The rise, fall, and rebirth of Virgin Australia
With the aim of tackling Australia’s low-cost market, Virgin Australia commenced service as Virgin Blue on August 31, 2000, with the backing of British businessman Richard Branson (founder of the Virgin Group) and Brett Godfrey.
Virgin Australia aimed to rival the dominance of Qantas, becoming Australia’s second largest domestic airline.
However, this was an extraordinary period for Australia’s commercial aviation market as the sector was experiencing a decline in international traffic owing to the September 11, 2001 terrorist attacks in the United States, the war in Iraq and outbreaks of severe acute respiratory syndrome (SARS) in parts of Asia and Canada as summarized by the Australian government.
In 2000, Australia’s domestic market, and major routes also known as 'domestic trunk routes'(a term used in Australian aviation to describe major routes with high demand and traffic) were dominated by four airlines. This consisted of legacy carriers Qantas Airways and Ansett Australia, and new entrants Virgin Blue and Impulse Airlines.
Despite stiff competition in the market, an opportunity arose, leading to Virgin Blue’s exponential growth and rapid gain of up to 30% of the domestic market share in Australia.
Seizing the opportunity
The launch of Virgin Blue predated Qantas Airways’ takeover of Impulse Airlines in 2001 and the collapse of Melbourne-based Australian airline group, Ansett Australia, which also took place during the same year.
Ansett, which flew domestically in Australia and on international routes to destinations in Asia, entered administration in 2001 and was liquidated in 2002 having faced a number of financial issues. Ansett operated it last flight on March 5, 2002.
This event inadvertently paved the way for Virgin Blue to fill the gap left in the domestic market.
Much like the airline models implemented by Europe’s Ryanair and US-based low-cost carrier Southwest Airlines (LUV), whose single-aircraft-type fleets favor Boeing’s 737 model, Virgin Blue launched operations on a single route between Sydney and Brisbane. Its fleet consisted of Boeing Classics - two 737-400s registered VH-VGA and VH-VOZ.
A decade of domestic growth
Owing to the opening in the market, Virgin Blue became one of the largest carriers in Australia. Growing at a rapid pace, the airline phased out its Boeing Classics in favor of Boeing’s Next Generation variants – the 737-700 and 737-800 models.
Under the leadership of Brett Godley, Virgin Blue’s then-CEO, the airline went on to operate domestic services to 32 cities in Australia from three hubs: Brisbane, Melbourne, and Sydney.
Its single aircraft type fleet model allowed the airline to mitigate costs associated with the management and upkeep of a diversified fleet. However, it was not until late 2007 that the airline decided to add another aircraft type to its fleet to tap into traffic on less populace routes.
In September 2007, Virgin Blue took delivery of its first Embraer E-170, having ordered 20 aircraft from the Brazilian manufacturer consisting of six E-170s and 14 E-190s.
The airline deployed its new Embraer fleet capacity across limited services on routes between Sydney and Canberra until February 4, 2008. This date marked the launch of the airline’s full-scale operations between the cities.
An appetite for more
In the early 2000s, Virgin Blue entered into a codeshare agreement with United Airlines after the collapse of Ansett Airlines. The agreement allowed United’s passengers to fly from the US to destinations in Australia that were not served by the American carrier.
In the late 2000s, Virgin Blue began to explore ways to further expand its network and passenger services. The airline went on to establish frequent flyer agreements with Emirates, Hawaiian Airlines and Malaysia Airlines in 2006 to position its business to better compete with Qantas.
Its partnerships also included an interline agreement with Regional Express Airlines and an agreement with Garuda Indonesia and Vietnam airlines, all connecting to and from Virgin Blue’s destination network.
Virgin Blue then set about attracting more business and corporate passengers. In 2008, the airline introduced a premium economy class, which included various seating configurations, to its entire fleet.
The airline’s partnerships and alliances expanded aggressively in 2010 when Virgin Blue formed alliances with Air New Zealand and Etihad Airways. This alliance included shared operational projects such as codesharing as well as reciprocal lounge and frequent flyer access.
