Virgin Australia Appoints Controversial New CEO

Filed Under: Virgin Australia

There’s a leadership change coming at Virgin Australia, and employees already aren’t happy. This comes as Bain Capital takes over Virgin Australia, after the struggling airline entered voluntary administration back in April.

Virgin Australia CEO Paul Scurrah stepping down

It has today been announced that Virgin Australia CEO Paul Scurrah will be stepping down from his role at financial close of the sale transaction to Bain Capital, which is expected to be in early November.

Scurrah only took the role of CEO at Virgin Australia in early 2019, after previous CEO John Borghetti was at the helm for nearly a decade. The way I view it:

  • Under Borghetti’s watch Virgin Australia expanded significantly and repositioned itself, as the airline launched long haul flights, and became full service
  • At the same time, that growth wasn’t very profitable, so Scurrah was tasked with reversing course a bit
  • In reality Scurrah was just CEO for about a year before the pandemic shut down the airline
  • A real challenge that any Virgin Australia CEO had up until this point was the ridiculously complicated ownership structure of the airline, with Etihad Airways, HNA Group, and Singapore Airlines, all having owned major stakes in the airline

Because of all that it’s kind of hard to figure out what exactly Scurrah’s legacy is, since he wasn’t there very long, and I feel like the airline was set up to fail in terms of the ownership structure.

Scurrah has said that he “made this decision after some long discussion with [his] family,” and that “the time feels right.”

Virgin Australia is getting rid of all of its 777s

Jayne Hrdlicka will be Virgin Australia’s new CEO

Jayne Hrdlicka will be appointed Virgin Australia’s CEO as of November 2020. First of all, it’s cool to see another female airline CEO, since they’re still few and far between.

That aside, Hrdlicka’s appointment is already proving to be controversial for a variety of reasons:

  • When the concept of Bain taking over Virgin Australia was first revealed, the plan was to keep Scurrah on as the CEO; there had been talk of Hrdlicka joining the board of Virgin Australia, but that was the extent of it
  • Hrdlicka spent much of her career at Bain & Company in both the United States and Australia, including doing consulting in the airline industry
  • Hrdlicka worked closely with Qantas CEO Alan Joyce, and was involved in Qantas’ contentious 2011 labor dispute
  • Between 2012 and 2018, Hrdlicka was CEO of Jetstar, an Australian low cost carrier that’s a subsidiary of Qantas; she then briefly served as head of Qantas Loyalty
  • Hrdlicka has helped Bain Capital during this acquisition, though wasn’t very popular with employees; the Transport Workers Union requested she not attend union meetings with Bain, because they thought her presence wasn’t constructive
  • With news today that Hrdlicka is becoming the new CEO, labor unions have paused negotiations

In the press release about her appointment, Deloitte Restructuring Services partner Vaughan Strawbridge emphasizes that Virgin Australia won’t be turned into a full-on low cost carrier:

“I know there has been speculation about the shape of the airline into the future, and I have reaffirmed with Bain Capital that Virgin Australia will not be repositioned as a low-cost carrier. Virgin Australia will be a ‘hybrid’ airline, offering great value to customers by delivering a distinctive Virgin experience at competitive prices. This will appeal to the full spectrum of travellers, from premium corporate through to more budget-focused customers.”

Virgin Australia will once again be an all 737 airline

Bottom line

Jayne Hrdlicka will become Virgin Australia’s CEO as of November, when Bain fully takes over the airline. While she has had an impressive career, personally I’m not a fan of this appointment. She spent most of her career at Bain & Company, she ran an ultra low cost carrier (very successfully, admittedly), and she is not at all popular with union workers in Australia.

Add in the fact that Scurrah was supposed to be CEO even under Bain’s ownership, and I can’t help but feel like everyone will be coming into this a bit skeptical.

For me what made Virgin Australia special in the past was its amazing employee culture and product, and I can’t help but think that those won’t be the same with Bain’s ownership and Hrdlicka’s leadership.

What do you make of the leadership changes at Virgin Australia?

Comments
  1. Just a minor clarification though – Hrdlicka spent her time at Bain & Co., which is a consulting firm separate from Bain Capital (though they are closely linked and Bain Cap spun out of Bain & Co.). So she didn’t work for the PE firm specifically though obviously the relationship is close and she would have certainly done PE consulting work as part of her time at Bain & Co. given that’s a big part of their work.

  2. This was always on the cards. The plan all along is to covert virgin Australia into a ULCC. It’s not great for the passenger experience but you will get cheaper domestic fares and a lower paid workforce (not good). Still, the business model will work better and Bain will make money.

  3. “Virgin Australia will be a ‘hybrid’ airline, offering great value to customers by delivering a distinctive Virgin experience at competitive prices.”

    Has nobody learned the lesson that you can’t be all things to all people? You go for a segment of the market, and you stick with it. Airlines that try to compete with the ULCCs on price inevitably end up driving down service and losing the higher-end market. Do the reverse and you can’t compete with ULCC on price. It’s a no-win.

