Virgin Australia 2.0 to cut fleet, routes and some lounges

Here's what you need to know about the rescued and rebooted Virgin Australia.

By David Flynn , August 5 2020
Virgin Australia 2.0 to cut fleet, routes and some lounges

Virgin Australia will shrink to become a domestic-only airline in the short term, with its fleet and network trimmed to suit the post-Covid travel landscape, under the sweeping reboot plan of new owner Bain Capital.

While some airport lounges, travel credit and frequent flyer points are safe from the cost-cutting axe, the same can’t be said for a third of the collapsed airline’s 9,000-strong workforce, with 3,000 jobs lost, primarily across the operational and supporting areas.

Virgin Australia entered voluntary administration on April 21, weighed down by debts of $6.8 billion and facing a travel market gutted by the coronavirus pandemic. The flight path out of administration will also be long and bumpy, expects Virgin Australia CEO Paul Scurrah, who will remain to steer Virgin into this new era.

"Demand for domestic and short-haul international travel is likely to take at least three years to return to pre-COVID-19 levels, with the real chance it could be longer, which means as a business we must make changes to ensure the Virgin Australia Group is successful in this new world," Scurrah said in outlining the shape of Virgin Australia 2.0 this morning.

Virgin Australia CEO Paul Scurrah: hard choices now, but better times ahead.
Virgin Australia CEO Paul Scurrah: hard choices now, but better times ahead.

"Our initial focus will be on investing in the core Virgin Australia domestic and short-haul international operation alongside our 10-million-member strong Velocity Frequent Flyer program, continuing to offer an extensive network of destinations, a domestic lounge network and value for money for customers.".

Bain’s blueprint draws from Scurrah's own plans, drawn up since he took over the airline from John Borghetti in March 2019 and set about "turning a great airline into a great business", but amplifies and accelerates some aspects to better suit the uncertain times.

“We have worked closely with Virgin management since the binding agreement was signed to develop this strategy together for a stronger, more profitable and competitive Virgin Australia," noted Bain Capital's local managing director Mike Murphy.

"We reaffirm that we are backing Paul to successfully lead Virgin through the current turbulence and into the future.

Bain will continue working with administrator Deloitte to present the airline’s army of creditors with a detailed report on August 25, ahead of the vital credit’s vote – which is expected to seal the deal – on September 4. Those timelines have been pushed out by Deloitte from the previous late-August schedule.

Here’s what you need to know about the size, shape and scope of Virgin Australia 2.0

The new Virgin to be strongly ‘value-based’

Bain and Scurrah will carefully stake out Virgin Australia’s position to appeal to the largest slice of the travelling public with a dash of that on-brand Virgin flair (yes, Richard Branson’s ‘Virgin’ brand is staying put).

The challenger tried being a low-cost no-frills carrier when it launched as Virgin Blue in 2000, and it tried being a full-service Qantas competitor when it relaunched as Virgin Australia in 2011.

Now Virgin Australia will steer more of a middle course, although that trajectory will closer to the Qantas experience than a Jetstar, and indeed not too far from the pre-administration airline, but with a drastically reduced cost base and a healthier balance sheet, and 'value' will be its mantra.

"Virgin Australia aims to be the best value carrier in the market, not a low-cost carrier," this morning's statement says, and the v-word came up again and again at the media briefing.

"We will be very focussed on delivering the best value in the market for customers," asserted Danielle Keighery, Virgin Australia's Chief Experience Officer.

"We all know people are most focussed on price point, and we'll make sure that people feel our price point is as sharp as it possibly can be to to attract both leisure and corporate customers."

The new Virgin Australia will go mid-market and look to recover that 'Virgin vibe'.
The new Virgin Australia will go mid-market and look to recover that 'Virgin vibe'.

While Bain's earlier pronouncements indicated it saw little sense in going after the corporate market where Qantas is dominant, it seems this has been tempered by exposure to the raw numbers.

