Tourism in Australia might be under pressure after 16,000 workers affected by Virgin Australia's bankruptcy
Source: Economic Information Daily, Yang Jingzhong, Wang Ziqiao 2020-05-07 14:32:05
Virgin has become a microcosm of the difficult international aviation industry during the epidemic.
The novel coronavirus pandemic has brought unprecedented challenges to the aviation industry of various countries. A few days ago, Virgin Australia, Australia's second largest airline (hereinafter referred to as "Virgin Australia"), announced that it entered voluntary administration process with bankruptcy protection, which will affect about 16,000 employees and supply chain workers. Industry experts believe that the recovery of the Australian international shipping industry will still take several months, and the Chinese market will play a vital role in it.
According to Qantas Group's and Virgin Australia's official websites, both airlines have now grounded all commercial international flights. Under the assistance of the federal government, only some international cargo flights are reserved for the transportation of supplies and a small number of passenger flights to pick up overseas residents to return to the country, with 40% freight and 10% passenger domestic flight capacity retained respectively.
After being appointed as the trustee of Virgin Australia, the financial services company Deloitte disclosed in a document submitted to the Australian Federal Government that Virgin Australia owed nearly AUD 7 billion (AUD1 is about USD 0.6) to more than 10,000 creditors, and Virgin's market value was only AUD $726 million before the suspension on the Australian Securities Exchange on April 14 .
In an interview with the journalists, Rico Merkert, a professor of Transportation and Logistics School at the University of Sydney, said that there were three main own reasons for Virgin Australia's failure in the epidemic: cumbersome board structure, complex fleet composition and lack of profitability. The long-term loss operation has already overwhelmed Virgin, and the novel coronavirus pandemic has finally become the last straw that breaks "the camel's back".
Rico said if Virgin Australia's restructuring fails, new operators will enter the market and compete against the Qantas. From a long-term perspective, there are still promising prospects. This is mainly because Sydney-Melbourne-Brisbane is a lucrative golden triangle flight route. The major routes in Australia are mostly between economically developed cities, and there is no competition from the ground, which means air transportation is in a situation where demand exceeds supply.
According to Australian media, Virgin Australia had requested the Federal Government to provide an AUD $1.4 billion loan earlier, but it was rejected. The Australian government believes that 90% of Virgin Australia ’s shares are held by oversea investors, and it is not in the national interest to provide bailout fund for them. In addition, the government is afraid that providing assistance to Virgin Australia will cause other enterprises to follow suit while he is encouraging them to free themselves from difficulties through the market economy.
"Once Virgin Australia goes bankrupt, tourism in Australia will be under tremendous pressure. The price of air tickets will skyrocket, and the regional routes together with some travel routes may also be cut off." Said by Michelle O'Neil, the president of Australian Council of Trade Unions.
Joel Ellison, who has worked as a baggage handler at Virgin for 10 years, has been suspended at home since March due to a sharp reduction in flights. "I have two young children. My wife is a sales manager in a retail store, and she also lost her job in the epidemic." Joel told the journalists. "At this moment, our whole family can only live on the unemployment subsidies from government, but this is just a small salary for huge family expenses. "
In addition, hotels, freight, catering, tourism and other businesses related to the aviation industry have also been greatly impacted.
The Mantra Mackay Hotel in Northern Queensland is a hotel supplier serving Virgin Atlantic aircrews. Ryan Shaw, the hotel spokesperson said: " The company ’s turnover has dropped by 90% due to the epidemic. What ’s worse, Virgin is with debt AUD $100,000 to us. There are thousands of suppliers who provide services to it, and we are all unsecured creditors. Once Virgin goes bankrupt, we cannot receive any compensation. "
Professor Rico pointed out that owing to the significant decline in passenger traffic, the cash flow of airlines is under tremendous pressure. Even if the current price of international crude oil is at a historical low, airlines can hedge large amounts of fuel demand, they also have to pay a lot of fixed costs in advance.
Virgin has become a microcosm of the difficult international aviation industry during the epidemic.
Speaking of when the aviation industry will recover, Rico believes that although the epidemic has been effectively controlled in some countries like China, Australia and New Zealand, the United States and the European Union have not yet emerged from the predicament, and the shipping industry still needs months to recover. The key to restoring operation of international routes lies in the Chinese market. The recovery process of Chinese customers and logistic demands will directly determine the extent and speed of the revival of international aviation industry. Only by closely cooperating in tourism, trade and shipping can China and Australia quickly restart their economy. Furthermore, international cooperation should be strengthened to improve the effective mechanism for tracking and detecting novel coronavirus in international shipping.
