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Virgin’s crash landing could be exactly what Australia needs

By Grace Ormsby

April 24 2020
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Virgin’s crash landing could be exactly what Australia needs

By Grace Ormsby
April 24 2020

It’s not all doom and gloom for Australian aviation despite Virgin Australia’s woes, an aviation expert has said.

Virgin’s crash landing could be exactly what Australia needs

By Grace Ormsby

April 24 2020
Share

It’s not all doom and gloom for Australian aviation despite Virgin Australia’s woes, an aviation expert has said.

While the fate of Virgin Australia currently rests with administrators, the outcome of the current situation may provide a “glimpse into the future for the global airline sector” and the development of new, more resilient business models, according to UniSA aviation industry academic associate professor Kate Quigley.

“The aviation industry has always been challenging, as there are large costs involved in keeping a fleet of planes in the air, and that often requires a very high level of debt,” she acknowledged.

With the flying of planes the only way companies can make debt repayments, and that being “impossible at the moment”, the associate professor commented that she “wouldn’t be surprised to see some other airlines around the world go the same way as Virgin Australia”.

“However, where one operator drops out, there becomes more space for other operators to work in, and for those companies with clever, innovative ideas, there is a really exciting opportunity to reshape the aviation industry for the better going forward.”

And while the Australian government’s reluctance to provide a bailout has been condemned by Virgin’s Sir Richard Branson himself, associate professor Quigley conceded that doing so may have prevented the local aviation industry from adapting to the post-COVID environment, which may have sent the wrong message to other businesses.

“A bailout might have saved jobs in the short term, but Virgin Australia was already struggling before this pandemic, so if the government were to prop up a problematic business model, many other struggling businesses might then expect the same type of support rather than addressing their operational issues,” she explained.

Instead, the academic said there is now a space in the Australian airline industry for an innovative new operator to establish a viable business model that responds to the current situation, and has noted the interest from Australian heavy hitters, including Wesfarmers and Macquarie Group.

“Whether that is a reborn version of Virgin, or a move into the market by one of the many international operators who already had a stake in Virgin, or a new operator entirely, they will be able to structure that business differently than the old Virgin model, adapting to the new marketplace and ensuring competition remains in the Australian industry.”

The competition issue

Associate Professor Quigley has acknowledged the inherent challenges associated with catering to Australia’s domestic airline market and the importance and benefits of competition.

“Without a second airline to compete against Qantas, the risk is obviously that they might start to price gouge, and then the public carries the burden,” she flagged.

“Even before this pandemic, many people felt domestic prices were too high, so they would fly to Bali or Fiji instead of Cairns, and we don’t want to see that worsen.

“But, significantly for whoever fills the Virgin void, Australia may well come out of lockdown before international travel resumes, so more Australians could be exploring Australia than ever before, and the domestic market might see a post-pandemic boom.”

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About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

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