Bain Capital: Virgin Australia needs to regain "Virgin Blue fun"

Boston-based Bain Capital is pushing ahead with a "second-round proposal" to take control of Virgin Australia.

By David Flynn, May 24 2020
Bain Capital: Virgin Australia needs to regain

Private equity firm Bain Capital would bring back some of the Virgin Blue vibe to Virgin Australia if its bid to take over the failed airline is successful.

“We want to bring back the best parts of the Virgin Blue culture and make flying fun again," says a Sydney-based Managing Director of Bain Capital Mike Murphy, who is leading the US company's bid team.

Bain is one of the four firms shortlisted by Virgin Australia administrator Deloitte, alongside the "Team Australia" consortium of BGH Capital and Australian­Super, Arizona-based airline investor and LCC champion Indigo Partners, and former Branson partner in New York-based Cyrus Capital Partners.

Bain has confirmed it is preparing "a second-round proposal to become the owner and operator of Virgin Australia", with a heavy-hitting team of specialists and advisors including former Jetstar CEO Jayne Hrdlicka, who was once tipped as a future CEO of Qantas and could potentially become the new CEO of the new Virgin Australia.

“We have the strength to rebuild an airline which Australians can be confident in - an airline which will meet their needs," Murphy said in a statement issued to media as Bain strutted both its credentials and its commitment in the high-stakes takeover.

Bain's Virgin 2.0 "will be an airline for all Australians, with Australian management and staff, funded by significant Australian money, and Bain Capital, which has been investing in Australia for more than 20 years."

“We have the depth of experience to help steer Virgin Australia through this turbulence so that together with the staff, Australia can have a safe, financially strong airline which serves the interests of all Australians and meets the needs of the hundreds of thousands of Australians who work in the tourism industry."

“And we have the strongest capital base of any of the bidders. We know aviation isn’t going to return to normal any time soon, but Bain Capital is here for the long haul with deep funding to navigate these difficult times."

"Under our ownership, Virgin Australia will have a sustainable, long-term future," Murphy concluded.

The shape of that future remains to be seen, following media reports last week that Virgin CEO Paul Scurrah has presented to all four finalists a model in which Virgin would retract to a domestic airline flying only Boeing 737s with a focus "on high-demand, lucrative routes, while international services and low-cost carrier Tigerair would be 'optional extras'."

Deloitte is said to have previously circulated a Virgin management plan which would see a fleet of eight Boeing 787 Dreamliners replace the airline's six Airbus A330s and five Boeing 777-300ERs as its sold long-range jets

Read more: Virgin Australia wants Boeing 787 Dreamliners for Virgin 2.0

Most of Virgin's bidders are said to favour a domestic-only model, which is also the most realistic for the short-term given the impacts of the coronavirus. However, this still leaves room for Virgin 2.0 to continue as a full-service challenger to Qantas, be recast as a low-cost carrier or take a middle-ground 'hybrid' position in the market.

Executive Traveller put those questions to Bain Capital, along with the fate of the Airbus A330s even on domestic-only routes, however a spokesman for the company declined to comment.

A spokesperson for Deloitte told Executive Traveller "as the bidding process continues, the future operations of the airline will be determined by its new owner."

Deloitte is expected to trim the shortlist to an even shorter list in early June after reviewing each bidder's second-round pitch, with two consortia – which may include Sir Richard Branson's Virgin Group and the Queensland Government – presenting a "firm and binding offer" for the airline by  June 12.

Lead administrator Vaughan Strawbridge had said he is "confident that our target of achieving a sale by the end of June is achievable."

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.

Qantas - Qantas Frequent Flyer

20 Mar 2012

Total posts 225

nicely rounded pitch imo

Qantas - Qantas Frequent Flyer

02 Jan 2015

Total posts 59

I do hope that whoever succeeds does workout a way that makes it financially viable to keep those 8 Business class seats at the front of the 737. If anything to keep Qantas in check with fares.

23 Oct 2014

Total posts 181

I'd suggest the opposite. The PRIMARY reason with daylight to a second reason Virgin keeps the 8 Business seats should be for the benefit of ITS loyal customers rather than been seen as a benefit lower prices and keep Qantas in check for the benefit of Qantas passengers.

I like to see, pricing rise slightly closer to Qantas, and with its much lower cost base ex administration, larger profits for the airline to

- provide income for new shareholders

- allow VA to re invest capital to keep way ahead of the curve and lead the hard and soft product on domestic in Australia. For example like introducing Virgin America curb side check in. Virgin style.

This would allow the airline to roll out more generous perks for all tiers of Velocity, maybe create a “double platinum or black” tier.

