Virgin Australia will deny Qantas a monopoly in the lucrative corporate travel market by maintaining a full-service business class product as part of a relaunch plan under its new owners Bain Capital.
Australia's number-two airline will, however, emerge from administration significantly slimmed down after announcing on Wednesday it will axe 3000 jobs - or a third of its workforce - drastically reduce its fleet, put long-haul flying on ice and shut down its loss-making budget Tigerair brand.
Virgin CEO Paul Scurrah, pictured in Brisbane on Wednesday, said he was trimming the airline back to its profitable parts. Credit:Albert Perez/Getty Images
After announcing a plan he said would make Virgin stronger, profitable and more competitive in the post-coronavirus world, chief executive Paul Scurrah revealed Bain had walked back its plan to move Virgin downmarket by turning it into a "hybrid" carrier positioned somewhere between Qantas and Jetstar.
"We were not about to create a business travel monopoly," Mr Scurrah said, with Virgin to offer "very good value" business class tickets and maintain its airport lounges.
He said that, contrary to popular opinion, Virgin had not been losing money because it moved away from its budget roots but because it signed bad contracts that were now being renegotiated, and had a complicated fleet with eight different aircraft types.
“If you look at where it made money, it was in the domestic network, particularly driven by corporate travellers," Mr Scurrah said.
“We’ve cut away all the non-profitable parts of the business, and we’re maintaining what was already profitable. And now we’re doing it with a much lower cost base.”
Virgin will dump its long-haul Boeing 777 and Airbus A330 aircraft and strip its mainline fleet back to its Boeing 737s that will fly domestic and short-haul international routes. Virgin's regional and charter operations are under review and it will retain some of its Fokker 100s and Airbus A320s.
Mr Scurrah said Virgin could operate between 60 to 80 737s once travel demand fully recovers from the pandemic, which would take at least three years, allowing jobs numbers to swell from 6000 to 8000. Virgin is currently operating only around 14 return flights a day and most of its staff are stood down from work.
The job losses announced on Wednesday come on top of 1000 redundancies announced in March, meaning Virgin will have laid-off around 40 per cent of its workforce this year. Qantas said in June it would axe 6000 jobs, or around 20 per cent of its workforce, as part of its COVID-19 recovery plan.
Mr Scurrah could not guarantee there would not be further redundancies, however, with the COVID-19 pandemic recovery still clouded by massive uncertainty.
"Every business in the country has to react to the circumstances that are dished up," he said.
Virgin said long-haul flying was an important part of the airline's future but its services to Los Angeles and Tokyo will not resume for several years and require it to buy or lease new wide-body jets.
Tony Webber, from aviation consultants Airline Intelligence and Research, said that even if Virgin could improve its own profitability by lowering costs, it was unlikely to win over Qantas’ rusted on corporate travellers for long with lower airfares.
“They couldn't do that before so it’s hard to see them doing it now,” he said.
UBS analyst Matt Ryan said the plan Virgin outlined was positive for Qantas because it was a similar offering Virgin had for the past five years where the larger airline claimed 90 per cent of the domestic profit pool.
Unions representing Virgin workers said the loss of skilled aviation workers was devastating for the industry and the individuals involved, but claimed credit for saving jobs by pushing Virgin and Bain to maintain a full-service, international carrier.
"The plan... has important elements that unions have argued are critical to save the maximum number of jobs coming out of the pandemic and ensure there remains two viable national airlines in Australia," Australian Council of Trade Unions president Michele O’Neil said.
The US private equity giant Bain agreed in June to buy Virgin after it went into voluntary administration in April owing $6.8 billion following eight loss-making years. A second meeting of creditors will be held on September 4 to vote on a deed of company arrangement handing ownership of the company over the Bain.
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