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Virgin bidder pitches return to low-budget roots

written by Sandy Milne | May 21, 2020
Virgin Australia Boeing 737-800 pictured at Sydney Airport (Source: Australian Aviation archives)

Indigo Partners’ Bill Franke has suggested that a shift towards a low-cost model could allow Virgin Australia to bounce back from administration.

Franke co-founded Indigo, which recently emerged as one of four suitors short-listed for the Virgin Australia sale. The company specialises in investment in low-cost carriers (LCCs), maintaining stakes in both Frontier Airlines and Budapest-based LCC Wizz Air.

Speaking at a virtual meeting hosted by aviation market intelligence firm CAPA, Franke said that low-cost airlines are better poised to recover from the impact of the COVID-19 outbreak in the months ahead.

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“Low-cost airlines will be raising fares off a cost base 30 per cent lower than legacy airlines,” he said.

“Net-net I think the model performs better than other models as we recover from COVID-19.”

Franke’s Phoenix-based company is joined in its bid for Virgin Australia by BGH Capital, Bain Capital, and Cyrus Capital Partners.

The Australian reported on 20 May that three of four prospective buyers are looking to bring Virgin out of administration with a reduced fleet size. Speculation that a revived airline might operate under a low-cost scheme tie into Franke’s comments.

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Though Franke did not state whether his company would look to axe international service, the 83-year-old did say that this would depend on consumer appetite for overseas travel post-pandemic.

“I get asked all the time, ‘Are you going to keep international flying?’ And the answer is that you have to fit yourself to the market and what the market wants,” he said.

“It’s not done abstractly. It’s done based on an understanding of the market and what the market wants you to provide.”

“We have to look at the Australian market in terms of what the Australian consumer wants in the product. It’s a process and development at this point of time.”

Franke compared the Australian market prior to the collapse as a duopoly, calling it a helpful competitive environment.

“But at the end of the day we see Australia as a very interesting market. We think the country needs to have two airlines and we want to assist Virgin Australia in being one of those airlines,” he said.

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11 Comments

  • Jake

    says:

    So, in order to have two airlines, you would have two LCC’s (Jetstar and Virgin), so Qantas has the entire business market…. Does not sound right does it!?
    If Virgin go back to the “roots” just think how potentially crappy that could be considering they couldnt operate Tigerair effectively!
    Would rather see Tigerair back than Virgin

  • Rod Pickin

    says:

    No thanks, next.

  • AgentGerko

    says:

    I’ve said all along, No Indigo Partners. The airlines they control make Tigerair look like a full service carrier. Do we need an airline possibly priced lower than Jetstar but with huge charges for any ancillary service, who cancels or delays so many flights that they cannot be booked with confidence you’ll reach your destination on that day, and whose service and possibly safety considerations are perfunctory. Add that to leaving Qantas as the one “decent” airline who can then charge whatever they want. No Thank You.

    • Martin

      says:

      Indigo was an investor in Tiger and was active on the board when establishing Tiger Australia, so they have already been involved and weren’t able to make it a success.

  • Chris

    says:

    Australia needs to FSC domestic carriers even if the Virgin Australia Mk 2 operates as aLCC/FSC hybrid model like Air NZ.

  • Anton

    says:

    If Virgin Australia wants to succeed in get out of administration, it will need to reduce it’s fleet size including getting rid of all leased Airbus A330s and it ATR aircraft.

  • Richard

    says:

    Nope! Virgin has to be able to compete with Qantas in all segments if there’s going to be any kind of “Fair Air” here in Australia – look at what happened post-Ansett… 2-3-2 business class… dated lounges.. etc etc…

  • Red Cee

    says:

    Going on passenger numbers, is there a need for another LCC in Australia? Does anyone know how Tiger was performing financially ?

  • Neil

    says:

    Whoever takes over Virgin Australia may not have much choice but to scale back significantly. The downside will be that Qantas will still offer a higher quality of service ,but if the confidence in the flying public isn’t there,Qantas will have to scale back as well. We need Competition, or we pay more for airfares.

  • john

    says:

    It has been proven time and time again that, without govt regulation (read 2 airline policy) that Australia cannot support 2 full service carriers. If the second carrier was postioned in the “AIR NZ format”, then I believe QF could be held accountable.

  • Dion

    says:

    The ACCC has expressed concerns with this matter and have commented on Virgin Australia staying a FSC in order to maintain competition with Qantas.

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