End of an Australian airline era
I've now seen a few airlines go under in Australia.
When I was younger I obviously didn't fly around, but I do have two memories of the local Airline industry. Firstly I remember the old octagonal building at 501 Swanston street in the Melbourne CBD that was owned by Ansett Australia. The building was actually constructed for Ansett in 1978 and has a particularly distinctive architectural style as the building is in an octagonal shape. Also in the 1990s I remember my dad bought some corporate branded stationery holders amongst some other items at the Compass Airlines company liquidation sale, maybe he still has these things. From talking to him he said if he remembered correctly that the liquidation sale for Compass was held in the same building as the Ansett offices. I find it interesting that my dad grew up in the cartel era of Australian flight known as the Two Airlines Policy and saw its demise. After the end of World Way 2 the Chifley Government government had a goal of nationalizing many industries and attempted to create a monopoly airline in Australia. The major domestic airline of the time Australian National Airways argued that this act of government was unconstitutional and took this challenge to the High Court of Australia in what was known as The Airlines Case. The decision by the high court of Australia was that it was unconstitutional for the Australian government to prevent a private airline from operating but allowed the state to create and back it's own airline. This new national airline was Trans Australia Airlines and it caused ANA much difficulty which eventually led to ANA merging with Ansett Airlines. For many years the duopoly of Ansett and TAA existed, eventually TAA was acquired by Qantas in 1992.
This era of Duopoly started to end with the arrival of Compass airlines, and there were actually two separate airline companies that traded under the Compass brand name. (Not to be confused with the unrelated Compass Airlines America which went under in April 2020) Compass Mark I was Australia's first low cost airline and was created just after the deregulation of the Australian industry in 1990. Despite this deregulation Australian airlines were an extremely anti-competitive market for a number of years after the original deregulation legislation passed and really Compass Mark I didn't stand all that much of a chance against the Qantas and Ansett duopoly and folded a year later. This duopoly effectively had a stranglehold on the major flight routes such as Melbourne to Sydney. A bit later another local airline company opened using the Compass brand name, presumably to take advantage of good will associated with the old brand (for a low cost carrier just look at this advertisement featuring massive CRT video screens and just as massive legroom! also note how it cost $300 in early 1990's dollars for a flight from Melbourne to Brisbane or $600-700 in 2020 dollars depending on the index you use AND this was relatively cheap at the time. The exact same flight route in 2020 during the Covid19 pandemic disruption is only $200 on a high cost carrier and $120 on a low cost carrier). This second Compass business entity, which is often referred to as Compass Mark II, opened in 1992 and collapsed a year later in 1993. Around this same time Impulse Airlines was established in 1992 as a regional carrier, eventually this airline commenced operations as a low cost airline on the major Australian flight routes which caused a large shakeup in the Australian Airline industry. Impulse itself was acquired by Qantas in 2001 but was part of starting a chain of events that changed the Australian airline industry substantially.
Before I travelled extensively for business I remember the arrival of various low cost carriers to Australia, I remember at the time getting some extremely cheap tickets from Melbourne to Sydney. Essentially cost gravity finally hit the Australian airline industry after many years of being shielded from it. Ansett existed before this period of competition and was formed in an era where there was substantial regulatory interference with the operation of any sort of free market in the local airline industry. The main thing I remember from the time of Ansett's demise was that it was one of the largest losses of jobs in Australian history. 16000 jobs, not including suppliers, were lost in a very short amount of time when the airline went into administration in 2001 and was liquidated in 2002. For the last 20 years I have been reminded of this every time I taken a flight from Melbourne Airport since there's a building near the airport that still has the Ansett Aviation branding painted on a huge wall visible from the highway2. The wall was still there a couple of months ago but the paint has started to fade. Another time capsule of an aviation era that's gone past is the Ansett Australia's website which as of 2020 is still alive on the original domain, and is maintained by the liquidation company, it appears that the liquidation proceedings are still going as of 2019. There's many interesting recounts of the Ansett collapse that explain the details of how that airline came undone. I feel as though this marked a substantial change of era in Australian business, Ansett paid its staff very well and had a lot of staff on the payroll. When Virgin took over the Ansett flight routes they were able to service the same routes with only a third of the staff. From the perspective of customers the demise of Ansett brought in a new era of lower prices, some have gone as far to say that Ansett's collapse set off a decade of positive change for aviation in Australia.
Last year I travelled a huge amount for business, I remember talking to people I worked with concerns about Virgin Australia's future as things were not looking good in 2019, note that these profitability concerns were many months before the first case of COVID-19. After the pandemic hit there were things like the airline loyalty status being extended as a stop gap to try help restart the demand when the pandemic situation eased. But things weren't looking good overall as the airports were almost entirely shut down for traffic as a result of measures to combat the pandemic, and Virgin Australia having serious problems seemed only a matter of time. Australia has a long history of airlines coming and going but it had been a while since the last major airline failure. There's been some more minor airlines that have gone under in the last decade including Air Australia in 2012, OzJet which was purchased by Strategic group (the parent company of Air Australia) therefore also went under in 2012 and JETGO Australia in 2018. On the 21st of April 2020 Virgin Australia entered into voluntary administration and may be the first major airline operation in Australia to go under since Ansett.