Lay on perks thick for loyal members like maybe for example every X amount of business travel, Y amount of Virgin Wine- vino or spirits delivered direct to the MEMBERS front door, there are many many other things that could be done, and the benefit of a strong leading J class Virgin domestic airline should flow to the loyal supporting Velocity members.

Virgin - we are here, if you get this right there are huge gains to make

25 May 2020

Total posts 2

How exactly will they be able to have a 'low cost base' while doing things like sending out alcohol to customers? You're proposing something they have just experimented with for the last ten years. The strategy failed.

24 May 2020

Total posts 3

They shouldn't be is the answer. Most people are happy with good clean service with a smile. Rather than relying on the crazy previous Hodge-podge of what route I'm on, is it a capital city flight, at 'special times' with the right ticket so that I may or may not be paying for alcohol or even worse getting free alcohol but paying for soft-drink/coffee... make it easy. Follow JetBlue. You get water, reasonable coffee, and/or small soft-drink. Maybe you get a small pretzels... but pref not. Anything more you pay. You want alcohol, you pay, you want more food you pay. Most people can do 1-2-3hr trip without food. No alcohol, I'll have a soft drink please... its only crap when you need to pay for everything. I'd expect most regulars would be use to it and know to have an alcoholic drink in lounge if they really need one. Keep the lounge clean and simple, simple sandwich station/soup for 'meals', simple cereals/fruit/toast/coffee for breakfast. Decrease the selection of beers, spirits, wines... 1-2 of each is fine. Get rid of the Chairman's lounge. The issue is Borgetti was trying to copy Qantas, but Qantas is 80years ahead and has already 'bribed' the big bosses/politicians/hoi poi with Chairman's passes or free business lounge etc... don't compete... go for the middle manager.

02 Dec 2016

Total posts 93

Wasn't this what VA were doing already? Also - never seen spirits in the lounge (or did you mean on board?)

23 Oct 2014

Total posts 181

I'm proposing thinking outside what they have done, companies pay fares, Mainers get points and perks for eg - Wine etc. I'm not saying that's the answer but the answer is rewarding the people who fly Virgin.

30 Apr 2020

Total posts 14

The reference to 'Virgin Blue' smells of LCC to emerge from administration. It's probably the only viable option considering the state of the aviation market. To think it will be returning as a full service carrier as some expect or hope is delusional.

Joe
Joe

03 May 2013

Total posts 479

They wont ever be able to compete with Qantas....maybe Jetstar but never Qantas.

Qantas - Qantas Frequent Flyer

07 Aug 2013

Total posts 152

Ah pretty sure VA over last decade took business market and increased the no. of passengers on their airline especially after move from a LCC. So to me they did compete and win a sizeable portion of the market for their business. They may be in administration but it's not a result of them not being able to compete with Qantas.

Qantas - Qantas Frequent Flyer

12 Jun 2011

Total posts 142

But that's exactly what it is. They couldn't out compete Qantas for revenue/profits no matter how much money their shareholders kept dumping into them. They ran out of cash, all while QF have plenty on hand. I'd say they got out-competed

Qantas - Qantas Frequent Flyer

07 Aug 2013

Total posts 152

@tmsmile - So could Qantas not out compete with virgin years ago when they were losing hundreds of millions? - your theory suggests that's the case that when one airline loses profit it's because they couldn't compete with the other. It comes down to bad business management and much needs to change within VA as it did with QF - they cut costs, new deals, changes to staff strategy lowering full time workers, moving to contractor workforce, selling off catering business and fuel hedging which worked wonders for them - although it will be a different story for QF over next few years to come. For Virgin they can remain somewhat of the same airline however they need to remove and reduce bad business company wide - VA isn't in its current situation because they spent too much to introduce a premium service to compete with Qantas..they made bad business deals and business strategy which failed - look at how many corporate and behind the scene jobs they were set to axe before it was in admin, believe in the range of thousand+ - all this happened coupled with their mixed bag of major shareholders all of which are airlines struggling now who can't inject more cash into VA when they have their own to worry about.

Qantas - Qantas Frequent Flyer

12 Jun 2011

Total posts 142

Correct, Qantas didn't compete. They did a lot to restructure their business so that it was profitable. Thats why their costs have shrunk while VA's has skyrocketed.

Is VA to remain the same or restructure? Did they hire and add cost onto their business to introduce business class or not? Get your arguments straight.

