Virgin Australia goes into administration

Virgin Australia's board has appointed Deloitte as voluntary administrators of the company.

By Chris Chamberlin , April 21 2020
Virgin Australia goes into administration

Virgin Australia has formally entered voluntary administration, the airline has confirmed, with Deloitte representatives appointed as administrators.

Both Virgin Australia and "a number of its subsidiaries" form part of the administration process, although Velocity Frequent Flyer is excluded.

"Velocity Frequent Flyer, while owned by the Group, is a separate company and is not in administration," Virgin Australia confirmed in a statement to the ASX.

Virgin Australia will continue to operate its scheduled domestic and international flights, and its current management team will work with administrators, employees, suppliers and partners throughout the process.

Vaughan Strawbridge, one of the company's appointed administrators working for Deloitte, said that "our intention is to undertake a process to restructure and re-finance the business and bring it out of administration as soon as possible."

"We are committed to working with Paul and the Virgin Australia team and are progressing well on some immediate steps," Strawbridge adds.

Virgin Australia Group Chief Executive Officer, Paul Scurrah, adds: "our decision today is about securing the future of the Virgin Australia Group and emerging on the other side of the COVID-19 crisis."

As reported last night by Executive Traveller, the Velocity Frequent Flyer program has suspended the ability to exchange Velocity points for merchandise, such as through the Velocity Reward Store, the Velocity Wine Store, and previously, via online retailer Onsport.

As of April 21 2020, the program has also now suspended all uses of points – including on flights – for at least the next four weeks.

Read: Virgin Australia freezes Velocity frequent flyer points

PREVIOUS [April 20 2020] | Virgin Australia is set to enter voluntary administration, The Australian Financial Review reports, casting doubt over the company’s 10,000-strong workforce and the future of the country’s second-largest domestic airline.

Virgin had been seeking a $1.4b loan from the federal government – or failing that, other methods of financial assistance – but beyond the government underwriting a ‘minimum domestic network’ on a break-even basis, these requests were ultimately declined.

Read: Qantas, Virgin restart flights with $165m gov’t subsidy

ABC News shared on air that Deloitte is set to be appointed administrator to Virgin Australia, and that Virgin Australia’s board are meeting in the evening of Monday April 20 to discuss the future of the airline, which may see it enter voluntary administration this week.

Virgin Australia CEO Paul Scurrah had previously flagged the possibility of turning the company over to administrators if financial assistance didn’t come its way – either from the Australian government or the company’s major shareholders in Etihad Airways, HNA Group, Nanshan, Singapore Airlines, and Virgin Group.

It’s expected that Virgin Australia flights would continue as scheduled while any administration process is underway.

Virgin Australia halted trading of its shares on the ASX on April 14, before suspending them from official ASX quotation from April 16 for up to seven days. As of April 20, its shares remained suspended.

Impacts on Velocity Frequent Flyer

Frequent flyer points held in the airline’s Velocity Frequent Flyer program are believed to be secure, with the airline confirming last week that “Velocity is set up in a way that safeguards member value by having a trustee that looks after the interests of members.”

However, the ability to use frequent flyer points on flights has been severely curtailed for the time being, while other redemption options such as online shopping have either been suspended or are currently unavailable.

As of Monday evening, the Velocity Wine Store – at which members can exchange their frequent flyer points for wine, beer and spirits – ceased taking new orders, including purchases paid for using money, “as we work our way through an unprecedented number of existing orders.”

“We are working towards having our website and telephone order lines open again very soon,” a message on the website reads.

The Velocity Reward Store, where members can swap their points for other merchandise such as gift cards and kitchen appliances, had crashed at the time of writing, returning “502 Bad Gateway” errors when attempting to browse: an error message that can commonly occur when a website is facing extremely high demand.

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

Last week, online retailer Onsport also blocked the ability to spend Velocity points on purchases, and advised that any orders placed on or before April 17 that had been paid for using Velocity points may be held for up to 28 days before being shipped.

“As a result of COVID-19, we've recently experienced a significant increase in the number of orders paid for via the redemption of Velocity Points within the Onsport cart,” the company confirms.

“Consequently, we have temporarily suspended Velocity Points redemption as a payment option,” although the company notes that customer demand remains high in general, particularly as gyms around the country remain closed and people look to alternative options, such as home-based workouts.

Velocity members can continue to earn Velocity points from the program’s range of partners, including credit cards, Ola rideshare, Flybuys transfers, and more.

Also read: Private investors circle Virgin Australia for takeover

Chris Chamberlin

Chris Chamberlin is the Associate Editor of Executive Traveller, and lives by the motto that a journey of a thousand miles begins not just with a single step, but also a strong latte, a theatre ticket, and later in the day, a good gin and tonic.

30 Jul 2015

Total posts 122

i wonder if the Administrators will ground the airline immediately or keep flights going until they decide what to do.

30 Aug 2019

Total posts 7

The government is underwriting the current domestic schedule, so I'd say flights would continue.