"With the renewed focus on our cost base we will have a very, very strong high-quality value offering to corporates, a very good value but a good quality product," Scurrah promised.

Along with the relentless pursuit of value, the airline will still retain some of that Virgin vibe.

"The Virgin Australia culture is already incredibly good," Scurrah reflects. "When I first started in March 2019 I did put in place quite a few initiatives to unlock that inherent culture a little bit more, and that is absolutely what we're continuing with... you have to make sure there is a point of difference, and that is a huge part of our future strategy."

"You won’t see us go back to the days of Virgin Blue, cracking jokes and rolling toilet paper down the aisle, but you will see a very human, more jovial culture than any other airline in the country."

A smaller fleet

The leaner Virgin Australia 2.0 will streamline its fleet and fly only the workhorse Boeing 737 "to realise cost efficiencies and remove operational complexity", with most other jets – including the Airbus A330s and Boeing 777s – dropped.

Read more: Virgin Australia axes Airbus A330s, Boeing 777s

As to the number of Boeing 737s that'll be in the hangars, "how many we are taking through and how many we will need in the future is still a work in progress," Scurrah said.

However, he qualified that "at the end of this pandemic, once we get back to pre-Covid FY19 levels, we see a market that could sustain us having 60-80 Boeing 737s in our fleet," implying that the reboot fleet will be substantially lower.

Virgin 2.0 has settled on the Boeing 737 as its only aircraft type.
Virgin 2.0 has settled on the Boeing 737 as its only aircraft type.

Virgin owns some 40 Boeing 737s, and assuming all of those remain on deck, they'd be supplemented by some leased aircraft – leaving the door open to cherry-picking the best deals from among the current roster of leasing companies who hold the keys to another 40 Boeing 737s.

"We're renegotiating aircraft lease rates with our lessors," Scurrah revealed, "and those lease rates will be different to what we had previously." He added that at least from an operational perspective, the airline's financial problems "were about onerous contracts and a complicated fleet."

Those 737s will retain their business class cabins, with the pointy end of the plane sharpened to appeal more to the self-employed and small- to medium-sized businesses rather than the very top end of town.

Business class will stay, but maybe not the fancy meals...
Business class will stay, but maybe not the fancy meals...

Virgin's regional and charter fleet will remain "while the company reviews options at Virgin Australia Regional Airlines (VARA), including different operating models to support continued regional and charter flying."

Of Virgin's outstanding order for the Boeing 737 MAX, Scurrah said "we are in discussions with Boeing right now on that and a number of other things."

All six of Virgin’s leased Airbus A330s, which plied the domestic east-west routes as well as selected destinations in Asia, will be handed back to their owners.

The loss of Virgin's Airbus A330s means an end to this superb coast-to-coast business class.
The loss of Virgin's Airbus A330s means an end to this superb coast-to-coast business class.

This will also hand leadership in the premium transcontinental business travel market to Qantas, which has its own much larger fleet of A330s with international-grade business class.

Boeing, Boeing, gone: Virgin has dumped its trans-Pacific Boeing 777-300ERs.
Boeing, Boeing, gone: Virgin has dumped its trans-Pacific Boeing 777-300ERs.

In addition, Virgin’s five longer-range Boeing 777-300ERs will be removed from the fleet.

"We do think it will be a very slow recovery in the international sector," Scurrah says – and by the time it's bounced back, he intends to have an all-new international fleet, with Boeing 787 Dreamliners previously earmarked for both Asia and the USA.

"We are having discussions with aircraft manufacturers but there's also going to be leasing opportunities for us," Scurrah added.

Read more: Virgin Australia axes Airbus A330s, Boeing 777s

A smaller network

The sweeping impact of Covid-19 has also pegged Virgin’s short-term future as a domestic airline, and the reduced fleet – including a downsized Boeing 737 contingent – will mean some routes will be dropped entirely, while others will see a reduction in the number of services.

Scuppering Virgin's regional ATR72 fleet will mean "there are quite a few routes that we will not be continuing with," Scurrah admitted, as ATR services run to Canberra, Albury, Port Macquarie and Tamworth.

