Virgin Australia administration: what happens to travel bank credit?

Would-be travellers holding credit or vouchers for future Virgin Australia flights face worrying times ahead.

By David Flynn, April 21 2020
Virgin Australia administration: what happens to travel bank credit?

With Virgin Australia expected to be placed into voluntarily administration today, what does this mean if you're holding credit in the airline's Travel Bank scheme?

Virgin was pushing passengers towards accepting Travel Bank credit for domestic and international flights cancelled as the coronavirus pandemic took hold, to be used towards a new flight booking at a later date – although as Executive Traveller pointed out at the time, travellers were also entitled to a full refund, even if booked on a 'non-refundable' fare.

You can still use your Travel Bank credit

Despite entering administration, Virgin Australia is expected to continue flying on selected domestic routes until June 7, 2020, as part of the Government-subsidised 'minimum domestic network'.

This provided both Qantas and Virgin with $165 million to underwrite flights serving all capital cities and regional centres on a break-even basis.

At the time of writing, Virgin's rebooted domestic network spanned 64 return services each week, primarily between the capital cities but also from Brisbane and Perth to a handful of destinations in each respective state (for a full schedule and timetable, visit travel.virginaustralia.com).

It should be stressed that these flights are intended for the purposes of essential travel, with Deputy Prime Minister and Transport Minister Michael McCormack pointing out that "Australians are asked to stay home unless absolutely necessary."

However, if you need to take one of these Virgin Australia flights, your Travel Bank credit can be used to secure that booking.

If you have no plans to fly, but know of somebody who does, you can use your travel credit to purchase a flight for them – although the credit itself can't be directly transferred to them.

Read more: Qantas, Virgin restart flights with $165m Govt subsidy

Travel Bank credit when Virgin enters administration

Once Virgin Australia moves into administration, the longer-term fate of Travel Bank credit literally remains up in the air.

Administration doesn't necessarily mean liquidation, which would render that credit worthless: the company-appointed administrators will assess Virgin's position with an eye towards the best outcome for the business, which could very well mean that a new, streamlined Virgin Australia emerges, free of debt and with a new lease of life.

"A Voluntary Administration (unlike a Liquidation) is designed to maximise the ability for the business to continue as a going concern," explains Fabian Micheletto, Director at business insolvency and advisory firm SV Partners.

"The scale and complexity of an international or domestic airline will almost certainly see any attempt at recapitalisation or formal restructure be undertaken via a Voluntary Administration and Deed of Company Arrangement process," Micheletto says.

"It is common for Administrators, conscious of preserving the Company’s image and branding, to incentivise consumers to continue to utilise the Company’s services. In the case of an airline operator, this could include the honouring - say, in part or possibly, in full – of any outstanding travel vouchers issued to consumers prior to the Administration."

In other words, what could at this stage be termed Virgin Mk II might find it's in their best interests to let the 'new' airline accept Travel Bank credit, although perhaps not the full value of the credit.

Reset, then rescue

"The Voluntary Administration process is a business rescue regime," says Andrew Spring, a partner at insolvency and turnaround specialists Jirsch Sutherland.

"Whilst the holder of the voucher will rank in the process as an unsecured creditor, their engagement with the business as a customer will also factor into the goodwill calculation."

One option for the owners of Virgin Mk II would be to require that holders of Travel Bank credit spend some money in order to use their credit, such as $1 in real money for every $1 redeemed from the Travel Bank.

"This is a technique utilised by Administrators to improve stock turn and maximise cash flow, whilst preserving goodwill," Spring says. "This could be considered for travel vouchers, but it is less likely to be effective in the current restricted travel environment."

In the end, the value of any Travel Bank credit held with Virgin Australia rests with the choices which the administrator, and any potential new owner of the airline, will make in the coming weeks and months.

The honouring of travel vouchers "is at the complete discretion of the Administrator and will be influenced by such considerations as cashflow management, operating constraints and capacity," SV Partners' Micheletto cautions.

Jirsch Sutherland's Spring echoes those remarks. "A Voluntary Administration process provides a lot of flexibility for the business to be restructured, through a compromise proposal with its creditors, the restructure of its operations, or sale of all/or part of its business.  The flexibility means that the outcome for voucher holders is not certain."

