Administrators reveal ‘misconceived strategy’ behind Virgin Australia’s collapse

Administrators Deloitte have released their report to creditors of Virgin Australia laying bare a series of failures that resulted in the carrier’s collapse.

Owing $6 billion, Australia’s second largest airline was in no position to withstand the shock of Covid-19 after repeated net losses over a decade that totalled $2.2 billion after tax.

“It was generally held to be underperforming from a financial performance perspective for a significant period compared to its peers, usually Qantas,” the report noted.

The root of Virgin’s malaise was a “misconceived business strategy to change its business model from a low-cost carrier to a full-service airline”, according to the report.

“Virgin did not have the size and financial strength to sustain this capacity increase without suffering significant losses,” the report said.

“Our view is that the Virgin Group’s difficulties were largely due to the inability of the Virgin Group’s balance sheet to withstand the immense financial impact caused by COVID-19.

“The balance sheet had been weakened from cumulative losses incurred almost year on year from 2009 to 2020 of approximately $2.2b.”

The report noted that the appointment of CEO Paul Scurrah in March 2019 was the start of “a strategic review designed to simplify the business and drive cost reduction”.

“When COVID-19 impacted capacity, the Consolidated Group was only part way through its strategic review and the implementation of various initiatives,” the administrators said.

Virgin Australia creditors will receive between 13 and 9 per cent of their investment.