"We are currently reviewing options to continue serving those routes through a number of different mechanisms. As an example, on Canberra we may replace the ATR flying with a 737 or we may talk to one or several partners to fill the network gaps for us."

Bain will be keeping a close eye on the reopening of international travel, which is now expected to begin in 2021 with the prospects of an Australia-New Zealand travel bubble, but the demand for that travel – and its value to Virgin Australia – remains to be seen.

Short-range international routes will be first to bounce back, with Scurrah promising "we intend to have flying across the Tasman, we intend to have a presence at Bali, Fiji and other Pacific Islands, wherever that demand may re-emerge."

That said, he noted that "we might pull out of specific city pairs for some of those islands and hub through a major port" – for example, feeding passengers from Sydney and Melbourne to Brisbane and then onto overseas flights – "but all of those decisions are yet to be made."

"Long-haul international operations are an important part of the Virgin Australia business," the airline maintains.

"However, given current international travel restrictions, the airline will continue to suspend flights to Los Angeles and Tokyo with the intention to recommence and grow long-haul flights when sufficient demand returns. Customers will continue to have access to international markets through the airline’s codeshare partners."

Lounges to reopen, The Club to close?

Virgin says it will "maintain a network of lounges in key domestic locations" – they've clearly proven to be a vital part of the airline's overall appeal, even as a mid-market rather than full-service operation.

Virgin's airport lounges will remain, but only at "key domestic locations".
Virgin's airport lounges will remain, but only at "key domestic locations".

However, that lounge network will exclude Alice Springs and Wellington – where Virgin Australia's lounges will not re-open – while the airline's regional lounge at Perth Airport's Terminal 2 won't return, either.

For Perth passengers, the airline's flagship Terminal 1 lounge will remain available, but will be far less convenient for travellers departing from T2, given the walk between terminals and the need to clear security a second time.

Read more: Virgin Australia closes Perth, Wellington, Alice Springs lounges

Separately, there's no word on the fate of The Club, Virgin's invitation-only equivalent to the Qantas Chairman's Lounge.

Closing time for The Club, a sanctuary of schmooze for high-flying corporates and captains of industry.. Source: Supplied
Closing time for The Club, a sanctuary of schmooze for high-flying corporates and captains of industry.
Source: Supplied

We'd previously tipped the elite Club lounges for closing, based on previous comments by Bain's Murphy that "we are not looking to take Qantas head on, especially in their corporate part of the market."

"We are not looking to attack the very high end of corporate Australia," Murphy doubled-down, saying the outcome of Virgin's previous battle for the suited-and-booted business travel brigade  "wasn’t a happy outcome for anybody."

Executive Traveller asked Scurrah about the fate of The Club during today's media briefing, so which he replied with a laugh "People aren’t meant to know about The Club! But of course, we all do!"

"We don’t have any updates on that today," he continued. "The only thing I will say about it is that we know our customers, particularly high-tier customers, want a differentiated level of service, and we're working through exactly how that will look once the demand comes back."

Travel credits, Velocity Points honoured

If Bain’s pitch to Virgin creditors gets the green light, it will honour the full value of all outstanding travel credits and 'conditional credits' issued to customers on cancelled flights.

"All travel credits and Velocity Frequent Flyer points will be carried forward" under Bain's ownership, the airline says.

“Bain Capital recognises the importance of Virgin Australia’s loyal customers, and that’s why they will be provided the value of their travel credits post administration," Scurrah said, adding that the use-by date of those travel credits will be "significantly extended to ensure they have plenty of opportunity to book tickets to their favourite destinations."

Travel credit will be available for use on Virgin Australia flights covering travel until 30 June 2023, as long as the booking is made by 31 July 2022.

While there was initially less certainty around 'conditional credits', Deloitte confirms to Executive Traveller that "conditional credits still held ... will then be recognised as Future Flight credits by the new owner."

