The battle for control of Virgin Australia appears to have ended after a dramatic day that saw one of the two final bidders pull out.
But while Virgin’s survival is good news for travellers, it could spell the end of the Virgin-owned budget carrier Tiger Air.
Cyrus Capital Partners sensationally pulled out of negotiations to buy Virgin on Friday, leaving fellow US-based private equity firm Bain Capital as the likely new owner.
Although Bain’s bid for the carrier is not yet a guaranteed sale, industry insiders say it is unlikely to lose out.
“It’s not yet a done deal – it still has to be approved by the creditors of Virgin Australia,” Monash University aviation expert Greg Bamber said.
“There’s the possibility of legal challenges, or it not being approved – that’s the caveat. My guess is that it will be approved.”
Professor Bamber cautioned the biggest risk would be a legal challenge from Virgin Australia’s debtholders, who earlier this week revealed 11th hour plans to wrest the business from the two private equity firms.
Tiger on brink of extinction
The sale of Virgin to Bain Capital will ensure Australia’s air travel industry remains competitive, Professor Bamber told The New Daily.
That should keep air fares affordable by preventing rival airline Qantas creating a monopoly.
And in good news for workers – undoubtedly nervous following Qantas’s decision to axe 6000 staff – Bain Capital says it intends to keep as many employees in jobs as it can.
But Professor Bamber – who co-authored, Up in the Air, a book addressing airline employee engagement – cautioned Tiger’s staff may not be so lucky.
“It’s unlikely that [Bain Capital] will revive the Tiger brand,” he said.
“Tiger pilots have already lost their jobs.”
Prior to Virgin’s collapse, its Tiger subsidiary was created to compete with Jetstar – Qantas’ economy offering.
But the toll coronavirus took on Virgin ultimately led to the airline’s collapse in March this year, and Bain Capital has signalled plans to refocus to business to target the mid-market.
The new Virgin Australia will be more affordable than Qantas, but offer greater luxury than Jetstar.
Under that business model, there would be very little point keeping the Tiger brand to compete directly with Jetstar, IBISWorld senior industry analyst Tom Youl told The New Daily.
“The strategy that Virgin were operating under coming into the pandemic was the dual-brand strategy, and that was basically to match Qantas,” he said.
“Virgin competed head-to-head with Qantas while Tiger and Jetstar battled it out for the budget market.
“If Virgin no longer goes head-to-head with Qantas at the top end, one flow-on from that would be that they don’t compete head-to-head in the budget market.”
That’s not to say Tiger’s demise is guaranteed, nor that the brand won’t be resurrected at some point in the future, Mr Youl said.
But both Mr Youl and Professor Bamber cautioned its fate looks grim under current circumstances.
Bain must endure the pain
Bain Capital may have won the battle for Virgin, but it must still survive the war coronavirus has waged on airlines.
And doing so will mean enduring at least one or two years of financial pain, UNSW economics professor Tim Harcourt told The New Daily.
Professor Harcourt – known as the ‘airport economist’ – cautioned the new buyer “will have a hard time for about a year”.
With consumers nervous to return to the skies and fears of a possible second wave, it’s difficult to predict just how painful the coming months will be.
“But having said that, Qantas has said they’ll open up domestic flights by the end of July, so at least the domestic market will potentially be there,” he said.