WEBVTT - Virgin’s rollercoaster return & why Australia is a two-airline town 0:00:04.840 --> 0:00:07.680 The Australian Financial It was always going to be an 0:00:07.680 --> 0:00:11.000 eventful day for Virgin Airlines as it returned to the 0:00:11.039 --> 0:00:15.000 stock market on Tuesday, but no one predicted it will 0:00:15.080 --> 0:00:18.480 be this dramatic. Israel's Defense minister has acknowledged that they 0:00:18.480 --> 0:00:21.680 have carried out strikes against Iran, the first time in 0:00:21.760 --> 0:00:22.800 month of Iran. 0:00:22.680 --> 0:00:26.480 Fired two waves of missiles overnight towards Israel. 0:00:26.760 --> 0:00:30.400 The United States as dramatically entered Israel's war against Iran. 0:00:30.520 --> 0:00:34.360 News of the temporary closure of Katari airspace threatened to 0:00:34.560 --> 0:00:41.680 overshadow Virgin's float. In the days leading up to its listing, 0:00:42.240 --> 0:00:45.720 Israel and Iran traded missiles and the US entered the fray. 0:00:46.440 --> 0:00:49.120 The prospect of a broader conflict and a spike in 0:00:49.240 --> 0:00:52.720 fuel prices was not good news for the airline industry. 0:00:53.640 --> 0:00:57.760 But then suddenly, on Tuesday, the conflict deescalated and there 0:00:57.800 --> 0:01:02.000 was talk of a ceasefire. Time for a relieved Virgin 0:01:02.160 --> 0:01:08.440 CEO Dave Emerson to ring the bell. 0:01:08.600 --> 0:01:12.600 Investors are buying Virgin shares today as the airline goes 0:01:12.680 --> 0:01:16.080 public in one of the most hotly anticipated floats. 0:01:16.080 --> 0:01:20.080 In a strong result, Virgin's shares jumped eleven percent on 0:01:20.120 --> 0:01:23.000 the first day of trading. But now the airline must 0:01:23.000 --> 0:01:26.280 stay on track and ensure history doesn't repeat. 0:01:26.959 --> 0:01:30.520 There's just something about airlines, There's something about aviation executives 0:01:30.760 --> 0:01:34.520 is so tempting for these guys to expand and try 0:01:34.520 --> 0:01:36.120 and compete with the likes of Quantas. 0:01:36.880 --> 0:01:40.600 Welcome to the Finn. I'm Lisa Murray. This week, senior 0:01:40.640 --> 0:01:45.440 reporter Aisha decrets Her and chanticlear columnist Anthony McDonald on 0:01:45.600 --> 0:01:49.000 Virgin's way back to the market, why it could struggle 0:01:49.080 --> 0:01:52.400 to stay in its lane, and whether Australia can ever 0:01:52.480 --> 0:02:03.200 sustain more than two airlines. It's Thursday, June twenty six. 0:02:15.440 --> 0:02:18.120 Hi Aisha, Hi, and thanks for coming on the podcast. 0:02:18.400 --> 0:02:19.480 Thanks for having us, Lisa. 0:02:19.680 --> 0:02:20.240 Thanks Lisa. 0:02:20.639 --> 0:02:23.639 And when a company lists on the AOSX, it's usually 0:02:23.639 --> 0:02:28.640 an exciting day, but Virgin's IPO was particularly dramatic on Tuesday. 0:02:29.080 --> 0:02:31.440 Its executives were up in the early hours of the 0:02:31.480 --> 0:02:35.359 morning dealing with the diversion of flights following Iran's decision 0:02:35.840 --> 0:02:39.280 to launch missiles at a US base in Qatar, But 0:02:39.360 --> 0:02:43.040 the day ended well. How would you rate Virgin's return to. 0:02:43.000 --> 0:02:45.640 The market, Lisa, This was in the hands of the gods, 0:02:45.760 --> 0:02:46.720 and the gods. 0:02:46.360 --> 0:02:49.120 Smiled, so so much could have gone wrong, Like Virgin 0:02:49.160 --> 0:02:50.840 did well to raise at six hundred and eighty five 0:02:50.880 --> 0:02:54.239 million dollars for its IPO, but that was three weeks ago, Lisa, 0:02:54.400 --> 0:02:57.080 like so much has happened in the past three weeks, 0:02:57.360 --> 0:02:59.600 so much that could have really impacted investor's sentiment. 