Read more: Virgin Australia travel credits, conditional credits to be honoured in full

International airline partnerships

While international travel will be off the agenda for several years, Scurrah says that alliances with overseas airlines will  be "a very important part of the future" to both Virgin Australia and Velocity.

Virgin's current bespoke roster of partners includes Singapore Airlines, Etihad Airways, ANA, Virgin Atlantic and Delta Air Lines, along many others.

"Because we intend to be very competitive in the corporate space it's very important that we have global coverage and strong partners, and it's important to our Velocity program that we have the most competitive earn and burn opportunity ," Scurrah said.

"So yes, there'll be some very strong alliances... you can speculate that some of the ones we’ve got might continue, and you could also speculate there could be some new ones."

Tigerair extinct

There should be no surprise that the low-cost Tigerair operation won't be returning.

Former Virgin Australia CEO John Borghetti acquired Tigerair over 2013-2014 for $35 million to challenge Jetstar while the more upmarket Virgin went head-to-head with Qantas.

With Virgin now charting a course into the middle of the market as a solidly value-based proposition, there’s no need for the questionable baggage of the budget Tigerair brand.

"The Tigerair brand will be discontinued in the market as there is not sufficient customer demand to support two brands at this time," the airline says, although it's keeping Tigerair Australia's Air Operator Certificate (AOC) and the resources necessary to support the AOC  "to support optionality to operate an ultra-low-cost carrier in the future when the domestic market can support it."

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.

bmc
bmc

Virgin Australia - Velocity Rewards

22 Aug 2013

Total posts 169

"with the pointy end of the plane sharpened to appeal more to the self-employed and small- to medium-sized businesses rather than the corporate set"

Perfect for me. Fingers crossed for VA2

13 Apr 2020

Total posts 3

I agree. Sensibly price a business product that can appeal to those who are paying from their own pocket rather than the corporate and government customer who don't care if their flight between Canberra and Sydney is priced at $750 one way.

Etihad - Etihad Guest

21 Jul 2019

Total posts 45

As a small business owner who would occasionally treat himself to a VA business class seat solely because it cheaper than the other airline, I'm very glad to hear this particular bit of news. Gives me even more incentive to continue supporting VA. I'm genuinely sad for the job losses and feel for the creditors, but I do like what I'm hearing from Bain and Mr. Scurrah so far.

Qantas - Qantas Frequent Flyer

07 Aug 2013

Total posts 171

Wondering if the B737-Max jet orders are still on cards?

Singapore Airlines - KrisFlyer

10 Jul 2015

Total posts 10

Ill miss the 777 (especially its bar) to LAX ;-(

Qantas - Qantas Frequent Flyer

12 Jun 2011

Total posts 144

Smartest thing they've done for years. Looking forward to a well run airline with its own proper culture, not trying to be Qantas-lite.

P1
P1

24 Apr 2017

Total posts 57

Sounds like that is EXACTLY what they are planning to do, becoming a Qantas lite/Jetstar plus.

Qantas - Qantas Frequent Flyer

12 Jun 2011

Total posts 144

Being Qantas-lite means trying to replicate the product that Qantas has and not actually delivering the connectivity and scale that they have. They seem to look to become more like a Jetblue carrier where its not about lowest price, but best value in both the economy and premium segment (similar to Virgin Blue prior to the rebranding).

IMO an economy product that isn't the cheapest but represents good value is smart and having a premium product that isn't cost intensive but alluring enough for the more price conscious business traveller/those able to afford it is sensible and smart business.

Qantas - Qantas Frequent Flyer

09 Feb 2015

Total posts 303

I wish them every success!!

We the travelling public need competition and more importantly, the jobs that come with it.

Good luck Paul.

Etihad - Etihad Guest

06 Apr 2012

Total posts 100

I noticed that Alliance Airlines announced a purchase of 14 Embraer E190's this week to supplement their existing Fokker fleet. Could they be planning to step into some of the routes that Virgin/Tiger will be exiting ?

