Long haul back for Virgin Australia

The bid by Bain was initially treated with scepticism by some in the union camp with two Virgin unions publicly backing Bain’s rival Cyrus. Photographer: Liam Kidston

Just what happened behind the scenes in the negotiations between Bain Capital and unions representing Virgin’s 9000 workers may never been known.

But it is a testament to the Virgin Australia brand that somewhere along the way – since May when Bain emerged as a serious bidder – potential plans for it to emerge from administration as a low-cost revamp of Virgin Blue were discarded in favour of a more mid-market model.

It’s a model which will see Virgin retain its business and leisure class, offering the business traveller in a post-COVID world a more value-for-money option while still catering for the leisure traveller.

It’s a model that will see it retain its airport lounges, its regional operation Vara and longer term goals to resume long haul international flights. It is a model which will see Virgin see its staff cut from 9000 to 6000.

While 3000 job losses sounds a lot, it is less than some scenarios being thrown around privately which could have seen it with fewer than 5000 staff.

Richard Branson’s Virgin Atlantic has just filed for bankruptcy in the US, another sign of the dire fate of the airline industry around the world as a result of COVID.

In reality, no one knows what will happen into the future with the COVID virus and what Virgin or the Australian aviation industry will look like in a year’s time.

For one thing, Bain can do whatever it likes once it gets the legal ownership of Virgin after the next creditors’ meeting on September 4 and administrator Deloitte’s Vaughan Strawbridge, who has been overseeing the airline since April 21, hands over the keys.

Bain’s decisions will also be dictated by the shape of the airline industry going forward – with domestic travel restrictions and the state of the economy being the most critical factors in its longer term success over the next few years.

The reopening of international borders is less critical to its success. In fact a continued closure of international borders will see travel hungry Australians spend more money at home seeing their own country than ever before.

By backing a detailed outline of Virgin’s operational plan for when it comes out of administration, Bain appears to have accepted the argument by unions – the main one being the Transport Workers Union – that it would be a bad idea economically for Virgin to go too down market and focus on the Jetstar market, trying to cost cut its way to profitability.

“This has not been an easy process,” TWU secretary general Michael Kaine said after the outline of Virgin’s strategy.

Worked hard

“Virgin workers have worked hard to ensure that instead of going down the route of a low cost model, where more jobs might have gone, Virgin will be able to retain its place in the market and hold on to the vital experience and skills of many of its workers,” he said.

“The notion that Virgin could survive as a competitor to Jetstar and others at the lower end of the market was entirely baseless and something that Virgin workers have opposed strenuously.

“We are pleased that this idea has been sidelined with common sense prevailing,” he said.

Going down the lost cost carrier route, he said, would “only have played into the hands of Virgin’s competitors”.

Some say there had been a debate within the Bain camp in recent months over the best strategy, with Bain Capital’s Australian chief Mike Murphy shifting his views during the process.

The bid by Bain was initially treated with scepticism by some in the union camp with two Virgin unions publicly backing Bain’s rival Cyrus.

In interviews with the Australian as the bidding process winnowed down, Murphy was seen as trying hard to have serious conversations with Virgin’s workers.

Whatever the truth of Bain’s internal processes, the talk of Virgin going back to its roots of the “Virgin Blue” days have been quietly dropped with “Virgin Blue” now a code word for trying to compete with Jetstar.

Jayne Hrdlicka. Picture: Hollie Adams

Virgin workers will be watching the role of former Jetstar chief executive Jayne Hrdlicka in the Bain camp going forward.

Hrdlicka has said she doesn’t want to be a chief executive of an airline again but will join Virgin as a director.

Could Hrdlicka emerge as chair? If so what reaction would this get from the unions?

Rightly or wrongly, the unions see Hrdlicka as a hardline former Jetstar chief who would seek to adopt the same strategies with Virgin.

But again, no one really knows what internal debates have gone on in the Bain camp.

Bain is a global private equity investor which will take in the advice of many people as it seeks to make its rather brave investment in an airline during COVID profitable in the long term.

The other question to be answered after Wednesday’s detailed briefing is what, if any, role the bond holders can have on the finalisation of Strawbridge’s plans to sell Virgin to Bain.

Despite all their best efforts, it does not appear as if the holders of some $2bn in unsecured bonds – many of them Mum and Dad retiree investors – have many other options.

They will now have to wait a week longer to learn how much they will receive from the Strawbridge/Bain deal.

Whether they will push ahead with their plans to put an alternative deal to creditors when they meet on September 4 remains to be seen.

One gets the impression that Strawbridge would like to get to a point where the September 4 meeting is about giving his proposal a tick of approval and allowing Bain to take over and get on with the job.