Fulfilling pledges to revitalize its business travel offering could help Virgin Australia bounce back, but it may be exiting bankruptcy with a tarnished reputation.
Struggling Virgin Australia has said it will remain faithful to corporate customers ahead of its sale to private equity firm Bain Capital — a deal which is set to leave some creditors severely out of pocket.
The airline has pledged bigger planes and no change to its domestic route network for corporate clients — which may come at the expense of leisure-focused destinations.
“Bain Capital sees it as vital we can still evolve as a business,” said Max Kruse, general manager, corporate sales at the airline, during an interview with corporate travel agency CTM. “How do we then appeal and continue to attract the corporate market?”
Virgin Australia will be taking out Airbus aircraft from its fleet and moving to an all-Boeing 737 fleet. As a result, he said, business travelers will get a more “consistent product and bigger planes on routes where they haven’t seen those bigger planes before, where we’ve operated the ATRs”.
However, he added there would be some adjustments from a regional point of view where the smaller leisure markets have been.
During the interview John Balloch, CTM’s head of Australia and New Zealand supplier relations, told Kruse that a lot of CEOs had asked the agency about the airline’s plans for its exclusive Club lounges, following reports they would be closing. But Kruse said the airline was committed to keeping its Club airport lounges open, as well keeping its Accelerate and Velocity programs in place amid rumors the carrier would move away from catering towards larger corporate clients.
“The voice out there is it’s going to be small market, or middle market, but the reality is no,” Kruse said. “The large market is important to us. And having a mix is vital to the success of the airline.”
However, one area that might disappoint clients is that new owner Bain Capital has no intention of returning refunds in the form of cash, as only credit notes will be returned. These can be used up until June 2023, but must be booked by the end of July 2022.
Meanwhile, the future is also unclear over its relationship with regional carrier Alliance Airlines. “We still have a number of contracts, but we are in discussions to see what the future looks like. We’re looking to extend the relationship,” Kruse said. “We still need to service the leisure market, because a lot of the corporate market want to go on holidays.”
Kruse said that Virgin Australia had been ready to fully relaunch in late July with a “ramp-up” program with strong uptake, but these plans were cancelled when the state of Victoria declared rising numbers of coronavirus cases.
“The challenge we have as airlines is that we want to fly more, but at the moment, with spreads in Victoria at the moment, and the border closures, it’s challenging us to be able to meet what we think would be the requirements, because we can’t cross borders,” he said. “We could fly, but we just wouldn’t get the passengers because of the lockdowns across many states.”
But he added Bain was committed to rebooting international operations, once restrictions are lifted, including Los Angles and Tokyo. Within the next few months, it aims to restart flights to New Zealand and the Pacific Islands.
Kruse claimed Virgin Australia would exit its voluntary administration in a better position that before the coronavirus outbreak. “We’ll come out with a higher value proposition, because our balance sheet’s going to be so much stronger. We’ll come out a much healthier business,” he said.
However, this statement may not go down well with its creditors. Virgin Australia was one of the first carriers to enter administration due to the pandemic, collapsing in April with $4.93 billion of debt owed to 12,000 creditors.
Kruse was speaking just days before an August 25 filing by administrator Deloitte that revealed non-priority creditors will receive just 9 percent to 13 percent of their funds back. The unsecured creditors include 6,500 bondholders who are owed $1.43 billion. Priority creditors and employees will receive 100 percent of funds owed.
And Deloitte has reportedly given Bain Capital the all-clear to buy the airline for $2.5 billion, even if creditors reject a deal during voting on September 4, with Deloitte able to push the sale as an “asset sale” — a move that would leave creditors on even worse terms.
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Photo credit: Virgin Australia was ready to ramp up its program in July, but plans fell through after a coronavirus outbreak in the state of Victoria. Darren England / Associated Press