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Shock and questions surround fate of domestic aviation in Australia

April 22, 2020 Headline News No Comments

Virgin Australia entered external administration yesterday, sending shockwaves through an industry already reeling from the effects of the Covid-19 pandemic on travel and tourism, and raising the spectre of a monopoly that could see Australia possessing just one major domestic airline.

Virgin Australia faces huge debts and the administration leaves in the balance the fates of about 10,000 staff and 6000 contractors who work for the airline – plus an estimated 4000 suppliers and customers who have bought tickets worth more than AUD 1 billion.

The government made clear yesterday it has no appetite for bailing out, nationalising and running an airline – though industry bodies are pleading for some sort of intervention.

Shares in Virgin Australia are reportedly held by Abu Dhabi-based Etihad Airways (20.94% stake), Singapore Airlines (20.09%), Nanshan Group (a Chinese conglomerate, 19.98%), HNA Group (a Chinese group involved in aviation, 19.82%) and Richard Branson’s Virgin Group (10.42%).

That works out to 91.25 per cent. The remaining 8.75 per cent is owned by smaller shareholders – who may include Australians.

Virgin Australia’s administrators, accounting firm Deloitte, were reported yesterday to be aiming for a “deed of company arrangement”, or DOCA, which would allow an exit from administration, with the company being handed back to directors.

Virgin Australia Tasman service

It’s all up in the air. With airlines around the world largely grounded and losing huge sums of money, where will a white knight come from to take over Virgin Australia and keep it running? A lot of people are keen to find out.

The Australian Tourism Export Council (ATEC) yesterday said the loss of Virgin Australia could have “catastrophic” flow-on effects.

ATEC said that Australia needed a “diverse, competitive and sustainable airline environment” in order to return tourism to its successful place in the Australian economy.

As ATEC managing director Peter Shelley put it: “The entire tourism industry has ground to a halt and that’s affected close to 1 million industry jobs across Australia, many in regional communities.

“While international visitor arrivals are some time away, the industry is holding its breath and waiting for the day Australian’s can start to travel domestically. Without affordable and accessible domestic air routes tourism’s hopes for recovery will be bleak.

“Domestic and international tourism combined delivered AUD 146 billion to the economy last year and the loss of one of our major airlines will have catastrophic flow-on impacts that will ultimately also see our international capacity damaged.

“After bushfires, floods and a pandemic, Australian tourism needs a break. To be hit with another huge setback will severely impact the industry’s road to recovery, especially for regional Australia where air access is the lifeblood of the tourism industry.”

Tourism Accommodation Australia warned that the loss of one of Australia’s two national airlines would be a disaster for an already struggling hotel accommodation sector – particularly in regional areas.

Chief executive of the nation’s top tourism accommodation body, Michael Johnson, said domestic tourism would be the quickest road to recovery post Covid-19 and the two national airlines would be needed.

“Initially, as we eventually move out of the Covid-19 crisis, the hotel sector will be heavily reliant on domestic tourism, with international borders expected to be closed for many months,” Johnson said.

“There are very real fears an airline monopoly would take away the competitive edge needed to ensure corporate, conference and leisure guests are well catered for in our key recovery markets.

“Accommodation hotels in regional destinations in particular such as Cairns are heavily reliant on both Virgin and Qantas and the existing competition between both. The last thing they need is for a national carrier to collapse.

“All accommodation hotels have been hard hit by the impacts of COVID-19 with in excess of 300 closing across Australia in the last few weeks alone.

Virgin Australia A330-200

“We need to do all we can to ensure we don’t take another hit with a loss of a national airline like Virgin.”

Transport Workers’ Union (TWU) national secretary Michael Kaine said it was imperative that the Federal Government develop a plan to approach administrators with – and that the future of Virgin workers had to be central to that plan.

“We urge the Federal Government to sit down with the trade unions representing the 16,000 Virgin workers to work out a plan to go before administrators. The future of these workers and the options available to the travelling public are the biggest issues facing the Government now that Virgin has entered voluntary administration. Unions stand ready to work with the Government on helping to devise a solution on Virgin’s future to ensure good jobs, a decent reliable service for the public and a return for taxpayers,” Kaine said.

Notice from Virgin Australia issued yesterday

“There is still time to rescue Virgin and for the Federal Government to take a bold move to ensure that the Australian economy is ready to bounce back when the crisis abates. Governments around the world are taking the difficult decisions to protect their economy and jobs and we urge the Australian Government to follow suit,” he added.

The TWU said Virgin confirmed to workers that their entitlements such as leave would be preserved. Virgin workers would continue to receive JobKeeper payment while the company remained in voluntary administration.

The Government faces a potential entitlements and redundancy bill of AUD 800 million if it allows Virgin to collapse, the TWU noted.

Edited by Peter Needham

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