0:02:59.639 --> 0:03:02.040 And how would trade on listing. You know, you had 0:03:02.320 --> 0:03:04.960 Israel and Iran and the US bombing Iran, the oil 0:03:04.960 --> 0:03:08.160 price spike every the weekend, the threat of retaliation strikes 0:03:08.520 --> 0:03:10.640 like at worst could have sunk the float. Lisa, like 0:03:10.720 --> 0:03:12.919 Bayan might have had to have pulled this float. I mean, 0:03:12.960 --> 0:03:15.600 at best, you would have thought it would scare off 0:03:15.639 --> 0:03:19.480 some investors and the stock would trade down, But almost miraculously, 0:03:19.520 --> 0:03:22.200 the whole thing calmed down Monday night in the US 0:03:22.480 --> 0:03:24.960 right ahead of the listing on Tuesday morning austral In time, 0:03:25.120 --> 0:03:27.760 Trump was even talking about a ceasefire in the Middle East, 0:03:27.840 --> 0:03:30.800 which is something that we certainly didn't see coming. And 0:03:30.880 --> 0:03:33.160 by midday when it was time to list, the market's 0:03:33.200 --> 0:03:36.000 mood was risk on. Investors were keen to by stocks, 0:03:36.000 --> 0:03:38.640 and Virgin landed in smooth markets. It opened up seven 0:03:38.720 --> 0:03:40.720 and a half percent and held those gains for most 0:03:40.760 --> 0:03:43.960 of its first day. Now normal times, Lisa, you'd say 0:03:43.960 --> 0:03:49.840 that's a solid debut. It's nothing miraculous, But given what 0:03:49.880 --> 0:03:52.760 the market conditions were like, given what's been happening in 0:03:52.760 --> 0:03:56.000 the Middle East, you'd say it's a remarkable daboot. 0:03:56.480 --> 0:03:59.440 And before we get to what happens next, take us 0:03:59.520 --> 0:04:03.119 back to mid two thousand when the airline launched as 0:04:03.200 --> 0:04:06.800 Virgin Blue in a marketing blitz led by Richard Branson. 0:04:07.720 --> 0:04:11.720 How did Virgin secure its place in the Australian aviation market. 0:04:12.240 --> 0:04:15.160 They launched with a mystery flight to Marichid of all places. 0:04:18.360 --> 0:04:20.200 At the time, it was called Virgin Blue because its 0:04:20.240 --> 0:04:22.920 first planes were red and blue is the Australians saying 0:04:23.040 --> 0:04:26.159 for redhead now at least. It started services in August 0:04:26.160 --> 0:04:28.400 two thousand, in the lead up to the Sydney Olympics. 0:04:32.440 --> 0:04:35.599 Set up by Branson and Brett Godfrey, based in Brisbane 0:04:35.600 --> 0:04:37.920 as a low cost carrier. At first it had only 0:04:37.960 --> 0:04:40.440 two planes, but then in September two thousand and one. 0:04:40.560 --> 0:04:43.240 When the last flight touched down in Sydney this morning, 0:04:43.640 --> 0:04:46.200 Ansets passed into aviation history. 0:04:46.520 --> 0:04:49.480 Antet Australia, which was the number two airline in Australia. 0:04:49.560 --> 0:04:58.000 It collapsed and Virgin all of a sudden became the 0:04:58.040 --> 0:05:01.400 second biggest airline now. It's I'm say Virgin contributed to 0:05:01.440 --> 0:05:03.320 the collapse of Inset because it had turned down and 0:05:03.360 --> 0:05:06.680 off from Singapore Airlines an Anset to buy Virgin and 0:05:06.760 --> 0:05:10.080 Branson he actually called a press conference pretending he'd accepted 0:05:10.080 --> 0:05:10.480 the deal. 0:05:10.720 --> 0:05:13.680 Anyway, I'm off to England with my court pavillion dollar 0:05:13.800 --> 0:05:16.240 check and thank you very much. 0:05:16.920 --> 0:05:19.440 Before announcing he was only joking and ripped up the check. 0:05:19.760 --> 0:05:27.000 I'm just joking. It's pitch was there was younger, funer 0:05:26.960 --> 0:05:30.320 and less expensive than quantious. It did widespread marketing or. 0:05:30.320 --> 0:05:33.279 Richard Branson will launch an assault on the Australian domestic 0:05:33.320 --> 0:05:38.720 travel market this morning, rebranding Virgin Blue as Virgin Australia. 0:05:38.800 --> 0:05:41.159 The big sort of change came in twenty eleven when 0:05:41.160 --> 0:05:44.720 it rebranded as Virgin Australia. What we're building here is 0:05:44.760 --> 0:05:48.200 an airline that he still has very competitive airfares, but 0:05:48.279 --> 0:05:51.359 he's also very competitive at the front end of the aircraft. 0:05:51.720 --> 0:05:54.159 To try and move the company on from its low 0:05:54.240 --> 0:05:57.679 cost Virgin Blue roots. It became a more full service 0:05:57.720 --> 0:05:59.960 airline and started targeting business flight. 