0 is up and away, but to where?
The Melbourne-Sydney route – the third busiest in the entire world, when of course the planes are flying – is absolutely pivotal to the survival of Virgin 2.0, writes Terry McCrann.
Terry McCrann
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Virgin 1.0 lasted 20 years. What are the prospects for Virgin 2.0? Indeed, what are the chances of it even getting to the ‘other side’ of the virus maelstrom?
The short answer to the second question is Victoria’s disastrous premier Daniel Andrews and the economic and health devastation his government’s deliberate and wilful negligence has wreaked.
Simply, will we see more of it? The new owner of Virgin, the Bain group, has made a $3bn-plus punt that we won’t – that Victoria in particular and the nation overall will get back to some sort of post-virus normality.
The Melbourne-Sydney route – the third busiest in the entire world, when of course the planes are flying – is absolutely pivotal to a viable Virgin 2.0, and not just in raw passenger and revenue dollar numbers.
Unless and until we get back to something akin to regular plane – and passenger – volumes on this route very specifically, and get back to them on a sustained basis, Virgin 2.0 will not be viable. Especially as in those circumstances it will face a feral Qantas seeking also to survive.
Now, we’ve seen one side of the ‘Virgin equation’ – the $4-4.5bn that the unsecured creditors, led off by the bond-holders have lost. That’s of course in addition to the equity capital; that was all gone on day one of the administration and arguably in reality well before that already.
No tears need to be shed for the big shareholders who owned well over 90 per cent of the capital. They were all big boys, they were all playing strategic games on the Virgin register, they all knew exactly what they were doing and risking.
The ‘selling’ of Virgin was actually an arm-wrestle between Bain and the administrators. Nothing would be paid to the airline’s owners — those shareholders – to ‘buy’ the airline from them; it was all and only about what Bain would pay into or guarantee inside the Virgin corporate structure.
Bain assumes the obligation for what will be about $2.3bn of ongoing secured debt. It will pay the $462m to $613m – the 9c to 13c in the dollar – to the unsecured creditors.
It takes over the liability for the staff entitlements (paying out in full those who are leaving the slimmed airline) and for the Velocity frequent flyer points built up and tickets that have been bought.
It’s already put in $125m to keep the airline alive through the – essentially, non-flying – administration period and will have to subscribe for at least another $600m of fresh equity capital (for now) to keep the bankers happy.
Then it faces a – hopefully, only – two-tier future. The first is obviously the grounded planes while the virus bubbles and Victorian incompetence rages.
When Bain did the deal in June it would not have anticipated Victoria’s Lockdown 2.0 and even more Lockdown 3.0 or more accurately Locked-in 1.0. It would have anticipated at least some traffic Melbourne-Sydney by now, or shortly soon.
Very simply, for so long as Victoria acts as the deserved pariah state, the planes are not going to be flying into or out of Tulla.
But even in the best-case outcome on the virus-economy mix – both locally and globally – Bain still has to build an effective operating model for Virgin 2.0; and build it in the context of an even more survival-focused feral Qantas.
Under the strategic guidance of former Jetstar CEO Jayne Hrdlicka, Virgin 2.0 has rejected the initial (and mostly pre-Jetstar, very successful) Richard Branson-Brett Godfrey low-cost and low-price – one cabin and no lounges – operating model.
It’s also semi-rejected the full-service mini-Qantas Virgin of former CEO John Borghetti. Yes, the two cabins and lounges (and FF points stay), but international is out, a one-plane slimmed fleet has more the look of a budget airline.
Borghetti both used and was captured by his international shareholder partners – led off by Singapore, Air NZ (for a while) and Etihad.
If you were going to build volume off those links, especially for global business travellers; you had to go the full-service. There are all sorts of reasons you could not feed them into a no-frills lost cost offer.
Virgin 2.0 proposes to have the full-service, but with a question mark over the links and even more the passengers. Will they be coming? Will they fly Virgin rather than Qantas when it’s not markedly cheaper, like the older Virgin?
Remember also that Bain wants to make money purely as the shareholder. This makes it very different, with very different objectives and, critically, time horizons, to the airline-shareholders in Virgin 1.0. We’ll get a better sense of all this when we see exactly how much Bain has committed.
ANY CHOOK RAFFLES FOR DISASTROUS DAN?
Let me restate what Victoria’s premier, Disastrous Dan, is really saying in his demand that he and his chief health officer Brett Sutton be given virtually unlimited dictatorial powers for another 12 months. At least.
Look at our record: we had these powers for the last six months and we did so well — we delivered 18,608, and counting, cases of the virus; and 462, and counting, deaths.
That’s 74 per cent, and rising, of the total national cases and an even more ‘impressive’ 84 per cent, and rising, of the Australian deaths.
So you can trust us.
Sorry, DD, we cannot and I do not. Anyone have any spare chook raffles for DD to run?
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Originally published as Terry McCrann: Virgin 2.0 is up and away, but to where?