Virgin Blue (this was the name of Virgin Australia's operations before the 2011 brand change) entering into the Australian market played a part in the faltering Ansett going under. While reading today I noticed an interesting connection with this current collapse of Virgin Australia with the collapse of Ansett. Interestingly Ansett claimed that if they could have bought out Virgin Blue they may have been able to avoid going into administration. Here's an article from 2002 that talks about this. I didn't realize that Air New Zealand wanted to buy a stake in Qantas but was denied and instead bought a 50% stake in Ansett in 1996. Somewhat bizarrely the other 50% was owned by News Corp and the management of the company continued to mostly be run by News Corp, so you had an airline buy 50% of another airline but as far as I know left significant portions to continue to be managed by a media company, truly bizarre stuff. Air New Zealand then bought the remaining 50% of Ansett in 2000 but this came attached with some government restrictions that probably contributed substantially to the demise of the airline. Interestingly in 2001 due to various problems, including the maintenance issues and groundings they inherited from Ansett, Air New Zealand was starting to have financial problems and was in no position to continue to invest in Ansett. Air New Zealand tried to sell Ansett for $1 to Qantas but Qantas declined presumably due to the state of Ansett's finances. Air New Zealand eventually wrote off their $1.3 billion investment in Ansett. Eventually Air New Zealand was bailed out via being re-nationalized by the New Zealand Government on October 4 in return for the NZ government acquiring an 82% stake of the company. Ansett however did not receive any such government bailout and went into liquidation. (This cycle seems to have repeated with the New Zealand government selling off part of its ownership of Air New Zealand in 2013 only to have to prop the company up again a few years later due to the COVID-19 pandemic in 2020). By 2002 there were talks of Qantas acquiring a share in Air New Zealand. The New Zealand government has regulations about airline ownership and requires that the majority ownership stake is local. Fast forward a bit to 2010 and the New Zealand government approved an alliance between Air New Zealand and Virgin Blue. Air New Zealand bought a 15% stake in Virgin Australia in January 2011 which it increased to 23% in June 2013 but sold this in 2016.
Mergers and acquisitions in the airline industry became increasingly common in the early 2000's, an era which saw many airlines world wide consolidate. (American Airlines acquisition of TWA in 2001, Air France and KLM which merged in 2003 are two examples of airline mergers and acquisitions that happened around this time) While it's unsurprising that there's a lot of complex ownership structures of airlines one of the notable things is how Virgin Australia appears to be almost entirely foreign owned. This is in contrast to many other jurisdictions where this would not be legally or politically allowed due to partial local ownership being required. Virgin Australia is owned by a holding company Virgin Australia Holdings Limited which owned the Virgin Australia and Tigerair Australia brands. At the time of going into administration the ownership was 20% Etihad; 20% Singapore Airlines; 20% Nanshan Group; 20% HNA Group and 10% Virgin Group. This ownership structure was reflected in the various airline partnerships perks such as lounge access that was available to customers. One thing I found surprising was how small the Virgin Group share was, my surprise was probably just due to the prominent branding.
All of this I think highlights that there tends to be complex business structures and a lot of interconnected ownership going on in modern airline operations. Interestingly if Virgin Australia ceases to operate it won't be the first Virgin branded airline to cease operations. Virgin America launched in 2007 and was bought out in 2018 by Alaska Airlines. Will Virgin Australia emerge at the end of the administration as an operational airline, only time will tell.
Is this farewell?
When I was travelling frequently I had a bit of a habit of making toasted sandwiches at the airport lounge. There were two main reasons for this, I liked the incidental conversations with people while waiting for the ingredients to cook as you'd hear about all sorts of interesting things. And secondly you could carry the food with you if you were in a rush. One of the wise things that former Australian prime minister John Howard said was that you shouldn't miss meals or be late to flights as "I couldn't think of two things more likely to give you ulcers." Definitely some wisdom there. If however you wanted to be unwise and miss a meal while be perilously close to missing your flight the toasted sandwiches were right there waiting, but not waiting too long, for you to take out of the lounge and to the flight.
Maybe the airline will be bought out or refinanced, as you've seen historical precedent is certainly there for airlines to engage in deals. But who knows what will So in memory of Virgin Australia I made some toasted sandwiches, while making a point not to rush my food, for lunch:
While airlines may come and go sandwiches will remain.
Interestingly Velocity Rewards, which is the loyalty program that Virgin Australia was using is owned by a separate legal entity to the Virgin Australia airline. "loyalty businesses" are an interesting area. ↩
Further research would seem to suggest that the sign on the wall was part of Ansett's site at Garden Drive Tullamarine. According to information on the liquidation website about this location: "The property comprises a substantial industrial and commercial complex including five main buildings including: Engine Overhaul Workshop, Engineering Building, Supply Building, Data Centre and Flight Simulator Building, in addition to significant surplus vacant land." ↩