While Qantas’ decision to cull 6000 jobs, 20 per cent of its workforce, appeared to shock people, it could have been worse. If JobKeeper is not extended it probably will be.
Virgin is looking at letting go closer to 30 per cent of its 9500-strong workforce across all areas, including pilots, cabin crew, ground staff, engineers and head office workers.
Unlike Qantas, which needed to retain – or put on ice – a number of staff in its international operations, Virgin 2.0 won’t start with an international service.
It may recommence some international short-haul flights to destinations such as Bali, Fiji and New Zealand down the track, but longer haul flying may not come back for a long time.
Thus retaining employees from these areas is not necessary.
The fleet will be greatly simplified, which will pose a threat to the retention of some engineers.
‘Virgin is looking at letting go closer to 30 per cent of its 9500-strong workforce across all areas.’
The new-look Virgin will also have no budget brand – thus Tigerair staff won’t be required.
These divisions aside, the main Virgin Australia operation will also be a slimmer version of its pre-COVID self.
Bain said on Friday it was committed to retaining as many jobs as possible and that all entitlements would be honored.
Like Qantas it will seek to keep some personnel stood down until domestic operations ramp up.
But the reality is that it will need to shed a higher proportion of its workforce than Qantas.
The resurrected airline will pitch to more of a mid-market segment, with less emphasis on corporate customers than it had before COVID, however, it is understood Virgin 2.0 will still offer a business class product on major routes.
During its period of administration Virgin has managed to renegotiate numerous onerous (and even not-so-onerous) contracts with suppliers, from airports to catering and even its Wi-Fi provider. It has already begun to look at negotiating new enterprise bargaining agreements.
We can also expect to see economy passengers now having to pay for food onboard.
Virgin 2.0 will also start its new life with a healthy balance sheet and enough firepower to ride out the pandemic, which might only be another 12 months given it will only be operating domestically.
So, it is no coincidence that Qantas chose to announce a three-year $15 billion cost-cutting program on the eve of Virgin’s escape from administration.
Qantas will have a stronger new competitor, albeit one that will bow out of the super premium end of the business market. Virgin’s version of the Qantas chairman’s lounge, “The Club”, is likely to disappear.
It is also no coincidence that Qantas has chosen to bolster its balance sheet with a $1.9 billion equity raising having said previously that this was not needed.
Qantas could have hobbled through COVID without an equity raise but with the share price doubling over the past three months, the opportunity was too good to pass up.
To have raised almost $2 billion when the share price was not much more than $2 would have been extremely dilutionary for shareholders.
Qantas boss Alan Joyce can thank retail shareholders for much of the share price lift. A report from Nabtrade last week detailing small shareholder buying patterns revealed in the months of March, April and May, Qantas was among the top seven most popular stocks to buy.
Just what Virgin’s balance sheet will look like won’t be known until the details of its bid becomes known, i.e. how much will be pumped into the business and how many cents in the dollar will be repaid to the bondholders and other creditors.
But neither Qantas nor Virgin will be announcing their gratitude to the Australian government for the sector-wide help it has been talking about since March. Other than JobKeeper, the two airlines have been given no additional useful funding.
It wasn’t until the Qantas job cuts and capital raise announcement on Thursday that the government announced that the issue had risen a few notches on its to-do list.
Since the government first flagged it might provide some help for airlines, one of the two has gone into administration and the other has sacked 6000 people (which admittedly it would have done even with help from the government) and raised almost $2 billion.
Clearly aviation as a sector has been left to fend for itself.
Meanwhile, a pretty disgruntled runner-up in Cyrus added to the flavour of the administrator Deloitte’s announcement of Bain’s win.
Cyrus stole some thunder by releasing a statement early on Friday announcing it was pulling out of the race because Deloitte had stopped returning its calls.
Cyrus preferred to be the dumper rather than the dumpee.
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Elizabeth Knight comments on companies, markets and the economy.