0:06:00.720 --> 0:06:04.280 Virgin Australia has a new strategy and its rivalry with Quantus. 0:06:04.320 --> 0:06:09.320 It's unveiled a luxury aircraft for use on domestic roots Now. 0:06:09.440 --> 0:06:13.120 Twenty fourteen, Virgin bought Tiger Airways, an airline you might 0:06:13.160 --> 0:06:16.200 remember now. It was sort of copying Quantus, which had 0:06:16.240 --> 0:06:19.279 launched Jetstar as a low cost carrier to try and 0:06:19.400 --> 0:06:23.200 keep Virgin Blue out of the market. And Virgin at 0:06:23.200 --> 0:06:25.159 the time was run by a guy called John Borghetti. 0:06:25.760 --> 0:06:27.760 There is an alternative now and it is for the 0:06:27.760 --> 0:06:30.919 first time in over a decade, in fact, sinceanst stopped 0:06:30.960 --> 0:06:33.800 playing Did you have a two carriers now that can 0:06:33.839 --> 0:06:36.160 serve us all elements of the market. It was trying 0:06:36.200 --> 0:06:38.400 to take on Quantas that was spending lots of money 0:06:38.480 --> 0:06:42.719 on lounge's furniture, business class flights, all this costly sort 0:06:42.760 --> 0:06:45.000 of premium stuff. And that's because there was a bit 0:06:45.040 --> 0:06:48.800 of rivalry between Borghetti and Alan Joyce, who was running Quantus. 0:06:49.160 --> 0:06:52.520 Virgin chief executive John Borghetti took over Virgin after being 0:06:52.720 --> 0:06:55.480 post over for the top job at Quantus three years ago. 0:06:55.920 --> 0:06:58.680 They both worked at quantas Joyce had won the CEO 0:06:58.800 --> 0:07:02.560 spot and Borghetti went Virgin, and he decided to take 0:07:02.600 --> 0:07:02.920 them on. 0:07:03.240 --> 0:07:06.719 John Borghetti, how satisfying is it to get this job 0:07:06.839 --> 0:07:09.680 given you missed out on the CEO role at Quantus. 0:07:11.040 --> 0:07:14.120 I think this job is an incredible opportunity and one 0:07:14.160 --> 0:07:17.400 that I'm looking forward to very much, irrespective of any 0:07:17.400 --> 0:07:19.600 other job. As part of it, Virgin built a frequent 0:07:19.600 --> 0:07:22.520 fly business called Velocity. At one stage it even sold 0:07:22.520 --> 0:07:24.800 a stake and it's private equity, and then brought that 0:07:24.880 --> 0:07:28.280 stake back using a lot of debt, closed borders and 0:07:28.520 --> 0:07:33.600 grounded planes. The coronavirus pandemic has the airline industry facing 0:07:33.760 --> 0:07:37.200 the worst crisis in its history. So by that time 0:07:37.240 --> 0:07:40.840 the pandemic struck in early twenty twenty, Virgin all of 0:07:40.880 --> 0:07:43.480 a sudden had lots of debt as planes were in 0:07:43.480 --> 0:07:45.920 the sky, and the whole thing went into administration. 0:07:51.080 --> 0:07:55.240 I share all airlines were grounded by COVID. Why was 0:07:55.360 --> 0:07:58.360 Virgin affected more than other airlines and how did it 0:07:58.440 --> 0:08:00.360 manage to turn the business around? 0:08:01.160 --> 0:08:03.280 So I think his aunt mentioned had just had too 0:08:03.360 --> 0:08:06.000 much debt. More than five billion dollars had been racked up, 0:08:06.040 --> 0:08:09.520 and I think the recriminations can fly over who acquired 0:08:09.560 --> 0:08:11.480 all of that debt and on what and whether it 0:08:11.560 --> 0:08:14.680 was useful. Some people would say that chasing quantas and 0:08:14.720 --> 0:08:17.440 trying to be premium was a good strategy. Others would 0:08:17.440 --> 0:08:19.960 say buying the stake in Velocity back at the wrong 0:08:20.040 --> 0:08:23.520 time meant that Virgin tipped into administration. So people can 0:08:23.600 --> 0:08:25.720 kind of argue over what was the straw that broke 0:08:25.760 --> 0:08:28.000 the Campbell's back. But I think what we can say 0:08:28.040 --> 0:08:31.120 is that the foreign shareholders that sat on Virgin's register, 0:08:31.280 --> 0:08:34.960 which were Singapore Airlines, Eddie had China's nan Chan Group, 0:08:35.200 --> 0:08:38.880 all owned about twenty percent each, and they sort of 0:08:39.200 --> 0:08:42.640 weren't the most useful of shareholders because all state owned, 