Indian airline wants to take Virgin Australia back to low-cost roots

Low-cost Indian juggernaut IndiGo is running the numbers on a Virgin Australia take-over.

By David Flynn, May 12 2020
Indian airline wants to take Virgin Australia back to low-cost roots

The billionaire behind India's largest airline IndiGo is reportedly making a tilt at Virgin Australia, which if successful would see Virgin return to its low-cost roots.

While IndiGo isn't to be confused with US private equity firm Indigo Partners, which is also circling Virgin, their names are not the only similarity: both companies are champions of the 'ultra low-cost' model where passengers pay for a seat and nothing else.

This approach has helped IndiGo become the largest airline in India, counted by passengers carried as well as fleet size, and hold a dominant 48% domestic market share – and now, IndiGo's founder and largest shareholder Rahul Bhatia is keen to throw his $5.3bn hat into the bidder's ring.

The Indian aviation tycoon will join a score of suitors seeking to capitalize on Asia’s first airline casualty from the coronavirus pandemic, people with knowledge of the matter said.

The proposal is being prepared by Bhatia’s private holding company InterGlobe Enterprises, which is understood to be the vehicle for the Virgin bid, and doesn’t involve IndiGo, whosde CEO Ronojoy Dutta this afternoon issued a statement denying the airline had expressed an interest in Virgin Australia, saying  "IndiGo has not formulated any indicative proposal, nor does it have any interest in this matter.“

IndiGo flies mostly Airbus A320neo and A321neo jets, with the later opening up new routes to Europe, with hundreds of longer-legged A321neo LR and XLR aircraft on order. These are all fitted with economy class from tip to tail, with a handful of 'premium' extra legroom rows.

The first round of proposals by Virgin's would-be buyers is due this Friday, May 15 and will give Deloitte – and Virgin Australia itself – a clearer picture of its currently clouded future, including what form the airline might take – and how large its headcount, fleet and route network will be – when it returns to the skies under new ownership.

Airline-appointed administrator Vaughan Strawbridge of Deloitte has previously indicated that 20 "interested parties" were scoping out the sale, and Friday's deadline will reveal which of those parties have coalesced into a smaller number of heavy-hitting consortia.

Friday's first round of "non-binding indicative offers" will need to be shaped into "serious, binding offers" by the middle of June, from which the winning consortium will be chosen.

"We remain confident that our target of achieving a sale by the end of June is achievable" Strawbridge has said.

Read more: Friday deadline for Virgin Australia's billion-dollar buyers

Additional reporting by Bloomberg

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

06 Jun 2017

Total posts 38

Not sure how I feel about VA becoming a LCC. Personally would love to see someone such as CZ or MU take over VA. I recall there were some reports weeks ago about some interest from the Chinese carriers but haven't read anything too recently.

07 May 2019

Total posts 5

AusiGo?

Virgin Australia - Platinum

26 Jun 2011

Total posts 68

or DinGo?

08 Feb 2018

Total posts 75

No thanks for an LCC. I'd prefer a full service alternative to Qantas.

07 May 2019

Total posts 5

That's what Borghetti bravely tried to make it into. It has failed. Go back to what worked originally?

Qantas - Qantas Frequent Flyer

09 Feb 2015

Total posts 296

Or just get someone smarter to implement and negotiate.

Qantas - Qantas Frequent Flyer

02 Sep 2018

Total posts 130

I doubt it works out financially. At least the cost of converting back to a low-cost model I thought would exceed the benefits.

Virgin Australia - Velocity Rewards

14 Mar 2017

Total posts 143

IndiGo is a terrible airline by Australian standards. If they brought the same approach to Australia they would fail dismally. Not sure I would ever fly them.

Virgin Australia - Velocity Rewards

10 Nov 2011

Total posts 129

Having flown them a number of times, I found Indigo to be absolutely fine, and in my opinion the best of the Indian domestic carriers (with the exception of Vistara). I'd probably rather fly Indigo over Jetstar or Tiger!

American Airlines - AAdvantage

13 Jul 2015

Total posts 238

"IndiGo is a terrible airline by Australian standards"

I mean we have had to deal with Tiger and Jetstar in recent years, not sure what you're on about mate.

Etihad - Etihad Guest

19 Mar 2018

Total posts 26

Visit IndiGo's website before you comment.

IndiGo is more of an airlne that allows full customization of your flight experience. They're not just cheap cheap cheap. There are combos, bundles, etc that isn't too disimilar from what Air New Zealand offers right now on trans-Tasman and short-haul Pacific island flights on narrowbody.

As of 2019, IndiGo is Asia's second largest airline after China Southern by passengers carried, so this will be interesting. IndiGo is a lot larger than AirAsia, a lot larger then Air China and China Eastern in this metric so they clearly know what they're doing.

What I'd be intrigued by, is their potential planned international network connecting India with Australia, and then some. They only have Airbus narrowbody and ATRs on order, so the longest range plane will be the A321neos.