VA had an opportunity to introduce a domestic business service that was competitive with QF. But they needed to introduce it on a single aircraft type, with low costs bases and without lavish spending. Instead they blew costs out by grabbing ai craft types unnecessarily (ATRs, Ejets, A330s). They didn't have a coherent international business strategy (Abu Dhabi, Johannesburg, Hong Kong, Tokyo etc). They increased costs for economy without offering anything of substance (lindt chocolates as your snack anyone?). They spend huge sums of money opening lounges. then gave thousands easy airline status (FlyBuys promos, Pilot Gold, Status Matches). They sold Velocity for much needed cash, then spent huge sums buying it back.

VA is literally a case in one poor business decision after another. And it all stems from its rebrand as VA. NZ tried to change things and saw it coming. Luxon was right to try to get Borghetti removed.

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 213

@tm_smile Luxon knew he was the third wheel in the dysfunctional VA boardroom.

JB was best mates with Hogan (EY), who was another spender as well as the SQ rep at the time. Chances of Luxon's attempt to overthrow JB was already pretty much very low.

23 Aug 2016

Total posts 13

Whichever of the 4 parties (or wildcard) is left standing, the business model will veer towards the 'no frills' option. Which I guess matters not, except lounges probably won't be part of the equation. Without lounges, my flying days evaporate; 50 flights p.a. will become 2. An era ends.

Qantas - Qantas Frequent Flyer

28 Jul 2011

Total posts 40

You're saying that you will drop 48 flights p.a. because you can't go to a lounge?

23 Aug 2016

Total posts 13

Basically CBR. I (self-funded) travel for pleasure. No lounge, no row 3, no deep advance and sale purchases to keep costs down - pleasure evaporates. Annual CBR-CNS, that's it. (maybe MEL-AUK as well). Commuting devolves to buses and trains to CBR, MEL SYD. Diamond Accor now attainable though. New world if above has gone. Apologies if this offends.

QF

11 Jul 2014

Total posts 454

There a lot here to consider, I can't see a LCC working in VA 2.0 it will burn quickly. The Australian market wants lounges, perks, loyalty points, seats upfront, business class and you should always attack the market leader which is Qantas and offer a better option. Compare it to Telstra / Optus or Coca Cola / Pepsi. Get the product wrong and the Australian market will make you pay, also after the 60 Billion Dollar error the government better get this right with no more errors from the Nationals leader. They can't afford a 2nd black mark.

25 May 2020

Total posts 2

In their first ten years, they were one of the most profitable airlines in the world. The second decade they were far from that. The main difference - they were LCC for the first, and lounge and perk providing Qantas 2.0 for the second..

24 May 2020

Total posts 3

Well that and the fact that Qantas pushed a capacity war and VA stood up to them... not sure that did either airline any good, but did make Qantas back-off. If that hadn't happened I wonder if things would be different. The point is the money has been spent and they are at a different 'level' from LCC... why throw that away? Use the administration time to clean up bank-sheet, tidy aircraft use, tighten routing, stop international, improve the EBA, ditch the 'Chairman's lounge, fire half te top heavy management and emerge 'less loaded'! After having built up so many middle manger and non-flashy business types, why throw it away going LCC?

02 Dec 2016

Total posts 93

Well don't forget the debt they took on to pay for lounges, new uniforms, new a/c (from 737s to 777, A333s, ATRs, EMBs), new logo etc. Borghetti burnt cash where it wasn't needed (although the 777s were pre him if I remember correctly).

02 Dec 2016

Total posts 93

We have QF as a full service carrier with strong FF program, domestic network, and decent international network. All plugged into One World. Then there is JQ, providing cheaper, simpler fares, but extending some FF perks like lounge access where applicable.

VA are wedged. Do they do a mid model ie JetBlue or an ultra low cost. Ultra low cost will kill them... Tiger has not generated any growth. Additionally, not having an international network will hurt them from a Velocity FF redemption point of view (don't just think flights, think revenue from credit cards, retail partners etc).

My thoughts;

Keep current model. Focus on simplicity. Your fare gets you a seat, a bag, some flexibility (with cost), a drink/snack, and points. Build value into the fares and target JQ passengers.

Focus hard on your tiered FFs. Simple things, often for free matter. Use them to bring more across to VA from QF/JQ. Take the DL approach where it's about helping customers, not enforcing rules.

737s for domestic and short haul international. Delay/cancel the Max's, and work the current fleet utilisation up. No A320s, no F100s. Maybe keep the ATRs for core routes (?)

Kill Tiger Air

Keep LAX and HND. Consolidate A330s and 777s on the 787s (although I personally prefer the A350s). But slowly re-build. Remove the A330s from day 1.

