Virgin Australia’s outgoing boss Jayne Hrdlicka says it would take the airline at least six years to be able to fly on long-haul routes and boost capacity from Australia to Europe if Qatar Airways was not allowed to take a 25 per cent stake.
Virgin confirmed Qatar’s intention to take a 25 per cent stake in the Australian airline on Tuesday, flagging its intention to commence “wet lease” services to Doha– which would boost capacity between Australia and Europe– by mid-2025.
Under a “wet lease”, one airline loans aircraft, crew and maintenance to another carrier and the proposed deal would need approval from the Foreign Investment Review Board (FIRB) and the Australian Competition and Consumer Commission (ACCC).
Bain Capital appointed Jayne Hrdlicka as Virgin Australia’s chief executive in 2020.Credit: Dan Peled
“If we were to decide to start long-haul international on our own, which we wouldn’t do because it’s too much risk, it would take us six years to gain access to the aircraft. The supply chain in aviation are not back to normal post COVID.
Working with Qatar which has a big order book, lots of scale allows us to manage down our costs in the domestic business and allow us to test the opportunities for growth that are well risk managed financially,” she said.
Qatar applied to double its number of weekly services between Doha and Australia’s four biggest cities in 2023 but was rejected by the government. While it has since re-applied to the federal government, the Virgin wet-lease deal would allow it to bypass the need for approval from Transport Minister Catherine King’s office who said last year the additional bilateral air rights were not in the “national interest”.
The original application for extra flights lodged by Qatar was overwhelmingly supported by the tourism industry but firmly opposed by Qantas, which has a code share partnership with Qatar’s rivals Emirates and Etihad. The saga led to scrutiny over the relationship between Qantas and the government, which culminated in a parliamentary inquiry into bilateral air rights last September.
Hrdlicka said on Tuesday that Virgin was not in a position to expand its international flying without relying on Qatar’s fleet and crew and argued the extra capacity to Australia will create additional jobs in tourism. However, the Australian airline will not be using its own pilots and cabin crew to service the international routes.
“Our people are really excited about today’s announcement because they know this shores up Virgin Australia for the future which ultimately means more secure jobs. We have committed to look at opportunities to insource between the two of us in places that we don’t have scale today such as ground handling.”
The additional flights from Doha to Australia’s four biggest cities will bring in an extra 2 million people to the country every year and will also boost the amount of freight, she added. Virgin has not flown flights longer than eight hours since before its near demise during the pandemic.
Virgin is Australia’s second-biggest airline and only rival to Qantas Airways on major domestic routes. It controls about 40 per cent of the domestic market, with more than 60 per cent flown by Qantas and its budget carrier Jetstar. Regional Express withdrew from flying on major capital city routes and entered voluntary administration in August after ex-budget carrier Bonza collapsed this year.
The Transport Workers Union national secretary Michael Kaine said Virgin’s board would need to address workers’ concerns about what the proposed arrangement with Qatar would mean for their jobs and conditions.
“There are understandable doubts about this deal, particularly for cabin crew. A commitment to respect is expected and necessary given Qatar Airways’ track record. Beyond these commitments, workers, passengers and the community need the assurance of enforceable standards in the aviation industry,” Kaine said.
Qantas has had a similar arrangement with Finnair for flights to Bangkok and Singapore since October 2023, but this wet lease will convert to a “dry lease”– where Qantas will use their own locally based crew and maintain the aircraft itself from next year. Qantas’ share price closed 4 per cent lower at $7.12 on Tuesday following the announcement.
Virgin is yet to confirm the timeline of the Qatar agreement beyond saying flights would ideally commence in mid-July, pending ACCC approval.
Treasurer Jim Chalmers said it wasn’t appropriate to preempt regulatory scrutiny of the proposed deal while Opposition leader Peter Dutton issued his support.
“I will say, more broadly, we do want to see a strong, competitive airline industry that delivers for consumers,” Chalmers said.
Virgin was saved from administration by Bain Capital in 2020 and overhauled its strategy to be a leaner airline with a major focus on domestic expansion and short-haul international services through operating a single fleet type. Hrdlicka said the Qatar partnership does not move away from this strategy, even though the aircraft provided by Qatar could be Airbus A350s instead of Boeing 777s.
“Virgin Australia has learned its lessons from the past, and we’re not changing anything about our strategy. This is about an innovative partnership to enable us to do more for Australia and bring more choice and value to Australian travellers.”
Qatar’s investment in Virgin reduces Bain’s holding to 68 per cent, down from its initial 93 per cent stake. Bain received a capital return of $730 million from Virgin last year which equalled the equity it injected into the business in 2020, which means it is poised to make significant profits if the long haul expansion takes off.
Bain has been looking for Hrdlicka’s replacement since she announced she would step down from her role as chief executive in February. Sources close to the business, not authorised to speak publicly, said the increased certainty around Virgin’s shareholder register should help Bain expedite the process.
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