The Axe is Falling on Virgin Australia

Virgin Australia CEO Paul Scurrah has been shown the door by Bain Capital
Virgin Australia CEO Paul Scurrah has been shown the door by Bain Capital

In a few weeks, Virgin Australia will come out of voluntary administration. But its future remains far from certain, following extraordinary revelations CEO Paul Scurrah will leave the organisation as soon as Bain Capital takes full control of the company in early November. Replacing Scurrah is former Jetstar CEO Jayne Hrdlicka, who is reportedly feared by unions as a ruthless negotiator.

As the Sydney Morning Herald writes, Virgin’s new owner Bain Capital has played a “bait and switch” on the Australian public. While negotiating to purchase Virgin Australia, Bain promised creditors and unions it would retain 6,000 jobs and publicly backed Scurrah to remain as CEO. It sold a vision that Virgin Australia would remain a full-service “value” carrier, simplifying its fleet but retaining most airport lounges and destinations.

It’s now looking more likely that Virgin could become an ultra-low-cost carrier. Critics of Bain Capital say the U.S. private equity firm is focused purely on profit and is trying to facilitate a quick sale of the airline to another buyer.

Officially, Paul Scurrah says he made the decision to step down after discussing it with his family. “The time feels right, and I know the business will be in good hands,” Scurrah said.

But there are strong rumours that Scurrah was forced out of the position, or chose to leave because he fundamentally disagreed with the direction Bain Capital is taking the airline.

Virgin’s negotiations with unions are not going well

The Transport Workers Union (TWU) yesterday suspended EBA negotiations with the airline on behalf of Virgin ground crew after reports CEO Paul Scurrah would be leaving and that Bain’s strategy for Virgin may have shifted.

“The ink is not yet dry on the sale of Virgin and it appears that private equity firm Bain Equity are behaving as we feared: ripping out the heart of Virgin and reneging on promises to the Australian people,” TWU national secretary Michael Kaine on Wednesday.

“We are suspending negotiations on enterprise agreements while we seek clarification on these developments. For our part, we are engaged in talks in good faith. If the plan and scope of the airline as outlined in August by Bain Capital has already been scrapped then this is a serious betrayal that must be addressed.”

Other unions have been similarly unimpressed with Virgin in their negotiations. It recently emerged that the airline wants to cut the base salary of flight attendants by over $11,000 per year and remove their $125 overnight allowance. Bain also wants to increase the duty time limit of Virgin flight attendants from 9.45 to 12 hours, making same-day return trips from Sydney or Brisbane to Perth possible.

Virgin Australia pilots have similarly been asked to take a 30-40% pay cut.

Virgin’s frequent flyers feel forgotten

Earlier this week, Virgin Australia made headlines because staff were taking sick leave to avoid dealing with Business class passengers unhappy at being served two-minute noodles. Unfortunately, that’s a fairly accurate reflection of where the airline is right now.

Even though Qantas restored full catering in Business class in July, Virgin Australia continues to offer just a small snack and cup of water in both cabins. Catering stock is now so low that Virgin staff have been told to ration supplies. Cabin crew are only to give out snack bars to Economy class passengers if they specifically ask for them, and there is no more wine or Diet Coke available for Business class passengers. That’s not a promising sign.

In fairness to Virgin, their website does say that “complimentary meals and the purchase of additional food and drinks will not be available on board”.

Catering woes aside, there is still no indication if or when Virgin Australia’s lounges will reopen. And now, Virgin is also cutting benefits offered to frequent flyers when travelling with partner airlines. It’s leaving Velocity Frequent Flyer members, many of whom never received refunds for cancelled flights, wondering if there’s any point retaining loyalty to Virgin Australia. Many are now seriously considering jumping ship to Qantas.

Rex is about to start competing on profitable domestic trunk routes

To further complicate matters, Regional Express Airlines (Rex) will soon add further competition on Virgin’s most profitable domestic routes including Sydney-Melbourne. It looks like Rex and Virgin will be competing for almost identical segments of the market. If Rex executes its strategy well, this could seriously hurt Virgin.

Virgin’s future may have looked bright just a few weeks ago. But the axe is starting to fall. Let’s see what Bain Capital does next…

Join the discussion on the Australian Frequent Flyer forum: Bain Capital takes Control of Virgin Australia

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Matt Graham
The editor of Australian Frequent Flyer, Matt's passion for travel has taken him to over 60 countries… with the help of frequent flyer points, of course!
Matt's favourite destinations (so far) are Germany, Brazil, New Zealand & Kazakhstan. His interests include economics, aviation & foreign languages, and he has a soft spot for good food and red wine.

You can contact Matt at [email protected]