What if Virgin Australia is wound up?

If Virgin Australia's administrator can't see a path forward, or fails to find an investor and new ownership for the airline, it would move into wholesale liquidation, selling its remaining assets – from any fully-owned aircraft to the Velocity rewards program – to pay off as many creditors as possible.

Unfortunately, while anyone holding a Travel Bank voucher would automatically become a creditor, they'll find themselves standing at the back of a very long line – behind banks and bondholders, the companies which leased Virgin Australia many of its aircraft, and outstanding staff-owed entitlements (such as salary, leave and superannuation)– as an ‘unsecured creditor’.

In this scenario, with Virgin holding $5 billion in debt, everyone may receive only cents in the dollar on what they're owed.

Also read: What happens to your frequent flyer points if an airline goes bust?

Research and additional writing by Chris Chamberlin

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.

NZ

13 Aug 2016

Total posts 46

Now that VA is in Administration, could that now be an reason to put an claim into Matercard or Visa for flights thta VA didn't refund.

03 May 2017

Total posts 22

No.

21 Apr 2020

Total posts 1

Interested in the Travel Bank Issue.

wanted to make the point:

We - and i assume many other travellers - have been told not only that out canceled flights ticket money is being held in travel bank. but also that said credit expires in 12 months from the purchase date, and can only be used for one booking.

for us ruling out your suggestion of spending the credit of domestic travel, without forfeiting 1000s

very frustrating.

II also recommend contacting the bank ASAP and requesting a dispute chargeback. Good Luck.

NZ

13 Aug 2016

Total posts 46

Ive got an $1000NZD issued for an AKL-DPS return flight, that was meant to be next week (even though VA cancelled the flights - and couldn't offer the alternatives) they refused an refund an only could provide an TravelBank credit.....

Its hard when VA is likely to never to return to New Zealand, so how we're we even meant to use them in the first place?

AV
AV

Virgin Australia - Velocity Rewards

16 Apr 2013

Total posts 43

I rang VA the minute they opened this morning at 7am to cancel a points booked for 3 pax travelling MEL-LHR-MEL return in July.

They answered my call my call 3 hours and 17 minutes later. The agent was lovely, processed by cancellation, said the 500k points should be back in my account this week and the $2100 taxes will go straight back onto my AMEX card.

16 Jan 2018

Total posts 90

I think because it's Velocity and not Virgin that they've done that. I had my points Travel booking for August to Europe cancelled this morning and points refunded without question. No cancellation fee charges either.

Virgin Australia - Velocity Rewards

07 Dec 2014

Total posts 151

I had business class tickets to NZ next month. VA obviously cancelled the flight. I followed their process (contact via webform) to get a refund to by Credit Card (which my ticket allowed less fee). Instead, I got a travel credit.

Obviously small bickies in the scheme of things ... but does not rub off well on their brand - no doubt they have other things to worry about now, like if they have a company left after all of this.

Virgin Australia - Velocity Rewards

11 May 2016

Total posts 3

After the passing of our mother in NZ I booked my younger brother from Wgtn - Canberra return in Premium X for March 2020 - 16 April 2020. Overtaken by events of lock down first in NZ and then here in Aussie, his travel was cancelled. I paid in the main with my credit card and also used a few points for upgrade (they were returned to my account). I am a platinum member (not that this matters) but now I find my brother holds the travel credit (not me) and he now is unable to travel at all due to his work restrictions. How best may I get this sorted? Any advice most welcome

Virgin Australia - Velocity Rewards

30 Oct 2015

Total posts 50

Any suggestions on flights that couldn't be cancelled or refunded booked through Virgin Australia Holidays? Couldn't even contact Virgin just got error messages for days.

22 Apr 2020

Total posts 2

I know its a bad time for the workers but just wondering what happens if your still waiting for your travel credits to be credited its almost $7k its been over 4 weeks since i requested it

28 Apr 2020

Total posts 1

I just logged into my travel bank account and it shows I no longer have any credits. Not looking good...

22 Apr 2020

Total posts 2

Not looking good just a waiting game.


Hi Guest, join in the discussion on Virgin Australia administration: what happens to travel bank credit?