0:08:42.720 --> 0:08:46.040 they didn't have necessarily shareholder profits at the heart of 0:08:46.080 --> 0:08:48.079 what they did, and they all had a different strategic 0:08:48.120 --> 0:08:54.360 plan for Virgin. The airline had to temporarily stand down 0:08:54.559 --> 0:08:57.320 about eight thousand of its workers while borders were shut 0:08:57.440 --> 0:09:02.480 during that pandemic. Virgin Ground did eight thousand people now 0:09:02.520 --> 0:09:03.240 out of work. 0:09:03.440 --> 0:09:05.360 It is what it is done, it is what it is. 0:09:05.400 --> 0:09:07.680 We're all in this together. There's nothing we could do. 0:09:08.120 --> 0:09:10.840 Paul S Garret, the CEO who did buy back that 0:09:10.960 --> 0:09:14.480 stake in Velocity. He'd asked the government, Morrison government for 0:09:14.520 --> 0:09:16.200 a one point four billion dollar loan. 0:09:17.000 --> 0:09:20.160 There was an enormous man of estort Peter to try 0:09:20.200 --> 0:09:23.840 and get the support from the federal government. And look, 0:09:23.920 --> 0:09:26.480 it was their decision and we respect that decision because 0:09:26.480 --> 0:09:28.120 of the effort we put in. It felt a little 0:09:28.120 --> 0:09:29.720 bit disappointing, but there. 0:09:29.559 --> 0:09:32.000 Was a bit of lobbying behind the scenes by a 0:09:32.080 --> 0:09:36.080 number of players, including Quantis and ultimately Scott Morrison and 0:09:36.200 --> 0:09:39.040 Josh Fredenberg, who was the Treasurer at the time. They 0:09:39.440 --> 0:09:42.120 went for a market based solution that was proposed by 0:09:42.320 --> 0:09:45.640 Nicholas More, the former CEO of Macquarie, who said that 0:09:45.800 --> 0:09:48.640 actually allowing the airline to tip into administration was a 0:09:48.640 --> 0:09:51.440 better kind of option and letting the market find a 0:09:51.480 --> 0:09:55.760 solution so very much. The imperative from Moore and others 0:09:55.880 --> 0:09:58.640 at the time was to make sure that whatever happened 0:09:58.679 --> 0:10:00.959 coming out of the pandemic, there was still a strong 0:10:00.960 --> 0:10:05.440 competitor Aquantas. So what happened was Deloitte was appointed as 0:10:05.480 --> 0:10:06.320 the administrator. 0:10:06.520 --> 0:10:10.640 Virgin's the biggest casualty so far as COVID nineteen ricks 0:10:10.679 --> 0:10:13.120 havoc on Australia's locked down economy. 0:10:13.400 --> 0:10:16.880 There was a sale process run and in the end 0:10:16.920 --> 0:10:20.800 it was US private equity firm Bank Capital that won 0:10:21.160 --> 0:10:26.120 to rescue Virgin out of administration. Private equity fund Bain 0:10:26.320 --> 0:10:29.320 Capital looks set to become the new owner of Virgin 0:10:29.440 --> 0:10:33.600 Australia after New York hedge fund Cyrus Capital Partners withdrew 0:10:33.640 --> 0:10:36.120 its offer. They sacked three thousand staff and they really 0:10:36.160 --> 0:10:39.160 bought an airline that had halved the number of aircraft 0:10:39.240 --> 0:10:43.160 and renegotiated hundreds of contracts to reset its cost base. 0:10:49.679 --> 0:10:54.520 And former CEO Jane Hrdlicka came on board once Bain 0:10:54.600 --> 0:10:57.880 took over. How much credit can she take for the 0:10:57.960 --> 0:11:01.040 turnaround and why didn't she take the airline all the 0:11:01.120 --> 0:11:02.160 way to the IPO. 0:11:02.880 --> 0:11:05.480 Jane used to work for Baane and Company. That's the 0:11:05.520 --> 0:11:08.920 management consulting arm that's the sister company to Baane Private Equity, 0:11:08.920 --> 0:11:11.199 and there's a lot of crossover between the two. They 0:11:11.280 --> 0:11:14.240 know her, she knows them. She was involved in this 0:11:14.320 --> 0:11:18.120 from the start before Virgin collapsed. When Bain Private Equity 0:11:18.480 --> 0:11:21.200 opened its file, they pretty quickly got her on. She 0:11:21.280 --> 0:11:23.920 used to work for Jetstar. She knows airlines she knows 0:11:23.960 --> 0:11:27.800 Bain and she was available. She's quite dogged, she's well 0:11:27.840 --> 0:11:30.120 known in the market, she's got