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The future of QF vs VA?

Sun Jun 19, 2022 1:18 pm

The recent talk about QANTAS product demise is heavily exaggerated such as the article below: ... ground#mtr

However, with a nimble and lean Virgin Australia back - even the perception makes an interesting next few years.

The turn around for VA has been one of Australia’s greatest corporate success stories. I guess, effectively being able to renegotiate every single contract at a time when prices were at an all time low helped them out.

The big question, is what happens next?

The rumours that ANA/Singapore want to purchase it are growing louder by the day, but at what cost? Do we see a JB 2.0 but this time with QANTAS cutting to meet Virgin in the middle ground?

Velocity already offers a far superior product compared to FF IMO (think status credit and points polling) so if they were able to integrate that with their possible new owners even further, that would probably be a game changer that sees a huge lift in the corporate market.

IMO, we are destined to see our airlines become more US like and in the short run that’s probably not a bad thing but in the long run when prices rise again, that’s probably not ideal.

I said back in 2020, AJ lobbying successfully for the govt not to bail out Virgin was the stupidest thing he could have done. He simply let Virgin rebuild from scratch with every comparative advantage under the sun.

Throw in REX and Bonanza and things are about to really heat up. IMO, Bonanza will become TigerAir MK2 and brought out by VA eventually. REXs failure could also be Virgins chance for a cashed up Singapore/ANA to build a genuine empire. JB will be dreaming about AJs demise in his retirement house.
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Re: The future of QF vs VA?

Sun Jun 19, 2022 1:49 pm

Right, well a few things to unpack and rebut here.

1. Virgin is leaner and meaner than pre-administration, but so too is Qantas. They cut back a heap of staff that haven't been hired back, and QF has also effectively restarted its network from scratch and is now leaning it out pretty hard, at least on the domestic market. Its CASK figures will look pretty impressive once they get back up to scale. Sure, Virgin's are likely also great, but bear in mind that Virgin built up a pretty bloated cost structure by doing things to try and out-Qantas Qantas, cutting ridiculously expensive lease deals and adding layers of management that later ended up getting the chop. I think post-Administration, they are back to a cost structure that they may have had before going down JB's spendathon.

2. SQ and ANA buy-in? Possible, but improbable in the short-term. SQ will likely have a lot of other investment opportunities in the next little while, and having been bitten a couple of times now, would they throw money into Virgin? Yes, they are looking to invest in other hubs and markets so Virgin could fit that bill. For ANA it would be a huge step up for a carrier that has to date had little overseas investment.

3. Velocity may offer some advantages over Qantas Frequent Flyer, but it is well behind in the Australian market. QFF is a premier brand in Australia and is well ahead in terms of being a standalone business that does a whole bunch of other things, like health insurance, data analytics and issues its own-branded credit cards (through Citibank). Just look at how BP moved pretty quickly to align its loyalty scheme with QFF when Virgin hit the skids, which shows how behind Velocity is in the market.

4. Virgin need to establish what sort of carrier model will work for them. Returning to the "new world carrier" concept seems to be the path that Hrdlicka has the airline on, effectively trying for a JetBlue style middle-market model. If it's done well, it could very well be a winner, but the danger is that the customer sees it as poor value, especially if you don't get the customer proposition right. And when you add in the likes of an SQ, UA and now QR, will international carriers be content to put their premium passengers on a halfway house service?

5. Let's not kid ourselves that the new owners, Bain Capital, are looking to build the next great Australian airline. They are out for one thing - to flip it as soon as there is an opportunity to harvest their investment. Almost always, private equity puts short-term gains ahead of building out long-term competitive advantage. And that means when it comes to major, company-defining decisions, they generally choose the one that will deliver the strongest short-term returns and pump up the value ahead of a well-timed exit.
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Re: The future of QF vs VA?

Sun Jun 19, 2022 10:29 pm

Morrofinch wrote:
Throw in REX and Bonanza and things are about to really heat up. IMO, Bonanza will become TigerAir MK2 and brought out by VA eventually. REXs failure could also be Virgins chance for a cashed up Singapore/ANA to build a genuine empire. JB will be dreaming about AJs demise in his retirement house.

I truly can't see Bonza lasting longer than its initial capitalisation. Happy to be proved wrong, but outside the 10 largest cities there is little demand that isn't already served.

REX is more difficult, with its ageing fleet and reliance on supported markets. It's capacity and competition is needed, but future not assured. Ansett ate up the airlines in REX's past, and one of the major could do this again.

It's true SQ was burnt with ANZ/Ansett, but a lean VA could be attractive once more.
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Re: The future of QF vs VA?

Mon Jun 20, 2022 7:47 pm

One of corporate Australia's greatest success stories?!? Who are we kidding- Bain was the only viable bidder because without their massive capital injection the administrators would've been forced to liquidate VA because they came seriously close to trading while insolvent in which case the administrators become personally responsible under Australian law. So please, think about how much money was injected before you say VA is a success story.

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