At least 15,000 jobs hang in the balance, although Deloitte has said it has no plans to make any redundancies. So, how has Virgin Australia handled the situation? And what can businesses learn from its collapse?
What led to Virgin Australia’s downfall?
First, let’s examine the key factors that contributed to Virgin Australia’s collapse. Undoubtedly, the coronavirus pandemic has had a detrimental effect on many industries, and perhaps none more so than the aviation and tourism sectors.
However, the company was struggling long before the outbreak, constricted by debt and flat revenue. On February 26, the airline's half-yearly results revealed a loss of $88.6 million for the second half of 2019. It also recorded just over $1 billion in cash versus more than $5 billion in debt. Virgin Australia focused on cost efficiency – rather than revenue – as a strategy for long-term viability.
But this wasn’t enough for Virgin to be a dominant player in the market. And with little cash flow or revenue to fall back on, its business model was swiftly toppled by the coronavirus crisis.
Lessons for businesses
There are several important lessons businesses can take away from Virgin Australia’s collapse.
1. An effective communication strategy is paramount
Although the future of Virgin Australia remains uncertain, the company has handled the situation well, thanks to its open and honest communication strategy.
CEO Richard Branson posted a heartfelt video on LinkedIn and an open letter on Twitter confronting the uncertainty of the moment and thanking the Virgin Australia team for making the brand what it is. He also shared key points about the company’s charitable activities and what Virgin is doing to help protect jobs.
The company’s focus on its people is a great example of how a brand can demonstrate empathy and humanity in tough circumstances. It also illustrates how important it is to have a clear and transparent communication strategy, especially in times of crisis.
2. Drastic measures are sometimes the best course of action
Voluntary administration is when an insolvent company hands control over to independent administrators. The administrator then works to save the company by restructuring or selling it. In the case of Virgin Australia, professional services network Deloitte has taken over the company and hopes to recapitalise it quickly by selling it off over the next couple of months.
Although drastic measures like voluntary administration are a clear sign of a business in danger, they’re sometimes necessary to save a business in difficult circumstances. There are several examples of this in the airline industry alone. US Delta filed for Chapter 11 bankruptcy in 2005, United in 2002 and American Airlines in 2011. All three airlines emerged on top after years of restructuring, and are today some of the world’s biggest airlines.
Of course, no business owner wants to see their livelihood in jeopardy. But it’s important to note that in times of distress, restructuring or pivoting could be the right strategy to remain operational and to weather the storm.