Air New Zealand would later become a shareholder in Virgin Blue after announcing its intention to purchase a 10% and 14.99% stake in the airline in January 2011.
Talks of teaming up with Delta Airlines (DAL) and joining SkyTeam were also on the horizon as Virgin Blue was on the verge of breaking into the trans-Pacific service market.
But the agreement was halted following its rejection by the US Department of Transportation under the country’s antitrust law. However, the agreement between the two airlines was reviewed and later approved on June 10, 2011.
Prior to the agreement with Delta Air Lines, Virgin Blue had stated plans to operate a wide-body aircraft, an Airbus A330, on its services between Perth and Australia’s East Coast starting in May 2011.
Enter Virgin Australia
The airline launched V Australia, a long-haul subsidiary of Virgin Blue, after the US and Australia signed an open skies air transport agreement in February 2008. The carrier flew with its own Air Operator's Certificate (AOC) and operated a fleet of Boeing 777-300ERs on flights between the US and Australia.
In 2009, Virgin Blue gained authorization to operate an unlimited number of flights between Australia and the United States. The airline launched flights to the United States between Sydney and Los Angeles and later from Melbourne and Brisbane. Virgin Blue aimed to offer services to San Francisco, Seattle, Las Vegas, and New York, however, permission to operate services to those destinations was not granted.
The airline went on to operate flights to Abu Dhabi, Johannesburg, Phuket, and Nadi International Airport. However, services to these destinations were suspended prior to the airline’s consolidation into Virgin Australia.
After a 10-year stint as CEO of Virgin Blue, Brett Godfrey left the company on May 7, 2010, and former Qantas executive general manager, John BorghettI took up the mantle.
Rebranding and reorganization soon followed, which saw some Qantas employees migrate to Virgin Blue while key employees at Virgin Blue left the airline. Virgin Blue was officially rebranded Virgin Australia in May 2011.
Accompanying the rebranding was a campaign to attract more business travelers away from rival Qantas, the introduction of new business class products and crew uniforms, a new aircraft livery, and the rebranding of subsidiary airlines within the Virgin Blue Group.
After signing a deal with Skywest Airlines, Virgin Australia sought to bolster its regional operations. In the deal, Skywest would operate a fleet of 17 ATR-72 turboprops on lease from Virgin (VAH) in an expansion of Virgin’s (VAH) services to the Eastern region of Australia. Virgin Australia would compete with the likes of QantasLink and Regional Express Airlines.
HNA Group, a Chinese aviation holding company, became a shareholder in Virgin Australia after agreeing to purchase a 13% share in the airline, priced at A$159 million ($112 million). The deal led to codeshare partnerships between Virgin Australia and airlines in the HNA Group on routes between Australia and China. Flights to Beijing and Hong Kong were to be launched in 2017 as part of the agreement. However, services from Sydney to Hong Kong were not launched until July 2018.
CEO John Borghetti tended his resignation in June 2018, as the airline was nearing the end of its two decade-long expansion. However, Borghetti’s term had not been due to end until January 2020.
Borghetti, who succeeded Godfrey, initially intended to lead the airline as CEO for a maximum of four years. However, the growth of the airline persuaded him to stay for twice as long as initially planned.
Paul Scurrah became CEO of Virgin Australia in March 2019, succeeding Borghetti.
However, just a year into Scurrah’s term, the global aviation industry was struck by the COVID-19 pandemic and the subsequent unprecedented decline in passenger traffic.
On March 18, 2020, Virgin Australia reduced its domestic fleet capacity by 50% and temporarily halted all international services as a result of the global health crisis.
A total of 53 aircraft were grounded, including five Boeing 777, one Airbus A330, 14 Boeing 737 from its international fleet and 20 Boeing 737, six A320, two ATR and five Airbus A330 aircraft from its domestic fleet. This large-scale grounding saw Virgin Australia essentially return to operating as a domestic-only airline.
Virgin (VAH) sought out a $1.4 billion loan from Australia’s government to help ease the impact of the pandemic. The bailout proposal was subject to approval from the board of Virgin Australia Holdings and the Australian government. However, Qantas demanded a $4.2 billion loan to maintain healthy competition in the market if Virgin Australia was granted a bailout.