a particular style, and 0:11:30.160 --> 0:11:32.360 they thought this is someone who can really be involved 0:11:32.559 --> 0:11:35.319 in the turnaround with us. It was a bit controversial 0:11:35.360 --> 0:11:37.960 at the time because Jane can be a divisive character, 0:11:38.040 --> 0:11:40.960 but she can also be quite effective at what she does. Virgin, 0:11:41.040 --> 0:11:42.640 as I just said, was run by a blake called 0:11:42.679 --> 0:11:45.839 Paul Scurra. It was sort of widely anticipated that he 0:11:45.880 --> 0:11:49.120 would continue to run Virgin under Baine's ownership, but pretty 0:11:49.160 --> 0:11:51.360 much as soon as Baine got the keys, they threw 0:11:51.400 --> 0:11:54.280 them over to Jane and said do your best. Yeah. 0:11:54.280 --> 0:11:57.240 There was always this tension though, I think, and between 0:11:57.679 --> 0:12:00.199 Scurr's plan for the airline, which was to ke keep 0:12:00.200 --> 0:12:03.720 it internationally focused, to keep it as a competitor Aquantus 0:12:03.720 --> 0:12:08.600 on more levels, and what Bain and Herloko wanted to do, 0:12:08.679 --> 0:12:11.720 which was keep this a very low cost, more domestically 0:12:11.760 --> 0:12:15.200 focused the airline that wasn't flying long haul international anymore. 0:12:15.640 --> 0:12:18.800 So Bain's turn around under Jane it was a bit 0:12:18.800 --> 0:12:20.679 of good management. It's some good luck. I mean, they 0:12:20.760 --> 0:12:23.400 used the administration framework and the laws around it to 0:12:23.480 --> 0:12:28.480 completely reset the airline, get rid of aircraft's, renegotiate contracts, 0:12:28.480 --> 0:12:32.320 refine the customer proposition, change the routes it flies like. 0:12:32.400 --> 0:12:35.480 In meetings with investors in April, it told them it 0:12:35.520 --> 0:12:40.439 had changed five hundred contracts since it first went into administration, 0:12:40.800 --> 0:12:43.040 which is a huge number, Lisa, and it saved a 0:12:43.040 --> 0:12:45.840 lot of money. So Bain then has the airline after 0:12:45.880 --> 0:12:48.000 the pandemic. I mean the sector was always going to 0:12:48.000 --> 0:12:50.480 bounce back. It took a while. Remember that the lockdowns 0:12:50.520 --> 0:12:53.560 lasted through twenty twenty, twenty twenty one. They were on 0:12:53.600 --> 0:12:57.320 and off. But then this revenge travel boomed. People were 0:12:57.320 --> 0:13:00.600 sitting on savings. The flood gates really opened. Aline capacity 0:13:00.679 --> 0:13:02.679 was lower, and so if you did have a plane 0:13:02.720 --> 0:13:05.000 with seats on it, prices were up and you were 0:13:05.080 --> 0:13:08.440 laughing right at the same time, Lisa. Quantas, which is 0:13:08.679 --> 0:13:13.000 undisputably Australia's biggest airline, number one, it's got two thirds 0:13:13.000 --> 0:13:16.080 of the domestic market, it shot itself in the foot. 0:13:16.240 --> 0:13:16.360 You know. 0:13:16.440 --> 0:13:21.040 It's customers were raging against flight cancelations, COVID credits, lots, baggage, 0:13:21.200 --> 0:13:25.200 all this basic customer service stuff that Quantus either forgot, 0:13:25.200 --> 0:13:27.440 how to do during the pandemic, or just wasn't set 0:13:27.520 --> 0:13:30.920 up to do anymore. It's brand plummeted in the rankings, 0:13:30.920 --> 0:13:34.280 while Virgins, which looked a bit more sensible and had 0:13:34.280 --> 0:13:36.559 its act together, perhaps was easier because it was smaller, 0:13:36.880 --> 0:13:39.720 It's rose up as a result. Now, through it all, 0:13:40.160 --> 0:13:42.880 Virgin created a new lane for itself and it stayed 0:13:42.880 --> 0:13:45.640 in it. Jane's an absolute force. She did a good 0:13:45.720 --> 0:13:48.120 job in firing up the Virgin's staff, getting deals done 0:13:48.200 --> 0:13:51.840 with unions, even locking in guitar airways as big shareholders. 