Aviation expert: Virgin's demise an opportunity for innovation
23 April 2020, Written by Business News Australia
The fate of Virgin Australia (ASX: VAH) may be in the hands of administrators, but an aviation expert from the University of South Australia believes strong interest from investors like Wesfarmers (ASX: WES) and the Macquarie Group (ASX: MGQ) means the story is not all doom and gloom.
UniSA aviation industry expert, Associate Professor Kate Quigley (pictured), suggests the outcome of the Virgin Australia scenario may provide a glimpse into the future for the global airline sector, as the impact of the Covid-19 crisis forces operators to develop new, more resilient business models.
"The aviation industry has always been challenging, as there are large costs involved in keeping a fleet of planes in the air, and that often requires a very high level of debt," she says.
Although Sir Richard Branson has hit out at the Australian government for not bailing Virgin Australia out of its financial woes, Quigley suggests that doing so may have prevented the local aviation industry from adapting to the post-coronavirus environment, which may have sent the wrong message to other businesses.
"A bailout might have saved jobs in the short term, but Virgin Australia was already struggling before this pandemic, so if the Government were to prop up a problematic business model, many other struggling businesses might then expect the same type of support, rather than addressing their operational issues," says Associate Professor Quigley.
"Instead, there is now a space in the Australian airline industry for an innovative new operator to establish a viable business model that responds to the current situation.
"Whether that is a reborn version of Virgin, or a move into the market by one of the many international operators who already had a stake in Virgin, or a new operator entirely, they will be able to structure that business differently than the old Virgin model, adapting to the new marketplace, and ensuring competition remains in the Australian industry."
While Quigley acknowledges Australia's domestic airline market is a challenging one, she highlights the benefits of competition in that environment and stresses there will be new opportunities as the nation moves out of lockdown.
Updated at 4:39pm AEST on 23 April 2020.
Author: Business News Australia