Rebuild the relationship with Air NZ (both CEOs are gone). Air NZ need a partner like VA more now too, so they can maintain coverage, but consolidate and share (ie dont run two flights from OOL to AKL within an hour of each other). QF is a big threat to Air NZ. They'll be looking to move capacity and trans tasman is got to be on their radar.

For partnerships, focus on DL, SQ and NZ.

Additionally, I'd be focusing hard on non flight revenue. Expanding revenue from partners and alternate channels. QF has a a strong position here (wine, insurance, credit cards etc). So VA needs to lock all this down before QF expands. Core to this is a sold redemption program option, and they can incentivise here

Restructure the debt hard. Any buyer has leverage. Something is better than nothing and as for lessors, where are they going to put that a/c?

Spin up crew bases in other cities to reduce overnight costs, and work to avoid overnighters in generl

Consolidate head office and stay in Brisbane. Avoid move costs and get support from the QLD Govt.

Virgin Australia - Velocity Rewards

13 Apr 2018

Total posts 2

I completely agree. If they go full LCC and/or don't have solid FF benefits and alliance partners with reciprocal status then corp travelers will ditch them and go to QF. The big "needs" for a road warrior are lounge access, priority seating and check in and getting the same when connecting internationally. My experience is that with the exception of OOL and some smaller tourist destinations a large proportion of seats were corporate travellers - I surmise they still need them to be viable. No one I employ flies Tiger or JQ. We flew VA because they had a reliable, reasonably priced, good frequency quality offer and they offered better value than QF - I had happy staff and and happy bean counters. The shine went off a bit when the NZ alliance crumbled but if they got that back I can only see benefits for both airlines.

They should also only focus on routes where they can make jets work, leave the propeller routes to an operator who can make them viable, maybe they should lock REX into their alliances also - they clearly want a bigger piece of the pie......

Virgin Australia - Velocity Rewards

13 Jan 2015

Total posts 593

Bain's Virgin 2.0 "will be an airline for all Australians, with Australian management and staff, funded by significant Australian money, and Bain Capital, which has been investing in Australia for more than 20 years."

 

but with call centre staff located in the Philippines with bad english and generic responses to any query

08 Feb 2018

Total posts 87

why would they send australian staff to the phillipines to work?

24 May 2020

Total posts 3

Absolutely not! Do this and you've just wasted all these years, billions of dollars, and administration for nothing! All that pain has brought VA to this point... don't squander it. Yes go back to 737 only and domestic. Maybe keep LA routes as they seemed to work as a separate venture. Tie up with as many international airlines as possible... quality ones... keep Delta, keep Singapore, keep Etihad even! Get rid of those crap (where the hell is that?) Chinese airlines. The quality majors need a feeder/domestic airline and VA needs feed. Be a "New World" carrier... don't go LCC, don't even go Virgin Blue... should be aiming to go JetBlue. Lounge - clean, no fuss, good quality basics. No need for 'chairman' lounge... they're not coming anyway... Qantas has that sown up with what they lavish on the Super Execs... keep the 'Middle Execs' happy. Keep 'Business seats', get something better... the current ones are crap, but no need to charge full business fares... do you really need 3 options for lunch and dinner Melb-Syd... half the time they weren't available anyway, or it was the same meal as a month earlier. Something smaller, something cheaper, something classier. The airline should go JetBlue. If you go LCC or Virgin Blue, if you get rid of lounges, if you get rid of the front seat... then you lose people like me... 2 or so Aussie return business trips a month, 2-3 international Euro/US trips a year... economy local, business international. You lose me, who will pay a couple of hundred more to fly VA to LA (even with Syd/Bris stopover), rather than some Chinese or American brand or ANZ I want to arrive, go into a lounge 15-20min before boarding, get a coffee, maybe a biscuit, quick read of email... board on time, fly for 2 hours, check email or read onboard, drink of Coke or something, arrive, collect my gold/platinum bags first and get going. I don't need a meal, or a single finger sandwich, or a packet of chips. I don't want the BS at Qantas, keep it classy. Lose this and you're left with the same people flying Jetstar at a higher cost base, lower (lost) loyalty and all that effort squandered.

25 May 2020

Total posts 1

VA needs to stay full service. The Virgin brand is great, and I think it should stay, it just needs to be tweaked. But, they are right when they say they've lost the “fun”. Virgin America and Virgin Atlantic were/are fun airlines. VA's staff are great, so utilise that. Make it different to Qantas (which takes itself so seriously). Dial up the mood lighting and create a Virgin experience. Bring the glamour of the Virgin brand. Streamline the fleet - 737's for domestic, 787s or A350s for international, Embraers or Fokkers for regional. Keep key partnerships with good, reputable airlines - Delta (For US), Singapore Airlines (for Asia), and Virgin Atlantic (for Europe). Stop trying to be Qantas, and provide a real alternative to Qantas. Keep business class (and make it fun), premium economy and economy classes.