0:13:52.200 --> 0:13:55.400 But the problem is Lisa that investors were a bit 0:13:55.440 --> 0:13:58.679 wary of her. She wasn't the one to take it 0:13:58.800 --> 0:14:01.080 to the IPO. She did a lot of the heavy lifting, 0:14:01.120 --> 0:14:03.680 a lot of the prep work, got this turnaround on 0:14:03.840 --> 0:14:06.959 track and sort of helped design it. But she wasn't 0:14:07.000 --> 0:14:09.160 the one ringing in the bell at the ASEX on Tuesday. 0:14:09.720 --> 0:14:11.800 And you have to ask why, And it's just because 0:14:12.200 --> 0:14:16.079 the investors did push back against her. Bain realized that, 0:14:16.360 --> 0:14:19.880 so they replaced Jane with another Bayin and Company former 0:14:19.920 --> 0:14:22.920 consultant called Dave Emerson. I mean, he has also been 0:14:23.000 --> 0:14:27.880 involved in the turnaround for a few years now. And 0:14:27.960 --> 0:14:30.360 the message that he's been selling to investors is that 0:14:30.480 --> 0:14:32.920 Virgin has found its lane. It's a third of the 0:14:32.920 --> 0:14:35.600 domestic aviation market. You've got Conscious above it, you've got 0:14:35.680 --> 0:14:38.320 jet Star below it. Virgin's just in the middle, making 0:14:38.360 --> 0:14:42.600 pretty good, middling sort of margins from everyday business customers 0:14:42.600 --> 0:14:45.280 and holiday makers. At least, it's a nice little lane 0:14:45.320 --> 0:14:47.440 to swim in. Now. The problem is Virgin's been in 0:14:47.480 --> 0:14:50.240 a nice little lane before. Remember it was the budget 0:14:50.280 --> 0:14:53.520 carry out I was doing reasonably well. There's just something 0:14:53.560 --> 0:14:57.680 about airlines. There's something about aviation executives that avgas can 0:14:57.720 --> 0:15:00.360 go to their heads and it's just so tempting them 0:15:00.360 --> 0:15:03.440 to go up market, to have business class flash lounges, 0:15:03.920 --> 0:15:07.600 so tempting for these guys to expand and try and 0:15:07.640 --> 0:15:11.360 compete with the likes of Quantus. So you have to 0:15:11.400 --> 0:15:13.640 wonder whether Virgin will be able to stay in its 0:15:13.720 --> 0:15:35.200 lane long term. I share. 0:15:35.240 --> 0:15:38.320 We're talking about Virgin Airlines, which floated on the Stock 0:15:38.400 --> 0:15:42.680 Exchange on Tuesday after managing an impressive comeback from its 0:15:42.720 --> 0:15:47.480 collapse during the pandemic. What's the outlook for Virgin? Will 0:15:47.520 --> 0:15:50.600 it stay in its lane or do you think like 0:15:50.760 --> 0:15:53.840 Ant says it might try and take on Quantus and 0:15:53.920 --> 0:15:56.600 at some point upset the state of play in the 0:15:56.680 --> 0:15:57.760 aviation market. 0:15:58.640 --> 0:16:02.680 I think it's very that Virgin has told investors that 0:16:02.760 --> 0:16:05.680 it knows its place. It wants to be the great 0:16:05.720 --> 0:16:09.480 second airline in Australia and it's very comfortable doing that. 0:16:09.560 --> 0:16:11.680 It's a very very profitable place to. 0:16:11.640 --> 0:16:12.400 Be right now. 0:16:12.800 --> 0:16:15.920 So the outlook right now is helped by very very 0:16:15.960 --> 0:16:19.640 solid domestic aviation industry. Australia is unique in having only 0:16:19.680 --> 0:16:23.160 two airlines at the moment. You know, the Regional Express 0:16:23.200 --> 0:16:26.160 that tried to take on Virgin and Quantus on capital 0:16:26.200 --> 0:16:29.080 city routes and ended up in its own administration process. 0:16:29.760 --> 0:16:32.760 We also saw discount airline Bonser that came and tried 0:16:33.360 --> 0:16:36.360 also failed within a year. So I think when it 0:16:36.400 --> 0:16:39.600 comes to staying in your lane, the thing that always happens, 0:16:39.760 --> 0:16:41.760 and you know, we can say that it's a market 0:16:41.800 --> 0:16:44.280 for two airlines until we're blue in the face. There 0:16:44.320 --> 0:16:47.720 will always be a third competitor that comes and goes. 0:16:48.120 --> 0:16:50.600 You know, whether they last for more than twelve months 0:16:50.640 --> 0:16:53.920 is another story, but someone will try and I think 0:16:53.960 --> 0:16:57.120 at that point that's when airlines need to decide what 0:16:57.320 --> 0:16:59.680 is going to be your proposition, and I think that 0:16:59.720 --> 0:17:02.960 one of the things Virgin has emphasized as a point 0:17:02.960 --> 0:17:05.359 of growth as it goes to investors with a growth 0:17:05.400 --> 0:17:11.000 story is that the Velocity frequent flyer program will grow. Now, 0:17:11.160 --> 0:17:14.359 growing your frequent flyer program when you don't have a 0:17:14.440 --> 0:17:19.360 long and big international network like Quantus is quite challenging. 