Washington | Budget aviation pioneer Bill Franke, whose Phoenix-based aviation firm Indigo Partners is one of four groups bidding for Virgin Australia, said low-cost airlines will probably rebound from the coronavirus crisis sooner than full-service legacy carriers and that he was keen to find an Australian partner.
Because leisure consumers will return to the industry faster than business consumers, airlines whose model is skewed towards corporate travel will “be behind the recovery that the ultra-low cost [carriers] see”, Mr Franke said early on Wednesday (AEST).
Though cagey about getting into details, Mr Franke said he regarded as Australia as “a very interesting market” that needs two carriers, but declined to say whether his bid for Virgin would mean dumping the airline’s international business.
“We have to look at the Australian market in terms of what the Australian consumer wants in the product,” he said. “It’s a process and development at this point of time.”
“I get asked all the time: ‘Are you going to keep international flying?’ And the answer is that you have to fit yourself to the market and what the market wants.
“It’s not done abstractly. It’s done based on an understanding of the market and what the market wants you to provide.”
Speaking on an overnight industry online “masterclass” hosted by Sydney-based aviation market intelligence firm CAPA, Mr Franke said he was limited in what he could say about Indigo’s Virgin Australia bid by a non-disclosure agreement “with a mind-boggling amount of detail that only an Aussie law firm can dream up”.
“But at the end of the day we see Australia as a very interesting market,” he said. “You have a duopoly between Qantas and Virgin Australia and we think that’s a helpful competitive environment.
“We think the country needs to have two airlines and we want to assist Virgin Australia in being one of those airlines.”
Mr Franke, 83, is a legendary US and global founder of low-cost airlines such as Wizz Air and Arizona-based Frontier airlines, and over the weekend was selected by Virgin Australia administrator Deloitte to take part in the second round of the carrier’s auction process.
The other three bidders are Bain Capital, BGH Capital and New York-based investor Cyrus Capital Partners, which has previously invested with Richard Branson’s Virgin America.
Indigo has so far had no conversations with the Australian government, Mr Franke said, because that “would be premature”.
“In terms of local Australian partners we’ve been approached by a number of Australian entities and would at the end of the day, we’d like to have an Australian partner.
“It would be the right thing to do, but it all depends on the details and that process has to unfold over roughly the next month.”
Mr Franke said he expected final bids to be lodged with Deloitte in the early part of June, followed by a process to close the transaction with the winning bidder, which he added would probably take the sale into early July.
“We’re working diligently,” he said of the Indigo bid, but lamented the challenges imposed by the global coronavirus lockdowns.
“In our consortium we have a partner with Oaktree Capital and the two of us are working best we can, considering that we can’t travel to Australia, we can’t have in-person meetings or in-person diligence which would be the norm.
“We’re trying to adapt ourselves to becoming the genius of the digital age.”
Mr Franke said another advantage low-cost carriers have over legacy airlines as the world recovers is that they are better placed to raise prices if COVID-19 safety-related costs such as keeping middle seats vacant are needed to make customers willing to resume travel.
“Low cost airlines will be raising fares off a cost-base 30 per cent lower than legacy airlines,” he said.
“Net-net I think the [low-cost] model performs better than other models as we recover from COVID-19.”
On the outlook for the aviation industry more generally, Mr Franke said the primary focus for all airlines at the moment is managing their cash burn and warned that some won’t survive without government support.
“Until there is either a treatment and a vaccine… we’re all going to be dealing with waves of events here and that in turn leads to a question about when revenue will revive to a standard that permits break-even cash flow.”
Much of that will depend on making sure passengers feel safe to fly.
“Airports and airlines need to convince the traveller, through a series of actions – this is before any vaccine is available – that the passenger is safe getting on the airplane.”
Mr Franke also took aim at airlines and aircraft makers for doing “an imperfect job” of explaining air filtration systems.
“Airlines need to have those seats filled to get more money coming in the door than going out the door.
“If we can convince [passengers that] the air in the aircraft is safer than in a restaurant or their office, which by the way it is, that would be a major step.”