Hopes are rapidly fading that Bain Capital will retain Perth, Western Australia-based Virgin Australia Regional Airlines (VARA) as a fully functioning unit for FIFO (Fly-in/Fly-out) and Revenue Passengers Transport operations.
Two of the airlines five 162-seat Airbus A320s are stored, as are two of its 100-seat 12 Fokker 100 jets with Bain opting to use the less suitable Virgin Australia Boeing 737s to operate FIFO charters.
While the Boeing 737 is an excellent aircraft and has the advantage of commonality with the rest of the Virgin Australia fleet its payload is compromised in the hot summer months out of shorter north-west FIFO runways with the airline having to operate with a payload penalty of up to 30 passengers at some sites.
While the official word is that a review of VARA’s operations is “ongoing and nothing has been decided” Brisbane sources say that the F100s and A320s will go with Alliance Airlines being subcontracted to do the “Fokker work” which also involves some regular passenger flights and 737s to replace the A320s.
Virgin Australia has applied to the ACCC for interim authorisation with Alliance Airlines to enable the airlines to work more closely and the application covers up to 40 regional routes around Australia.
The breakup of VARA will mean significant staff upheaval and resource companies will lose the major competitor to QantasLink which is rapidly growing its fleet.
By the end of the first quarter next year, QantasLink with have 9 A320s and 11 Fokker 100s in service dedicated to the FIFO work.
According to one Perth-based airline analyst some resource companies are now seeking to “protect their FIFO transport requirements” with QantasLink.
“There is uncertainty in the market about VARA’s operations and now the Virgin Australia in-flight product,” he said.
“Remember these companies signed up for a full-service operation with staff and executives using FIFO earned frequent flyers points to fly with Virgin Australia, often in business class around Australia. It’s a big draw.”
“Now we see Bain taking Virgin Australia downmarket and that will not thrill resource company management,” the analysts said.
“They want a quality brand as their transport provider.”
“I really doubt that Bain understand this market,” the analysts said.
“Bain has to send a very clear signal to the resource industry that it’s in the airline business, not the asset-stripping business,” the analysts said.
The industry consensus is that Bain Capital now wants a one-aircraft type low-cost operation with all costs stripped out, so VARA has to go.
While Bain and Virgin Australia want to retain the FIFO contracts, the value/quality proposition it will be putting on the table in the future will not likely be able to match that of QantasLink.
There are already some resource companies that just want the Qantas brand linked to theirs and that trend is likely to accelerate.