0:17:19.800 --> 0:17:22.520 Do people want to be part of a frequent flyer 0:17:22.800 --> 0:17:25.760 network where you can redeem on flights from Melbourne to 0:17:25.760 --> 0:17:28.679 Sydney or to the Gold Coast versus going to London 0:17:28.840 --> 0:17:32.679 or flying business class life flat to New York. Probably not. 0:17:32.800 --> 0:17:36.280 It's a less attractive proposition, So there will always be 0:17:36.359 --> 0:17:39.639 the temptation to get back into long haul. The problem 0:17:39.760 --> 0:17:42.679 is scale, So getting new planes to be able to 0:17:42.840 --> 0:17:46.480 fly enough to make your network a genuine competitor to 0:17:46.600 --> 0:17:49.359 Quantus is going to take a long time. You know, 0:17:49.480 --> 0:17:52.879 right now we're seeing uncertain fuel prices with what's happening 0:17:52.880 --> 0:17:56.200 in the Middle East. There are a lot of unknowns 0:17:56.359 --> 0:17:58.600 in the market, and that's always the case with aviation. 0:17:59.119 --> 0:18:01.520 But I think we can be sure of you kind 0:18:01.520 --> 0:18:04.840 of two things. One that a third competitor will spring up, 0:18:05.119 --> 0:18:07.880 and two, as ant says that at some point they'll 0:18:07.880 --> 0:18:08.840 get ambitions to. 0:18:08.800 --> 0:18:12.080 Grow at least a Virgin's time. That's float quite nicely. 0:18:12.119 --> 0:18:14.920 I mean, Bain did get lucky. It's taken a couple 0:18:14.960 --> 0:18:17.040 of years of IPO preparations for it to get its 0:18:17.080 --> 0:18:20.600 ducks in line here and relist the business. The domestic 0:18:20.600 --> 0:18:23.480 aviation industry backdop just sort of got better and better 0:18:23.800 --> 0:18:26.200 in that time. And if you're buying Virgin shares now, 0:18:26.240 --> 0:18:27.760 you have to ask, is this as good as it 0:18:27.800 --> 0:18:32.000 gets for the industry. If so, is Virgin doing anything 0:18:32.040 --> 0:18:35.639 internally to increase its margins to be more robust and 0:18:35.680 --> 0:18:38.240 a better position. Should should the industry not be as 0:18:38.240 --> 0:18:40.600 good as it is now in the future. I mean 0:18:40.640 --> 0:18:44.480 there's always skepticism buying shares of private equity, and that's healthy. 0:18:44.760 --> 0:18:47.359 You know, Bain's made truckloads of money or ready from Virgin. 0:18:47.440 --> 0:18:49.800 It's probably made three or four times the amount of 0:18:49.840 --> 0:18:51.480 money put into it, and it's still going to own 0:18:51.560 --> 0:18:55.040 thirty nine percent of the listed Virgin. As far as 0:18:55.119 --> 0:18:58.000 private equity stories go, I'd say this is a good one. 0:18:58.040 --> 0:18:59.920 You know, it's a financial investment that's stepped up in 0:19:00.080 --> 0:19:03.119 a tough period, took risk oversur sensible turn around story. 0:19:03.760 --> 0:19:05.880 But now, of course it's private equity and it's trying 0:19:05.920 --> 0:19:08.399 to get some bang for its buck. It's trying to 0:19:08.440 --> 0:19:10.600 make money and to do that it is selling shares 0:19:11.040 --> 0:19:15.440 to ordinary Australian investors, to super funds, to institutional investors, 0:19:15.880 --> 0:19:19.119 basically anyone that can Baine picked this up at the bottom. 