Price wars, cheap airfares and stiff competition for Qantas: What can Aussies expect from the new Virgin Australia?

Sky News AU

6 hours ago

Australia's second largest airline is heading back on the market for the first time since it fell into administration in 2020.
Virgin Australia last week finally unveiled initial public offering plans after years of rumours and reports.
The carrier confirmed it was offering 30.2 per cent of the company, or $685 million for $2.90 per share, up for grabs from June 24.
Australian travellers, the local travel sector and investors are now fixated on exactly what can be expected from the new iteration of Virgin Australia. Virgin's international expansion
Virgin Australia returns to the ASX with the backing of one of the world's best regarded carriers as it ventures onto lucrative international routes.
Qatar Airways purchased a 25 per cent stake in Virgin and earlier this month began wet-leasing aircraft to the Australian airline, meaning Virgin could use Qatar's planes and staff on its flights.
Flight Centre's CEO Graham Turner said Qatar Airways backing Virgin had 'solidified' the airline as it looked to compete with Qantas and the National Carrier's partner Emirates on routes to Europe.
'The airline industry is one where you do need deep pockets and I think that Qatar really offers some serious security there,' Mr Turner told SkyNews.com.au.
Qatar Airways' additional capacity to Australia via Virgin comes almost two years after Transport Minister Catherine King controversially blocked extra capacity for the carrier.
The Albanese government's ties with Qantas, which opposed the flights, came under intense scrutiny as the decision to block the extra capacity came at a time when sky high airfares plagued Aussies travellers.
Labor, alongside the Foreign Investment Review Board, approved Qatar's stake in Virgin earlier in the year, boosting hopes for cheaper airfares and more vibrant aviation competition in Australia.
The expertise and massive size of Qatar's fleet, which is often ranked as one of the world's top airlines, is considered essential for Virgin's European expansion.
'Having a partner like Qatar that's obviously heavily committed to the Australian international market, particularly to Europe and the UK, is going to be a really positive thing for Virgin here,' Mr Turner said.
Virgin is also expected to benefit from a massive investment by Qatar for 210 widebody Boeing aircraft.
The editor in chief of aviation website 42 Thousand Feet, Geoffrey Thomas, said the additional aircraft would enable Virgin to relaunch trans-Pacific and Asian routes alongside European flights.
'With Qatar Airways and their buying power … I see them as being a real rock of Gibraltar, if you like, for Virgin,' Mr Thomas told SkyNews.com.au.
'In the recent order for about 130 B787s, I see a number of those, possibly 20, making their way to Virgin as part of a bulk buying.
'That will help Virgin relaunch to Asia, relaunch the United States and become a true international airline in its own right.'
However, not all are convinced Qatar's involvement with Virgin will send it skyrocketing.
Morningstar analyst Angus Hewitt, who has argued Virgin's IPO is overvalued, said the collaboration with Qatar 'does not mean much at all'.
He noted Virgin will get some commission and a fixed fee from Qatar, but this would be offset by the cost of selling and delivering the flights.
'The actual earnings impact of the Qatar long haul agreement is going to be negligible,' Mr Hewitt said on Sky News' Business Now.
The major value of the agreement, Mr Hewitt argued, came from the boost to Virgin's frequent flyer program Velocity.
'It makes Velocity a more formidable competitor to Qantas Frequent Flyer,' he said. Cheaper airfares?
Aussie travellers have been desperate for cheaper domestic and international flights since the pandemic.
But whether travellers see Virgin wage a price war with Qantas after it goes public remains up in the air.
Virgin's decline throughout the 2010s and subsequent collapse in 2020 was partly due to the airline's former CEO John Borghetti toughing it out against ex-Qantas boss Alan Joyce in a bitter capacity war.
A vast oversupply of seats contributed to the carrier facing a decade of red ink across its financial reports and the battle soon came to a halt.
The Australian Travel Industry Association's (ATIA) CEO Dean Long told SkyNews.com.au the days of nosediving airfares were long behind us.
'I would love to see a price war, but I think it's highly unlikely,' Mr Long said.
'What both companies have said is that they're comfortable in the marketplace that they're currently playing and I think that means it won't be a market share battle like we saw in the Borghetti-era where he tried to take Virgin to Qantas.'
Mr Turner was hopeful for heightened competition between the airlines but noted Australians continued to see stable capacity levels despite the fall of short-lived budget carrier Bonza last year and Rex withdrawing from inter-city routes.
'As more capacity comes on, we think the airfares will tend to become more competitive,' he said.
Mr Thomas was adamant Virgin going public will pose 'serious competition' for Qantas, but the Flying Kangaroo's Project Sunrise plans, where it will fly directly from Australia's east coast to London and New York, puts it ahead of Virgin.
'It'll be competition, but it'll be healthy competition and I think it would just help to grow the market,' he said.
Qantas in March once again postponed the start of Project Sunrise to 2027, delaying the start time for when the National Carrier's on-order A350-1000 jets will operate the 20-hour flights.
It follows the start date being delayed in early 2024 as the flights were initially slate to kick off in 2025. Virgin's share price
Every company strives for profit whether they are public or private, but the presence of shareholders and the pressure to push up a share price can weigh on a business.
Qantas' share price more than doubled since October 2023 but its value took a 28 per cent whack in the preceding three months when the mountain of reputational scandals rained hell on the carrier.
The National Carrier illegally sacking staff and fraudulent sales practices, all while posting a record profit in the 2023 financial year, caught up with the airline and its shareholders.
Mr Thomas said the Virgin executives should keep Qantas' tumultuous behaviour both during and after the pandemic in mind as it undergoes its revamp.
'Where Qantas probably got too entrenched in shareholder value and less about consumer concern, I think will be a very valuable lesson for Virgin,' he said.
Travel industry figures are hoping Virgin going public could spark a positive change as it looks to deliver long-term profitability.
Mr Long said the team at ATIA wanted the carrier to shift from a private equity mindset towards an attitude where it has to generate a solid return to bolster shareholder value.
'We're hopeful that as it becomes listed there should be some improvements in fleet and some improvements on some of the ground product and how they work with corporate Australia,' he said.
The Flight Centre boss also stressed the carrier will need to deliver a 'very competitive' product compared to Qantas to ensure its share price can thrive.
'I think most executive teams and Virgin's, I'm sure knowing them, realise that service standards have to come up to a certain level and so that's important for the share price as much as the profitability,' Mr Turner said.
But Virgin may not only have Qantas to worry about as it seeks to drive its stock price.
This is a point Morningstar analyst Angus Hewitt makes in his company's report where the financial services firm argues Virgin's value is $2.60 rather than the $2.90 IPO.
'We don't think there will be only two airlines in Australia forever,' Mr Hewitt said.
'We think Australian airlines are over earning at the moment, and we expect this to attract competition in the medium.'
Virgin and Qantas' domination of the domestic aviation space comes after Bonza and Rex both collapsed in 2024.
Rex's demise is heavily attributed to its attempt to swoop in on the 'Golden Triangle' routes of Sydney-Brisbane-Melbourne after it purchased B737s off Virgin when it collapsed in 2020.
Ruthless anti-competitive behaviour by the major players and an inability to secure slots at better times at Sydney Airport led the company to burn cash just to stay in the skies and ultimately withdraw from the ASX.
As to whether Virgin meets a similar fate will be something Australians cautiously watch.