Etihad - Etihad Guest

20 Jul 2019

Total posts 2

VA 2.0 could even be more aligned to Virgin Atlantic, with more similar offerings...

Qantas - Qantas Frequent Flyer

20 Mar 2012

Total posts 225

agree strongly with something in this direction virgin america carved out a niche but valuable market with this kind of approach (although it took a while). can see a delta-like variable service based on fare system working best.

20 May 2020

Total posts 3

I just can't see how a "full service" V2 will fare any better than Ansett or VA or an LCC V2 survive against Jetstar.

QF

11 Jul 2014

Total posts 454

Virgins blunders weren't in the marketing putting it up against Qantas, the blunders were in the financial department paying to much for planes, fuel hedging etc along with the shareholders and no one has mentioned the boards errors.

08 May 2020

Total posts 41

Hi Joe I may fly with Qantas every 2 or 3 years to remind me not too. Every time I wait 1/2 hour to get my checked Luggage from the Carousel as the Bus Class and Qantas Gold Class members are getting it within 5-10 minutes. It does not happen at Virgin as they treat all Customers with the same respect.

25 May 2020

Total posts 2

AvGeek has the right idea. Virgin were trying to compete with Qantas a full service airline and at the same time competing with Jetstar a basic LCC and never succeeded in competiting with either. Lots of money wasted on a race to the bottom as evidenced by continuing losses over years. The new board needs to be proactive and for a start replace the whole upper management group. If this does not happen then V2 will go the same way. AvGeeks ideas have merit and need to be listened to by whoever takes over.

25 May 2020

Total posts 2

Lers look at the facts. Whoever takes over Virgin will make drastic changes. If they are smart they will go for only one aircraft the 737 for domestic services. Cost effective immediately. They should keep business and lounges but keep it like AvGeek suggests. The only international route is to the USA with the 777 but run as a separate operation. Whoever takes over will need to think outside the box and provide a service Australians will accept. American and European ideas will not necessarily work in Australia.

Virgin Australia - Velocity Rewards

16 Apr 2016

Total posts 13

Yes make flying VA fun again, I've been a Velocity Pt for 7+ years and experienced the E-jets and the original A330 ex Emirates. The crew were more fun then, even in J on the A330. Perhaps the service became too polished to differentiate in the Aussie market. Please keep wide body aircraft and lounges on the East-West run or you'll be forcing me to the red rat. VA just grew too fast even the E-jets were, I'm told, a result of no availability of B737. As a model for food and beverage I liked the Virgin America model with either included or paid for extras ordered online on board. The no name "snacks" on short haul VA resorted to I most times refused.

Virgin Australia - Velocity Rewards

23 Mar 2015

Total posts 44

Do read up on Bain Capital - not that recent but still relevant. https://www.rollingstone.com/politics/politics-news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-183291/

They amongst other destroyed Toys R Us and are notorious for stripping out capital,, saddling companies with debt and caring nothing for employees. Virgin beware!

27 May 2020

Total posts 1

I am concerned at the term, 'fun'. I once flew Virgin Blue when the theme was 'fun' and the whole experience was disastrous. I believe this translated to onboard antics which is intended to amuse the passengers. The cabin crew member on my fight kept referring to the aircraft as, 'the good ship lollypop' over the intercom as if we were all five years old. Then she told an elderly couple they could not board the flight because ' we aren't carrying passengers named Smith today'. This caused them distress and a passenger had to intervene to explain that this was meant as a 'joke'. The overall effect was that we were on an amateur airline. To top it off we were treated to loud, horrible pop music for much of the flight. I mentioned this to a friend who told me that on a recent business flight to Sydney with Virgin Blue. As they landed the crew announced, 'welcome to Canberra.' which provoked a brief jolt of panic. Not funny. I flew only with QANTAS after that.

I recently flew with Virgin Australia, without the nonsense, and I was most impressed. Keep it professional.

Qantas - Qantas Frequent Flyer

07 Aug 2013

Total posts 152

Best you avoid southwest airlines if ever flying in USA. I know what you mean about those old Virgin Blue days but that was their business aim - making flying fun and light hearted with humour as well as keeping the air fare. I recall their advertisement for bottom of the barrell fares in South Australia...didn't go down too well...those few will remember why!


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