Qantas - Qantas Frequent Flyer

09 May 2011

Total posts 345

I'm a Qantas supporter but this looks great and I wish VA nothing but success moving forward. It sounds like they're finally going to be very well run under this new plan

Qantas - Qantas Frequent Flyer

01 Nov 2016

Total posts 134

Job losses were inevitable but going forward this has got to be the most positive commentary in building a sustainable long term business which if successful will grow and need more people. Hope the plan works.

21 Jul 2020

Total posts 6

Sounds good to me, Gold locked in for another year after this, not sure when we will be flying again though?

I only ever flew on the 737 anyway as I have never flown virgin international or to the west.

When can I transfer my altitude points though?

QF

11 Jul 2014

Total posts 487

Sounds like a job well done, I actually thought staff numbers leaving the business would be around 5000 or more. Once we are allowed to travel again I believe it will be a quick up take back in the air, I tried to do a deal over the phone yesterday, the phone cut out 3 times and I couldn't hear everybody. On top of that my wife is on my back to book holidays, I told her go by a tent and set it up in the back yard, thats as close as a first class suite at the moment.

Virgin Australia - Velocity Rewards

12 Nov 2017

Total posts 17

I am going to miss the A330 on the Syd-Perth leg. The space and the menu was always superb. Sob...

Emirates Airlines - Skywards

07 Sep 2012

Total posts 153

Ditto for the Mel-Per leg. Always good service and comfort, and they never bumped their aircraft down to a 737 after I made the booking for an A330 flight, which happened to me twice on QF.

P1
P1

24 Apr 2017

Total posts 57

So the plan is to offer a "mediocre" service using old Boeing B737's?

It might have flown with more modern Airbus planes, I can't see any reason to fly with the new Virgin, and they used to be my preference...

I don't mind the direction, but we are personally holding tickets for USA next May 2021, which replaced a trip from this year. If goes by the wayside, we don't want, or need domestic travel options. To be fair, I am sensing that they have already been offloading, as the return leg has been moved on to Delta codeshare (albeit via SYD). I just need the outgoing leg from BNE to be switched now and my party of 6 will be happier bunnies. Roll on the vaccine, so we can all start travelling again.

Virgin Australia - Velocity Rewards

16 Apr 2016

Total posts 14

I've been Velocity Pt since 2011 and will really miss the wide body jets MEL-PER, that's whenever Perth open the border again. I do wonder how QF will react to the reduced competition and traffic volumes, there may not be a big difference between QF and VA 2.0. Some legs rests at the point end on the B737 like Virgin America would be a good start.

13 Dec 2019

Total posts 11

That all sounds logical and pleasing.

Looking forward to seeing the rebranding in terms of company culture and service. Also looking forward to seeing their pricing in the future, compared to full service QF.

I hope QF keeps their A330 product Transcon as it's such a treat to have flatbeds on this route which I can't justify paying for but using points is always fantastic and great value.

Virgin Australia - Velocity Rewards

12 Jun 2019

Total posts 5

I have been flying J twice a year from BNE to LAX. I will miss the wonderful 777 and the great service. I suppose I will have to go delta via SYD. I am led to believe that the Delta 1 has lifted to match the VA offering.

What of the newly opened international lounges? The BNE lounge was adequate at best. My daughter flew out of SYD and it was way superior.

08 Jul 2020

Total posts 6

It sounds like a decent plan. Though being a taller and wider guy I am not the biggest fan of the 737 on flights longer than 90min. But it makes total sense.

My worry is that once we are back up and running over the next year or two, Qantas will reduce the number of A330s on East - West legs. With Virgin using a 737 and premium competition lost, Qantas might switch out many of those flights also to 737 free up the A330s to help the Asia short haul network. Especially with the A380 being out of work for the next 3 years.

Qantas - Qantas Frequent Flyer

26 Feb 2020

Total posts 7

Sounds like a sound plan. Must admit I was never a fan of the ATR72 but hope they maintain a presence on the SYD - CBR Route even if it's a less frequent 737 service.


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