Australia’s government stated on April 16, 2020, that it would allocate $160 million in minimal subsidies to services operated by Virgin Australia and Qantas. Two days later, the Queensland Government proposed a $200 million bailout to aid Virgin Australia. However, this came with a number of caveats, including backing from the federal government, debt restructuring, and the request that the airline's headquarters remain in Brisbane.
Virgin Australia entered voluntary administration on April 21, 2020. During this period, Virgin Australia continued to operate 64 weekly return domestic flights and international freight-dedicated flights to Hong Kong and Los Angeles supported by the federal government.
Following the airline’s entry into administration, it was revealed that Virgin Australia had been battling with long-term debt after posting loses for about a decade. Prior to the pandemic, the airline had last posted a profit of $23 million in 2012.
The airline’s shift from a single type aircraft operator to a multi-aircraft type operator also led to additional costs.
The airline had accumulated $6.8 billion worth of debt owed to more than 13,000 creditors, including $450 million owed to workers in unpaid wages.
On June 26, 2020, Virgin Australia announced that US-based private equity firm Bain Capital would be acquiring the airline, providing a much-needed lifeline. The carrier was able to move closer to a re-launch.
The firm favored a refocus on Virgin Australia’s existing business model rather than a complete overhaul of the airline's operations.
By July 2020, the airline had begun returning parked aircraft to operation and reinstating its domestic services across its network. Virgin Australia planned to operate flights to more than 30 domestic destinations by early August 2020.
Paul Scurrah stepped down as CEO and Jayne Hrdlicka was given the role by Bain Capital in November 2020.
Under this new leadership, the Virgin Australia Group, which operates both a low-cost-carrier and a traditional full-service airline, emerged as a “mid-market carrier”, Hrdlicka said.
The airline focused on retaining its domestic market share and its customers by revamping it services and products.
In December 2020, Virgin (VAH) Australia restructured its order book with Boeing by dropping its previous order of 23 Boeing 737 MAX 8s and remaining with an order of 25 Boeing 737 MAX 10. Its first 737 MAX 10 arrived in mid-2023.
Hrdlicka emphasized the airline’s commitment to the 737 and described it as the backbone of the airline’s future domestic and short-haul international operations.
Australia’s Federal Government allocated a $1.2 billion support package to assist the airline with its expenses in early March 2021. The government also pledged to provide direct support to help airline workers retain their jobs.
By mid-April 2021, Virgin (VAH) Australia was operating 850 weekly return flights with its eye on reinstating up to 80% of its pre-COVID domestic capacity by mid-June 2021 and increasing its domestic fleet capacity.
By August 2021, Virgin Australia operated a mainline fleet of 68 aircraft, comprising 66 Boeing 737-800s and two Boeing 737-700s, with plans to add an additional nine 737-800s by March 2022.
The airline’s international services were reinstated on December 16, 2021, with flights from Sydney to Fiji. Additional international service to Bali and Queenstown, New Zealand were added at a later date.
In December 2021, Virgin Australia Group announced a codeshare partnership with United Airlines, which commenced in April 2022 and provided both airlines and passengers with wider connectivity and a greater choice of destinations.
Return to pre-COVID capacity
In April 2022, Virgin Australia announced an intent to increase its fleet of Boeing 737-700 and 737-800 aircraft to 88 aircraft having already grown its fleet by 50% since its relaunch in November 2020. The airline also expects to add four Boeing 737 MAX 8 aircraft in response to growing travel demand and as part of its growth strategy, according to Hrdlicka.
Virgin Australia Group also expects to operate 100% of its pre-COVID domestic capacity by June 2022 and exceed those levels by the end of the year, said Hrdlicka.
The group currently operates 10 F100 aircraft across its operations in Western Australia, however, it is looking to replace this fleet with 737-700s from the first quarter of 2023. The airline also operates Airbus A320 aircraft as part of its resources sector and contract flying operations.
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