Virgin Australia has entered voluntary administration as the country continues to maintain interstate travel restrictions while improvements in the country’s rate of Covid-19 infection and relatively low number of resulting deaths have yet to translate into a return to flying by a wary public. The decision comes as the group continues to seek financial assistance from state and federal governments along with private parties; however, it said, it has yet to secure the required support.
The group’s board of directors has appointed Vaughan Strawbridge, John Greig, Sal Algeri, and Richard Hughes of Deloitte as voluntary administrators of the company and a number of its subsidiaries. Velocity Frequent Flyer, while owned by the group, operates as a separate company and has not entered administration.
Virgin Australia will continue to operate its scheduled international and domestic flights for transporting essential workers, maintaining important freight corridors, and repatriating citizens. The group said its current management team, led by CEO Paul Scurrah, will work closely with employees, suppliers, and partners throughout the process.
“Our intention is to undertake a process to restructure and refinance the business and bring it out of administration as soon as possible,” said Strawbridge. “We are committed to working with Paul and the Virgin Australia team and are progressing well on some immediate steps. We have commenced a process of seeking interest from parties for participation in the recapitalization of the business and its future, and there have been several expressions of interest so far.”
Although ultimately forced into administration by the Covid-19 crisis, Virgin Australia found itself in need of restructuring even before the virus became a pandemic, instituting what it called a significant transformation program to reset its cost base including consolidating the workforce, simplifying the fleet, withdrawing from unprofitable routes, and reviewing and renegotiating supplier agreements.
Speaking during a weekly conference call Tuesday, International Air Transport Association chief economist Brian Pearce noted a clear difference in a return to consumer confidence following the decline in Covid-19 infections between China and Australia. Both countries have recovered significantly from the virus itself, but Australia’s citizens continue to show a low level of consumer confidence, he noted.
“Businesses in China generally are feeling much more confident than they had been at the depths of the crisis,” said Pearce. “And I think that's an important reason for some of the recovery in domestic markets that we've seen happening in China. But as you can see, the clear reason for the Australia market not recovering is that confidence is still rock bottom in March.”
Virgin Australia had controlled some 37 percent of the country’s domestic market before the crisis, noted Pearce, and although he characterized Australia’s air transport sector as resilient and in a strong position in the long term, the airline’s bankruptcy would prove “incredibly disruptive."
"This is one of the main reasons why IATA and the airlines are pushing for government support, to try to sustain businesses for the future, for the recovery period,” stressed Pearce.