  4. Agree 100% with Ben’s Bottom Line observations. VA is on the road to ruin under Bain Capital with this woman at the helm. Expect major labor ructions (already started I see) between Bain and the unions.
    Virgin under Scurrah was an increasingly well respected airline in Australia, and a worthy competitor to Qantas. I have no idea what their so-called ‘hybrid’ concept will look like but I’m sure it will be greeted with very muted enthusiasm by former VA fan-boyz.
    Bain Capital have badly misjudged how to run this new acquisition IMO.
    As a certain person familiar with a failed airline would say: “Let’s see what happens”.

  5. The writing was also on the wall when Velocity starting cutting back on International Partnerships (on top of dissolving their own international flights).

    Plus there was also the two minute noodles in Business Class drama which also raised flags.

    Then there was also the Bain/Branson lockout over stake and branding negotiations.

    Safe to say that Virgin (or whatever they are called in the future) joining Star or SkyTeam is finally ‘dead and buried’.

  6. I believe that most in Australia who had been following VA for the past few year felt that Scurrah had the airline on the right track. He wasn’t trying to compete with Qantas so much, their international flying was appearing more successful and coming out of administration was only going to help the airline with costs/debt reduced.

  7. So the days of flying to LAX on my velocity points for free are long over. What a shame as it was truly great while it lasted

  8. Don’t forget that now Virgin have cut back on frequent flyer earnings too (as per Executive Traveller):
    “Velocity members will no longer earn any frequent flyer points or status credits when travelling on a codeshare flight by any partner airlines which carries a VA flight number.
    Oddly, it appears you’ll still be able to earn those Velocity Points and status credits on partner airlines as long as your booking is directly with them – on a flight bearing their ‘native’ code, such as EY for Etihad Airways and SQ for Singapore Airlines.”

    They also are cutting lounge access when travelling on partner airlines and partner airline upgrades too. I don’t think those will be reversed, could be the end of Velocity

  9. Adam L, you make a good point. One of the challenges for any player in the Australian market is that it is so dominated by Qantas, especially the lucrative corporate market. In some ways this is similar to the dominance that BA enjoy in the UK. Unlike BA though Qantas have had leadership that realises you can only cut things so far before customers start to push back.

    The reality is, I suspect, that no airline is realistically going to be able to compete with Qantas in Australia in that regard, rightly or wrongly many Australians regard Qantas with a huge degree of affection and it has staggering loyalty levels.

    Borghetti left Scurrah with an absolute dogs breakfast of an Airline (in much the same way Hogan did on his departure from Etihad). Yes, some people liked it and it was seen as ‘cool’ but the reality was it had hosed money down a hole for years with no clear line of sight to a way forward. We will never know if Scurrah would have been the right man to turn it around, although he seemed to be on the right track, but once COVID arrived the result for the business was inevitable.

    As to it’s future, well I would be less than optimistic. Firms like Bain are in it to make money and the damage to the brand during the administration process means that many will step away from it, combined with the inevitable decline in higher yield premium ‘corporate’ bookings that are inevitable in at least the medium term as we come to grips with COVID. Australia is an interesting country, I lived in both Melbourne and Sydney, and Australians love to jump on a plane from city to city just for an hour long meeting. With the fact that these have stopped now and we have managed through zoom, etc. you do wonder how many businesses will realise that these meetings aren’t all essential face to face and we see a longer term decline in the corporate travel market in Australia. If so that further reduces the case to spend a lot of money maintaining a premium product. If they want to play successfully in that market they have to have a fairly full network in Australia and that isn’t cheap.

    I suspect we will see a gradual slide into something more closely resembling a LCC. I simply don’t see how they can hope to do anything else with it in the short term. With REX and Jetstar also in play and a probable reluctance of the new owners to essentially keep tipping money in to it (and a much greater reluctance for Lenders or Bond Holders to provide debt capital) I can see this ending in tears. I wouldn’t be surprised if Vaughan Strawbridge and the team at Deloittes are collecting another large fee on this in a couple of years time.

  10. Service businesses rise and fall on culture/employees. If she gets the “people” element wrong, they’re doomed.

  11. @Adam L
    Totally wrong, sorry to contradict you.
    On the highly competitive LON-NYC route several carriers tried to compete with BA as low cost carriers. British United tried, and was bought by Caledonian who in turn tried and was eventually bought by BA. Notably Freddie Lakers “Skytrain” tried on the then economical DC10s all economy, only to find that BA undercut him to the point of loss leading, which he couldn’t do as he was all economy, and bottom line figure was bottom line figure.

    Along came Richard Branson with Virgin Atlantic. Positioning the high revenue end as “Upper Class” and providing chauffeur driven cars, this gave him the basic income to match BA on their cost cutting exercises, because he, like BA had the flight largely paid for without economy fares.

    Apart from the Covid crisis, Virgin Atlantic expanded worldwide based on this concept, with lounges, FF miles and all the other trappings.

    So from this I conclude that a “Hybrid” carrier, gaining revenue from business flyers to subsidise economy, should QF choose to start an economy price war, has a good possibility of success.

    It remains to be seen whether the new CEO is the right person to run such an organisation, because Richard Branson’s personality had much to do with staff and passenger loyalty, which does not appear to be the case here.

    I sense we have more of a Willy Walsh, Alex Cruz, O’Leary et al in Ms Hrdlicka. Perhaps she’ll try to get Australia to join the EU, so that she too, can use cheap Polish labour!

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