0:19:19.240 --> 0:19:21.479 It's now floating it is it floating at the top? 0:19:21.960 --> 0:19:24.840 If not, where's the top? And what Convergent do between 0:19:24.880 --> 0:19:25.399 now and then? 0:19:25.600 --> 0:19:27.240 I think that that's a good question ed. But they 0:19:27.280 --> 0:19:30.400 have said that they still have costs that they can 0:19:30.480 --> 0:19:33.800 keep on eliminating. They say the five years behind Quantus 0:19:33.800 --> 0:19:37.280 when it comes to taking some of those transformation challenges 0:19:37.320 --> 0:19:40.359 around it, around how they sell tickets, how they do 0:19:40.400 --> 0:19:42.359 a lot of things. So they see that there is 0:19:42.400 --> 0:19:44.480 still growth that they can make through just you know, 0:19:44.560 --> 0:19:48.639 continuous improvements and incremental kind of revenue and margin improvement 0:19:48.760 --> 0:19:50.520 that probably isn't there for Quantus. 0:19:51.119 --> 0:19:54.080 So Aisha, then what does all this mean for the 0:19:54.160 --> 0:19:57.199 consumer and the cost of air travel? You mentioned before 0:19:57.280 --> 0:20:01.119 fuel prices and the impact that the uncertainty in the 0:20:01.160 --> 0:20:04.240 Middle East is having. What does that mean for the traveler? 0:20:04.800 --> 0:20:07.399 I think what we can see from the Australian domestic 0:20:07.520 --> 0:20:11.840 market is that having two competitors only in aviation is 0:20:11.880 --> 0:20:15.920 not great for the consumer. We're in a domestic aviation 0:20:16.080 --> 0:20:19.800 market where we've seen the price of airfares between Melbourne 0:20:19.800 --> 0:20:23.600 and Sydney routinely hit over one thousand dollars. We've had 0:20:23.960 --> 0:20:28.000 periods where loads on planes have been over ninety percent full, 0:20:28.280 --> 0:20:33.240 which is historically unheard of. So I think unfortunately for consumers, 0:20:33.480 --> 0:20:36.000 this probably isn't going to be a great thing. Those 0:20:36.000 --> 0:20:39.600 incremental improvements will be passed on to investors. If fuel 0:20:39.640 --> 0:20:43.240 prices spike, virgins hedged for six months out, so you know, 0:20:43.320 --> 0:20:45.920 the impact for investors will be minimal, but they do 0:20:46.000 --> 0:20:50.760 pass on the impact of higher fuel prices in fuel 0:20:50.760 --> 0:20:54.120 surcharges that are charged to consumers, So you know, as 0:20:54.160 --> 0:20:58.119 geopolitical tensions ratchet up, you should probably be prepared to 0:20:58.119 --> 0:21:00.040 pay a little bit more for your. 0:21:00.800 --> 0:21:04.080 And the market hasn't had very many big floats in 0:21:04.119 --> 0:21:06.320 recent years. We've talked a lot about the shrinking of 0:21:06.359 --> 0:21:10.320 the ax What does the virgin IPO mean for the 0:21:10.359 --> 0:21:11.359 local stock market? 0:21:11.680 --> 0:21:13.960 This is a good news story for ax LESA like 0:21:14.040 --> 0:21:16.440 this is Virgin coming home. There is no other owner 0:21:16.480 --> 0:21:20.200 for it. Airlines globally are either owned by countries themselves 0:21:20.560 --> 0:21:23.200 or they're listed. So yeah, this is good. It comes 0:21:23.200 --> 0:21:26.240 for an AX the time when it needs more listings. 0:21:26.280 --> 0:21:29.760 Public markets globally they are shrinking. The asex is shrinking. 0:21:30.040 --> 0:21:31.520 If you look at the number and the value of 0:21:31.560 --> 0:21:34.520 companies that are coming off the AX, you know, companies 0:21:34.560 --> 0:21:37.000 that are being bought by private equity or super funds 0:21:37.119 --> 0:21:39.680 or sovereign wealth investors or whatever. The vary of those 0:21:39.720 --> 0:21:42.640 companies is much more than what's coming back through IPOs. 0:21:43.040 --> 0:21:45.399 So this has been a big shift for Australia and 0:21:45.400 --> 0:21:48.120 for Australians, And at least the public markets have been 0:21:48.240 --> 0:21:51.240 so great for ordinary Australians for their super fund balancers 0:21:51.520 --> 0:21:54.440 and as direct investors. We're all trying to work out 0:21:54.600 --> 0:21:57.719 where the private markets, you know that's private equity and 0:21:57.720 --> 0:22:00.440 the like, whether they can be so good for ordinary 0:22:00.440 --> 0:22:03.639 Australians assex trying to work this out as well. And 0:22:03.680 --> 0:22:05.960 while it does that, it's tanking with the listing rules 0:22:06.000 --> 0:22:09.480 to try and encourage more IPOs. But Lisa Virgin showed 0:22:09.560 --> 0:22:12.359