IndiGo's gimmick may also be appealing to Australians: ioffering cashback rather than frequent flyer points. I think the general public is not interested in airline frequent flyer points because they don't really know what they're for, nor do they find it user friendly. A lot of these can be learning touchpoints for Qantas and Jetstar, particularly the latter because as of late the latter's fares have been becoming more and more expensive, being positioned and priced as a premium LCC without the product to substantiate that premium.

Virgin Australia - Velocity Rewards

14 Mar 2017

Total posts 143

Their marketing is good, but have you actually flown IndiGo? The service experience is a disaster. Tiger has shown that you can't throw a low service LCC at the Australian market and expect to be succesful.

27 Nov 2019

Total posts 64

Who would you rather fly Rex or an Indian outfit ?

Rexs idea to have 10 jets doing golden triangle makes perfect sense. Position themselves between qantarse

Virgin Australia - Velocity Rewards

10 Nov 2011

Total posts 129

I would have thought the attraction of a domestic feeder network would be very attractive to someone like SQ. I'd expect Temasek's offer to be very strong. Personaly I hope they win out. Would suit me as an SQ flyer, and I would also expect that they would want to retain some level of premium experience in order to attract that custoemr base from domestic feeding into their international network.

27 Nov 2019

Total posts 64

yes think SQ/Temasek will back/fund Rexs 10 jets to do BNE, SYD, MEL. VA revival is looking less likely by the minute.

2 class operation, as good as qantarse, with frequeny of qantarse, but cheaper due to much lower cost base (lower than junkstar). qantarse might end up with less market share on the 3 highest yielding routes in Australia

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 192

Considering REX is half-owned by another Singaporean firm (not Temasek), it's a sure bet that they'll want Temasek to pay through the nose unless if the SG government steps in (considering Temasek is a SG government owned firm).

Virgin Australia - Velocity Rewards

30 Aug 2018

Total posts 6

According to the AFR, Strawbridge is demanding bidders break down things like debt rollover, employees retained and government support. Sounds like they are trying to deter bidders like Indigo and IndiGo whose only practical interest is in the air operators certificate.

Virgin Australia - Velocity Rewards

06 Aug 2017

Total posts 38

The Australian is reporting that it's IndiGo's parent company InterGlobe, rather than IndiGo itself, that is interested in bidding. This is an important point -- just because the parent company owns one LCC doesn't mean that it's interested in making Virgin a LCC.

04 Dec 2017

Total posts 45

Back to the future - were virgin always belonged-a LCC.

09 Aug 2015

Total posts 25

The last thing I want to see is for Virgin to become an ultra low-cost all-economy carrier. Even with the idea of buying just the seat and then paying for everything else in bundles like Air New Zealand does, I think we would end up in a race to the bottom, a price war against Jetstar where Jetstar would of course benefit from the backing and muscle of Qantas, meanwhile Qantas suddenly has no competition as a full-serve airline and can keep its prices high while watering down its offerings without fear. I like the Seats to Suit approach of Air New Zealand but I don't think this grafts well onto a ULCC.

27 Nov 2019

Total posts 64

I think Rex is in perfect position, to run an operation cheaper than Qantas, but with similar frequency

Hi skier, please post your comments only once: some of your recent comments have been posted 4-5 times.

Hi skier, again, you've already posted that comment, which remains visible below. We've removed your duplicate, and would again ask you to post comments only once.

30 Aug 2019

Total posts 7

Fake news apparently..IndiGo CEO says airline has ‘no interest' in buying stake in Virgin Australia"We deny the contents of these reports and would like to clarify that IndiGo has not formulated any indicative proposal, nor does it have any interest in this matter,” IndiGo CEO Ronojoy Dutta said in a statement.

Virgin Australia - Platinum

26 Jun 2011

Total posts 68

That would be correct if it is the parent company InterGlobe that is interested in bidding, as The Australian is reporting.

Rxm
Rxm

Jetstar Airways - Qantas Frequent Flyer

14 Jan 2017

Total posts 37

Virgin never lost its roots as a LCC.

08 May 2020

Total posts 15

I believe that Australia needs a VA 2 to be low to Midrange with 2 class Cabin. Indi GO potential, Air Asia, Jetstar and various others are more than serving the very low end already. We are missing that link which was void when Ansett Airline left that market open. Both Virgin and Ansett had a much better attitude and efficiency towards Economy Class Passengers. Luggage , Check in. Business Class treatment on the Main competitor Airline probably are enjoying that they do get that special differentiation. But I am not sure that turning the Luggage carousel belt off for a considerable time between Bus Class and Economy is not earning Qantas a lot of points from VA travellers.

Picking travellers up on Qantas flights (Economy Pax) generally I allow an extra 20 minutes on top of the 15 minutes I allow on Virgin after the arrival time.

27 Nov 2019

Total posts 64

think headline is wrong

06 Nov 2017

Total posts 1

There seems to be a lot of issues being flagged that just because its an Indian outfit that it should be bad. Indigo is run in India based on the requirements needed to keep fares as cheap as possible to build and maintain their market share. Which they do really well considering how they have grown in the years that they have been operating. That doesn't necessarily translate into Indigo keeping that same level of service should they buy Virgin.


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