Virgin Australia Is On The Brink Of Collapse

Virgin Australia Is On The Brink Of Collapse
Image: Getty Images

Virgin Australia has announced it’s entering into voluntary administration. The troubled airline’s future had been shaky for a number of weeks due to the ongoing coronavirus crisis, but on Tuesday morning those predictions became reality.

Just under a month after domestic travelling restrictions began taking place, Virgin Australia has confirmed the company would be going into voluntary administration as a result of the coronavirus pandemic.

Trouble already seemed be brewing in March when S&P Global downgraded the airline to ‘B-‘ on deteriorating domestic market conditions, placing it on CreditWatch Negative. The airline was already $5 billion in debt, and the downgrade meant that the cost of servicing its debt would be higher. This put the company in further financial strain and has likely contributed to the company going into administration.

“[Virgin Australia] has entered voluntary administration to recapitalise the business and help ensure it emerges in a stronger financial position on the other side of the COVID-19 crisis.,” a newsroom statement read.

“The decision comes as the Group has continued to seek financial assistance from a number of parties, including State and Federal Governments, to help it through the unprecedented crisis, however is yet to secure the required support.”

Despite the news Australia’s second airline was handing over the reigns, it maintained that flights transporting essential workers would continue.

“Virgin Australia will continue to operate its scheduled international and domestic flights which are helping to transport essential workers, maintain important freight corridors, and return Australians home,” the statement added.

“The administrators will be supported by the Group’s current management team, led by Chief Executive Officer Paul Scurrah, and will work closely with team members, suppliers, and partners throughout the process.”

Prior to Tuesday’s announcement, the airline had already slashed its weekly flight schedule considerably, offering just a single route between Sydney and Melbourne once a day excluding Saturday from April 9. It seems that service will remain for the foreseeable future despite the company’s future hanging in the balance.

With Virgin Australia and its budget subsidiary offering, Tigerair, having a shaky future, all eyes will be on Qantas and its budget airline, Jetstar, to see what happens with domestic travel in the future.

Virgin Australia’s CEO Paul Scurrah stated that because of this uncertainty, Australia needed a second airline to service domestic routes.

“In 20 years, the Virgin Australia Group has earned its place as part of the fabric of Australia’s tourism industry. We employ more than 10,000 people and a further 6,000 indirectly, fly to 41 destinations including major cities and regional communities, have more than 10 million members of our Velocity loyalty program, and contribute around $11 billion to the Australian economy every year,” Scurrah in the company’s media statement.

“Australia needs a second airline and we are determined to keep flying. Virgin Australia will play a vital role in getting the Australian economy back on its feet after the COVID-19 pandemic by ensuring the country has access to competitive and high-quality air travel.”

It’s not the first major airline to effectively collapse in Australia. Back in 2001, Ansett Australia, which had been operating in the country for 65 years, was placed into voluntary administration and liquidated the following year.

Virgin Australia, then operating as Virgin Blue, filled the vacuum created in the domestic market, becoming a major competitor to Qantas.

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