Virgin Australia’s administrators will issue ‘conditional credits’ to customers on cancelled flights in place of cash refunds or regular travel bank vouchers, but can't guarantee they would be honoured by the airline’s new owners.
The credits will also have a strict use-by date: they'd be valid only while Virgin Australia remains in administration.
It would be at the discretion of any new owner of Virgin Mk II as to whether any outstanding conditional credits would remain valid.
Lead administrator Vaughan Strawbridge of Deloitte says that these credits are all about preserving “as much goodwill associated with the Virgin brand and business as possible for a buyer.”
They may also help conserve the airline's all-important cash reserves, as Virgin is “experiencing an increasing number of (credit card) chargebacks” as would-be passengers on cancelled flights are now resorting to their credit card company's refund mechanism instead of relying on the airline.
Earlier this month, Virgin Australia temporarily paused the issuing of most new refunds and travel credits as part of the administration process, leaving chargebacks as a last-resort for frustrated customers.
Virgin has received about 340,000 requests for refunds after cancelling 65,000 flights between March 1 and April 30 due to the spreading coronavirus pandemic.
Deloitte's scheme, approved on May 13 by the Federal Court, will apply to customers who booked cancelled flights prior to Virgin Australia entering administration on April 21 2020.
Full refunds and conventional travel credits remain available to eligible passengers who made flight bookings since the administration period began.
Conditional credits are better than nothing, administrators say
Giving customers conditional credits in response to cancelled flights would give people a chance to get their money's worth of travel: for instance, using a $200 credit to make a new $200 flight booking.
The alternative – having customers register as ‘unsecured creditors’ of the company – wouldn’t be as rewarding, Strawbridge believes.
“In the event the Virgin Companies were to proceed into liquidation, based on the Administrators’ work undertaken to date and our understanding of the Virgin Companies’ financial position, such creditors are unlikely to be made whole,” he says.
“The Conditional Credit scheme offers those customers the possibility of realising 100% of the value of their refund by using the credit on a future flight,” Strawbridge adds.
If a conditional credit can't be used by the customer, it's believed they'd be no worse off than had a credit not been issued at all.
“The customer will remain an unsecured creditor in those circumstances and will retain whatever general law or statutory rights they currently hold,” said Strawbridge.
How conditional credits could be used
Passengers issued with conditional credits would be able to apply them towards an Australian domestic itinerary operated by Virgin Australia or Virgin Australia Regional Airlines.
International flights, and codeshare flights operated by other airlines, would not be eligible for redemption using conditional credits.
Those who originally booked via a travel agent would need to make their new booking via that same agent, but could only make one booking per credit.
On the other hand, passengers who booked their flights directly with Virgin Australia would instead be able to stretch one conditional credit across multiple bookings, if the full value of the credit isn't spent the first time around.
Deloitte prepares Virgin Australia for sale
Strawbridge reports that 19 prospective buyers of Virgin Australia have been granted unfettered access to the airline's books and are expected to lodge their first offers by this coming Friday, May 15.
A new name to enter the bidding is the parent company of Indian airline IndiGo, which if successful could take Virgin Australia back to its low-cost roots: charging a base price for the seat only and with everything else a paid add-on.
However, a plan by rival Regional Express to offer flights on key domestic routes may dampen offers for Virgin Australia as domestic competition increases, which will almost certainly put downward pressure on airfare prices and profits.
Regional Express, which was born out of the demise of Ansett nearly two decades ago, is proposing to lease a new fleet of aircraft and compete on major business routes such as between Sydney, Melbourne, Brisbane, Adelaide and Perth.