Boston-based Bain Capital has won the bid for Virgin Australia; following the withdrawal of Cyrus Capital’s competing offer. Bain has vowed to keep thousands of jobs and strengthen Virgin’s business model to ensure continued viability.
Expansion and Retraction of Services
Mike Murphy, Managing Director of Bain Asia-Pacific, has promised to drastically overhaul Virgin’s current regional network. In a statement, Mr Murphy hinted that the new Virgin will axe unprofitable routes and commence new regional services.
“Under our ownership we will strengthen Virgin’s regional services and ensure the airline emerges offering exceptional experiences at great value while continuing to service business travellers, as well as those of us travelling for fun or to visit loved ones.” Mike Murphy, Managing Director, Private Equity, Bain Capital Asia-Pacific
In the near future, Virgin Australia will expand its small regional network to rival Qantas and Regional Express. Using ATR 72-600 turboprops, the airline will likely introduce and improve services to remote towns in New South Wales and Queensland; the plan is also to grow mining charter services in Western Australia using Fokker 100s. Mr Murphy has also expressed eagerness to work with Alliance Airlines, to ensure reliability for mining services.
Bain has proposed a new future for Virgin Australia, likely resulting in a middle-market airline positioned between Qantas and low-cost subsidiary Jetstar. Keeping with a middle-market model, Virgin Australia is likely to ground any long-haul international routes in the near and perhaps distant future.
In order to truly compete with Australia’s flag-carrier, Qantas, Bain will likely seek to make Virgin a strong competitor on short-haul domestic routes (such as Sydney-Melbourne). In order to achieve this, Virgin Australia will offer competitive prices and improved schedules; in an attempt to tap into the elusive business travel market.
By refocusing Virgin’s market, Bain will be able to restructure the airline to recommence services to New Zealand if a travel bubble is established. Qantas’ enormous international network has proven to be its “Achilles Heel,” resulting in mass-groundings and job cuts.
By axing or reducing unprofitable routes to Hong Kong and Los Angeles, Virgin Australia will eliminate unnecessary risks associated with COVID-19 travel bans and the economic impact in the future.
Virgin Australia ‘s current fleet is likely to be significantly downsized, with six Airbus A330-200 aircraft to be returned to lessors. In addition, Virgin’s five Boeing 777-300ERs will remain mothballed until adequate demand for USA services resumes.
In a confidential plan acquired by the Sydney Morning Herald, Bain Capital outlined the purchase of eight Boeing Dreamliners (787-9 or 787-10) to replace the B777s and A330s.
In simplifying Virgin Australia’s fleet, Tigerair will never relaunch. After the low-cost subsidiary ceased operations, pilots and cabin crew were furloughed; they are unlikely to be rehired under Bain’s control.
Workers to be Furloughed
Despite vowing to preserve as many jobs as possible Virgin Australia is likely to furlough approximately 2000 workers, according to analysts. The Transport Workers Union has previously expressed doubts about Bain’s commitment to Australian employees.
“Virgin workers are under no illusion that there are tough times ahead. Bain will be wanting to make sure that they put a competitive airline in the air. So it is going to be difficult.” Michael Kaine, Secretary, Transport Workers Union (via The World Today)
Bain Capital has also promised to uphold any worker entitlements, although the firm is not legally obliged to keep any workers. The Australian Government may need to financially intervene in the future, according to the Australian Council of Trade Unions.
Virgin Australia’s headquarters will remain in Brisbane, following an agreement between Virgin and the Queensland Government.
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