QUEENSLAND, Australia – With the cancelled flights, Virgin Australia now owes thousands of travellers some refunds, but they are to receive travel credits instead of cash.
The lockdowns imposed due to the current health crisis because of the coronavirus pandemic halted thousands of travellers from completing their vacations and itineraries. That means cancelled Virgin Australia flights need to provide refunds to thousands of people. However, the airline administration proposed a plan that instead of cash refunds, they are more likely to offer travel vouchers instead.
During the previous month, Virgin Australia collapsed following the almost $7 billion worth of debts as the COVID-19 pandemic forced the airline to shut down nearly 100% of its operations. It led to Virgin Australia to halt in providing refunds or travel vouchers.
Vaughan Strawbridge, the lead administrator in Deloitte, an accounting firm in the country, filed an affidavit to the Federal Court on Tuesday. It said that the airlines received around 340,000 requests from travellers asking for refunds regarding Virgin Australia’s 6500 cancelled flights. The figure is only for March and April, which the period heights of the pandemic.
Mr Strawbridge also mentioned that there are now 19 bidders in the data room of the airline, who are trying to figure out the best rescue package. Previously, he stated that the accounting firm is already working with different parties, but only a handful of them signed to let Deloitte inspect Virgin Australia’s books.
Known parties involved are Indigo Partners, an American airline investor, Australian Super, BGH Capital, and Westfarmers, a conglomerate based in Perth. There are also Bain Capital, a private equity company, and Oaktreem, a distressed debt specialist, included in the talks. Brookfield, an asset manager in Canada, also expressed interest on the bid. However, sources said that Macquarie Bank is no longer working with the company.
The deadline for the indicative bids will be this Friday, while they expect the binding offers by June 12. The binding deal is also due later in June, and the meeting of the creditors to vote on a proposal will be in early August.
Meanwhile, Mr Strawbridge mentioned that travellers affected by the cancelled Virgin Australia flight are eligible to receive cash refunds. However, their accounting firm already proposed a plan to have them get a travel credit with the same amount instead of cash. That proposed policy will be applicable for customers who are yet to receive their refunds before Virgin Australia halted its distribution the previous month.
The travel vouchers that they are planning to distribute to their customers will have lifetime validity, or until Virgin Australian remain in the administration. Meanwhile, the policy warns that it wouldn’t be practical nor possible for the airline to go back to its regular flights until the middle of August.
Meanwhile, customers with unclaimed and unused travel credits before the administration process are not likely to get a 100% refund if the restructuring happens.
Based on the court application, the proposed Conditional Credit scheme can provide travellers with a chance to use 100% of their refunds through credits for a holiday package or flights in the future.
However, the decision about whether the airline will continue giving cash refunds or consider the proposed travel credits scheme will depend on its new owners. The standard credit and refund policies of Virgin Australia will apply to all products purchased in the airline following the administration.
According to Mr Strawbridge, giving refunds for owed money from customers will help preserve the goodwill of the airlines. It will also make the business more attractive to the 19 bidders who are looking towards buying Virgin Australia.
He further mentioned that the inability of the company to offer travel credits or pay cash refunds to their customers are putting them at a disadvantage. On the other hand, Mr Strawbridge also said that current administrators would only distribute the credits and returns if the court dismisses them of personal liability.
The hearing of the court application will be on Wednesday. Aside from the proposed credit scheme, the affidavit also wishes to limit the liability of administrators for the airline debts. Current administrators also want to get liability immunity if the airline receives inaccurate government payments through the JobKeeper scheme.
That is after the airline enrolled for financial support from the government for its 8228 employees. Its workers already received the $24.8 million worth of wage subsidy for the first two weeks.
In a traditional setting, administrators are the ones responsible for carrying the debts incurred while they continue to run an insolvent business.
However, the current administrators of Virgin Australia are still working towards getting less personal liability as the airline continues to handle some of its operations. Despite most flights getting cancelled since the coronavirus pandemic caused lockdowns and travel bans, the airline continues to fly leased aircraft. There are also remaining airport fees, essential services like maintenance, fuel, in-flight catering, and ground handling. Not to mention, the use or Virgin trademark is also putting Virgin Australia into more debts.