Virgin (ASX: VAH) has revealed its plan on how to turn the business around after administration.
Virgin’s rescue plan
The main element of the plan is to reduce expenses until the global travel market recovers.
The new owners of Virgin, Bain Capital, are going to reset Virgin Australia to meet the lower global and Australian demand.
Virgin expects around 3,000 job cuts as a result of the business plan. However, Virgin said that it will save around 6,000 jobs when the market recovers with “aspirations” for up to 8,000 in the future. Employees that leave will be helped with a support program and have all entitlements honoured and be provided with a two-year extension of employee travel benefits and early access to retiree and long service benefits. Remaining employees will continue to receive jobkeeper.
The airline said it plans to move to an all-Boeing 737 fleet for domestic and short haul operations. The airline’s regional and charter fleet will remain while it reviews its options for the Virgin Australia Regional Airlines.
Other cost-saving measures include a review of all supplier contracts and move its HQ. It has already consolidated its Sydney corporate offices.
International flights to LA and Tokyo will continue to be suspended.
The Tigerair brand will be discontinued, though it will keep its Air Operator Certificate for future optionality.
Virgin frequent flyer
The revived airline’s management said that all travel credits and velocity and frequent flyer points will be carried forward under the new ownership.
Investment
Virgin plans to invest heavily in the ‘digital re-platforming’ of both the airline and frequent flyer program. Management said this would increase the pace of profitable revenue growth.
Summary
This seems like a painful but necessary move. There wouldn’t be an airline if a new owner didn’t come in with a plan to make Virgin profitable. Bain plans to ensure Virgin has a good balance sheet. I’m not sure I could ever be an owner of airline shares, but Virgin does seem to have a plan that may work. I think there are plenty of other ASX growth share ideas out there worth investing in.
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