One thing both contenders have in common is an association with Richard Branson. Cyrus and Branson launched Virgin America together before Alaska Air bought it in 2015, and they bought British regional airline Flybe in February 2019 before it went into administration. Bain has a joint venture with Branson’s adults-only cruise line Virgin Voyages. Thus, in all likelihood, the Virgin brand will remain.
Cyrus and Bain both have extensive experience in aviation and they have significant resources. Bain has been less than clear about where it would like to pitch Virgin in the market – in the event it is the ultimate winner. However, Bain’s declaration that it wants to “make flying fun again” suggests a focus on the leisure market (given travel weary corporate flyers are less concerned with the joy of the Sydney-Melbourne shuttle).
Bain’s plan for Virgin, as described in its pitch to the administrators, is to relaunch the airline as a hybrid product. “We started by asking what do we think is possible for this business in five or six or seven years,” Bain’s local chief executive, Mike Murphy, was quoted saying last week.
“I think it will have to look a little different, that is the reality.”
Cyrus, which has a history of investing in discount airline carriers, surprised everyone last week by nominating its preference to retain Virgin as a full-service domestic carrier with (potentially) an international arm and possibly even with the Tiger no-frills leisure brand.
There is no doubt who Qantas chief executive Alan Joyce will be barracking for.
A Bain win would place Virgin in a segment of the market – one in which it would probably seek to appeal to the corporate market but may not offer a business class product. It would almost certainly torpedo the international business and Tiger.
Such an outcome would leave Qantas a clear winner with a distinct advantage in the high-margin business market and with the potential to retain dominance in the low-cost leisure market using Jetstar.
The challenge for both shortlisted candidates is to navigate the industrial relations issues before them. Given the largest group of creditors by number are Virgin’s employees, the bidders will need to convince staff that most will be retained and wages and conditions won’t deteriorate.
The unions have been openly hostile towards Bain in recent days, having cited the private equity firm’s history of slashing staff numbers after acquiring businesses.
For its part, Bain has already taken an unusual step of mounting a public relations campaign as part of its attempt to assure stakeholders that it is in it for the long haul. But the reality is, regardless of which group is successful, Virgin 2.0 will begin its new life as a smaller airline with a smaller number of positions both in head office and in the air.
And it is unrealistic to think that enterprise bargaining agreements will remain as they are.
Insiders say the two finalists both had comprehensive plans for the new-look Virgin and are committed to the process.
As for the runners up in the bidding process, BGH, Indigo Partners and Brookfield, there was a suggestion that conditions had been attached to their offers that would allow them to walk away. Both Brookfield and BGH had previously complained about elements of the administrator’s process.
However, BGH, which had started negotiations with Virgin before it was placed into administration, would be sorely disappointed to miss the shortlist.
Elizabeth Knight comments on companies, markets and the economy.