On the Virg of Crisis: Virgin Australia runs into trouble as a multitude of strategic shareholders vie for influence
In 2005, the government of struggling Samoa decided its taxpayers had more pressing needs than endless subsidies for state-owned Polynesian Airlines. So Samoa accepted an offer from a promising and profitable Australian low-cost carrier called Virgin Blue, which put up the ideas and money to start a new national airline that could sustain itself. The project worked so well that some years later, Abu Dhabi’s Etihad and the government of the Seychelles followed a similar plan when Etihad rescued Air Seychelles.
How times have changed. Long removed from the days when it was the one providing capital, Virgin Australia, as it’s now known, has lately been on the receiving end of financial help from none other than Etihad, as well as Virgin’s two other airline owners Air New Zealand (now its biggest shareholder) and Singapore Airlines—and even, perhaps most humiliatingly of all, from the government of Samoa.
Virgin Australia launched in 2000, during a five-year period when many of the world’s prominent LCCs such as easyJet, AirAsia, JetBlue, WestJet and Gol also launched. Virgin was first lucky that a major legacy competitor, Ansett, suddenly exited the market, leaving Australia to just Qantas and Virgin. But then it was unlucky that Qantas figured out how to take on an LCC more successfully than almost any other legacy airline in the world. Also unlike most legacy airlines, Qantas had a stellar balance sheet and thus the staying power to outlast Virgin in competitive skirmishes. It squeezed Virgin on the high end with a mainline offering that would forever take revenue premiums over the LCC and on the low end with a low-cost unit of its own, Jetstar, which—uniquely in all the world for such a unit—was out-LCC’ing the LCC. Virgin at least tried to hold the middle ground by, in 2005, declaring itself a “new-world carrier” that would have rather low costs but generate rather good revenues. It sounded logical enough, but “hybrids,” as such airlines sometimes like to call themselves, are rarely profitability leaders. Still, Virgin held its own for another couple of years. But its long string of strong profitability would come to an end in 2007, when Singapore’s ultra-LCC Tiger Airways (now Tigerair) launched a domestic unit in Australia.
No one could accuse Virgin of not doing anything. On the contrary, it did everything: It bought widebodies from both Boeing and Airbus and narrowbodies from both Boeing and Embraer. It started longhaul flights to the U.S. (and then formed a joint venture with Delta). It started domestic flights within…
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