US equity firm Bain Capital has agreed to buy Virgin Australia. Picture: AAP Image/James Gourley
US equity firm Bain Capital has agreed to buy Virgin Australia. Picture: AAP Image/James Gourley

What the Virgin sale means for flights

Aviation experts predict Virgin Australia will be rebooted as a "hybrid" domestic airline under its new American owner - but the future of its Velocity program is less clear.

US private equity firm Bain Capital has emerged as the winning bidder for the cash-strapped airline, which went into administration in April as it buckled under the strain of the COVID-19 pandemic.

Bain said today it planned to support the current management team led by chief executive Paul Scurrah, protect as many jobs as possible, and keep the airline's headquarters in Brisbane.

The firm also said the deal carried forward all travel credits and Velocity frequent flyer-booked flights.

Creditors will vote on whether to accept the deal at a meeting in August.

But with Australia's aviation landscape already in turmoil due to COVID-19, if Bain's deal goes ahead, what changes are Virgin Australia customers likely to see?

BOOKINGS AND CREDITS

Finder.com.au editor-in-chief and travel expert Angus Kidman told news.com.au while there was good news for customers in Bain's statement today, the future of the Velocity frequent flyer program was less clear.

"From a consumer point of view it's good there's been a clear statement that all the existing travel credits will be respected, and that existing rewards bookings will also be carried forward," Mr Kidman said.

 

Virgin Australia’s new owner has addressed Velocity booked flights but not necessarily the Velocity program itself. Picture: David Clark Photography
Virgin Australia’s new owner has addressed Velocity booked flights but not necessarily the Velocity program itself. Picture: David Clark Photography

 

"But I think it's telling their statement doesn't say anything about the future of the frequent flyer scheme. The statement is quite precise in saying it would honour all Velocity frequent flyer bookings. If they had any intent to maintain Velocity in a major way, it would have been singled out."

Mr Kidman said while there's been a few months of uncertainty for Velocity customers, there was no need to cancel bookings or rush to offload points.

"Right now, I would say sit tight and wait because the deal isn't quite sealed yet, but if you're quite paranoid (about points) I would say booking flights is the best way to go," he said.

VIRGIN AUSTRALIA AS 'HYBRID' AIRLINE

Boston-based Bain Capital has already flagged plans to reposition Virgin Australia as a "hybrid" or mid-market airline - sitting somewhere between a full-service airline like Qantas, and a budget carrier like Jetstar.

Mr Kidman said the hybrid experience meant not everything about the flight was covered in the ticket price, like you'd expect with a full-service carrier.

"Virgin was already a fair way down that route," he said. "Unless you were in business class, you would get a snack and that snack might be some bread and deli meat.

"I would expect that would disappear, and even on long-haul domestic flights, if you want food you'll have to pay for that.

"More parts of the flying experience would be paid for separately."

 

The airline may be rebranded as a ‘hybrid’ airline. Picture: AAP Image/James Gourley
The airline may be rebranded as a ‘hybrid’ airline. Picture: AAP Image/James Gourley

Centre for Aviation executive chairman Peter Harbison told Executive Traveller the new Virgin Australia may struggle to "find its appropriate niche".

"Qantas-Jetstar has both ends of the domestic market covered very effectively and overall (the Qantas Group) is relatively low cost," he said.

He said to become profitable, Virgin Mark 2 "will have to be lower cost, but it will also have to fish for higher yielding passengers".

WHAT ABOUT TIGERAIR?

If Virgin became a mid-market player, it would make the future even less clear for its low-cost subsidiary Tigerair Australia, which was already struggling to turn profits, Mr Kidman said.

"The widespread assumption in the market is that Tigerair in Australia won't revived as a brand," he said.

"If you've got Qantas as your premium brand and Jetstar as your discount brand, it gives people a clear choice. But I think it's going to muddy the waters to continue to operate Tigerair."

FEWER INTERNATIONAL ROUTES

InvestSMART's Evan Lucas told Sky News today it was likely Bain's plans included a "fairly big restructure and a very much slimming down of Virgin to a domestic carrier."

Mr Kidman agreed Virgin Australia would focus more on domestic routes, perhaps with flights to New Zealand and elsewhere in the Pacific.

 

There is speculation Virgin Australia will be reshaped into a domestic airline. Picture: AAP Image/James Gourley
There is speculation Virgin Australia will be reshaped into a domestic airline. Picture: AAP Image/James Gourley

 

"Even before we hit the pandemic Virgin was having real trouble with its international routes," he said. "It had cut back significantly into flying into Hong Kong and it had planned to expand into Japan but we never got the chance to see if that was going to work for them.

"The other successful long-haul route it really had was flying into the US and it's fairly clear flying into the US won't be massively in demand or profitable for quite a while."

Mr Kidman also expected some of the smaller, regional destinations on the domestic network would be axed, with a focus on the capital cities.

"(The network) will be more restricted, more simple, and it won't be that same push to get lots and lots of business flyers because that's expensive - trying to attract business travellers is expensive, and it's very unclear how much people will want business travel anyway," he said.

It is also unclear what the future holds for Virgin's airport lounges or its relationship with global partners like Singapore Airlines and Etihad.

WILL PRICES GO UP?

That's also hard to know, given Bain will need to rebuild the cash-strapped airline while navigating the tricky terrain of the pandemic and its aftermath, including changed consumer spending and safety concerns.

Mr Kidman said while Virgin tended to be a little cheaper that Qantas, "whether that will be sustainable, whether that will work within the levels of demand - that's the great unknown".

"It's very hard to tell when consumers are going to want to jump on planes anyway," he said.

"It's inevitable there will be a couple of sales to get people back in the air but don't know that will be the new norm in 12 months."

Originally published as What the Virgin sale means for flights


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