Virgin Australia Enters Voluntary Administration: What Does this Mean for Travellers?
Virgin Australia has formally announced today that it has entered voluntary administration. Partners from Deloitte have been appointed voluntary administrators of the company and several of its subsidiaries.
Virgin is carrying about $5 billion in debt and has not posted a profit in the last seven years. After its planes were largely grounded last month due to the coronavirus pandemic, it has been unable to stay afloat.
The airline employs around 10,000 staff whose futures with the company are now uncertain.
The Federal Government has so far refused to bail Virgin out. The Queensland Government has made an offer to keep the company’s headquarters in Queensland and the New South Wales Government has expressed interest in making a competing offer. However, both Governments’ offers would likely require financial support from the Federal Government to go ahead.
What is voluntary administration?
When companies are in financial trouble, they may be put into voluntary administration. This means administrators will be appointed to quickly make decisions about the company’s future. The administrators may decide to return the company to its directors, approve a deed of company arrangement (agreement on the future of the company including how debts will be paid) to try to salvage the company, or wind up the company and appoint a liquidator. The administrators will meet with creditors to work out a solution.
What will happen to my tickets?
Virgin Australia reportedly has almost $1.2 billion in prepaid tickets. The fate of these bookings will be decided by the administrators. If the administrators can salvage the company, flights may go ahead as planned and there may be no need to repay customers.
If Virgin cannot survive, the administrators will need to pay out debts in a certain order. Consumers are usually paid after other groups of creditors such as employees and shareholders have been paid out. There may be no money left to repay customers by this point. If this happens and you bought your tickets on a credit card, you may be able to get your money back from your credit card provider.
Another issue to be determined is what will happen with points earned through the Velocity frequent flyer scheme if Virgin does not survive. This program is run by a separate company, but it is uncertain whether customers would be able to redeem their points and how this would work.
Will the cost of flights could go up in the future?
If Virgin Australia were to collapse, Qantas would lose its major competitor and would have a near monopoly on the airline industry. Without major competition, there are concerns that the cost of flights could skyrocket to the disadvantage of travellers.
There are further concerns that the loss of Virgin could cripple the tourism industry in Australia, particularly in regional areas which are already reeling from the COVID-19 crisis.
Travellers, businesses, and governments will be looking on anxiously as the administrators decide Virgin Australia’s future.