British Airways - Executive Club

28 Mar 2014

Total posts 75

The article says flights to continue

Rxm
Rxm

Jetstar Airways - Qantas Frequent Flyer

14 Jan 2017

Total posts 44

The situation with velocity points would seem very uncertain despite the usual assurances.

bmc
bmc

Virgin Australia - Velocity Rewards

22 Aug 2013

Total posts 161

Etihad circling according to newspaper articles (The Australian)

Air New Zealand - Airpoints

21 Jan 2016

Total posts 185

Isn't Etihad in the process of restructure their debts so their can return to profitably? Why would they want to buy VA?

06 Feb 2014

Total posts 12

I would suggest that reporting in The Australian probably belongs in the same junk bin as much of what else is published by the Australian these days. Etihad has had huge financial struggles for years now - I'd be very suprised if it comes out the other side of COVID itself.

29 Mar 2017

Total posts 16

The host of "The Business" on ABC tonight have said that they have had it "confirmed" that virgin Velocity Points will be "for nought now"... I presume that she means worth nothing...

Such a sad, sad day. I loved flying Virgin and it made Qantas a better airline too. I'm going to be stuck flying shitty Jetstar now, probably going to be a lot more expensive too.

Qantas - Qantas Frequent Flyer

20 Aug 2014

Total posts 110

I saw the same report but this has clearly not been decided yet. ABC's The Business is normally an Excellent show but they have no cause to be reporting on the fate of Velocity points at this stage.

RIP Compass, RIP Ansett, RIP Virgin

Qantas - Qantas Frequent Flyer

07 Feb 2015

Total posts 147

I'm more of a Qantas/Oneworld flyer in general, but I truly hope Virgin will survive this and come out a better airline. We definitely need two strong airlines domestically to keep the market competitive. Perhaps that's what Virgin can focus on for the next few years by building a smart domestic network.

The first step in making it an airline that can compete within its financial ability .... this is a positive step and I would hope that the Administrators can save as many of the rank and file jobs as possible ... it is not their fault that the management team have been treating shareholder money like candy.

21 Apr 2020

Total posts 3

Why didnt the owners put some more money in? It seems to me that $5Billion debt is pretty incompetent management.

06 Feb 2014

Total posts 12

Because none of them have spare cash lying around perhaps....

- Etihad has been up the creek for a while - I would think a fair chance it won't survive COVID-19 either

-HNA has been in a horrific mess for 12 months now

- Singapore Airlines has needed a huge equity injection from Government to keep it going

- Branson is too busy trying to save Virgin Atlantic

- Don't know about Delta.

Without COVID-19 it may be a different story, and wouldn't suprise me if one of those (in particular Singapore Airlines) may cherrypick the carcass in some form of Virgin Mk II (maybe a 51% Oz owned, 49% foreign owned) sort of situation. But none are in any position to put anything into it at the moment.

No doubt there has been a lot of incompetent management along the line too

09 Apr 2020

Total posts 7

A positive step, if some domestic flying restrictions ease, and people travel, there is a chance to make this work!

10 Apr 2020

Total posts 5

A good solution could be have the goverenments treat Aust/NZ as domestic and allow Air NZ to fly domestically in Aust. They could take up some of the Virgin fleet and would be a decent 2nd carrier.

Think this was proposed back in the mid 90's and the then Fed Government back out at the last minute

06 Feb 2014

Total posts 12

Not a bad shout, but given the NZ Government has pumped in a whole heap of money to allow Air NZ to stay afloat, I'm not sure they'll be too keen for an expansion in the shorter term.

I do like the idea of a Aus/NZ "domestic arrangement' though and think it could deliver good outcomes over time for both countries.

10 Apr 2020

Total posts 5

A bit of forward thinking by both governments in setting up Aust/NZ to be a joint domestic market, would make the case for Air NZ getting a private backer much more attractive in this type of scenario. Win Win for all

Virgin Australia - Velocity Rewards

30 Aug 2018

Total posts 9

I suspect there is very little appetite over at Air NZ to setup any Australian domestic operation, the optics won't be good next time there is a financial crisis requiring support from their government.

21 Apr 2020

Total posts 3

I have no doubt VA will reappear in Australia under new owners. Administration allows them to jettison the financial baggage of current owners and operate under a new financial structure with new owners.

No it doesn't - there is no automatic change at all. The administrators take control of the airline, this is not (yet) an insolvency. If the administrators feel that even with restructuring the airline they cannot trade their way out of the debt then they will take an approach with creditors that will focus on what each creditor will get if the airline completely fails.

21 Apr 2020

Total posts 3

Sorry mitchsydney i left something out. What i meant to say is that the administrators will sell the airline for whoever offers the most $. Be interesting to see how they handle Velocity as a part of a sale. i.e. what value does it have if there is no airline and vice versa. I wonder how much of the owners money is loans as compared to equity.

All true.

Singapore Airlines - KrisFlyer

21 Apr 2020

Total posts 2

I hope Virgin pull through this. We need both the competition and the capacity.


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