Virgin Atlantic: What does the airline filing for bankruptcy mean for travellers?

Virgin Atlantic: What does the airline filing for bankruptcy mean for travellers?


Virgin Atlantic is seeking protection from creditors in the US as it pursues a restructuring deal. The move has unsettled passengers and staff.

These are the key questions and answers.

What’s happening?

In New York, Virgin Atlantic has filed for protection from creditors in line with Chapter 15 of the US Bankruptcy Code as it seeks new funds to stay in business.

The word “bankruptcy” never looks great adjacent to an airline’s name, but Virgin Atlantic insists this is merely a legal requirement to shield its US assets: to protect the airline’s American interests against creditors while a £1.2bn rescue deal is signed off.

Virgin Atlantic’s lawyers told the court that it is a fundamentally sound business that has been hit by a crisis not of its making. The carrier says: “It is filing which supports the solvent recapitalisation of the airline.”

But they warned that if the rescue plan does not win approval, Virgin Atlantic could run out of cash next month.

A Virgin Atlantic spokesperson said: ”With support already secured from the majority of stakeholders, it’s expected that the Restructuring Plan and recapitalisation will come into effect in September. We remain confident in the plan.”

What’s gone wrong for Virgin Atlantic?

Sir Richard Branson’s airline has suffered more than any other UK carrier as a result of the coronavirus pandemic.

The clue is in the name: Virgin Atlantic focuses on transatlantic flights from London and Manchester, but they were effectively shut down in mid-March by President Trump’s ban on arrivals from the UK and the European Union.

Flights to Asia and Africa have also been hard-hit, and while the Caribbean islands are opening there is very little appetite for long-haul travel.

So in what should be a very profitable peak summer month, Virgin Atlantic is handing out refunds much faster than it is taking in money from future customers, with no immediate prospect of when it may be able to restart flights at scale.

Virgin Atlantic has already closed its Gatwick base and cut thousands of jobs because of the pandemic.

Is the airline actually flying?

Yes, but only a skeleton network which is carrying a fair amount of freight but few passengers.

For example Virgin Atlantic flight 4 from New York JFK touched down at London Heathrow earlier this morning, and departures for Los Angeles, New York and Hong Kong will take off later today.

But Virgin Atlantic has no significant money coming in, and instead has been handing back hundreds of millions of pounds in refunds – though far slower than the law demands, in turn causing problems for passengers and travel agents.

I have a future booking with Virgin Atlantic. Is my money safe?

Yes. The airline says it is confident about its long-term future. If you are not so confident, then as long as you have booked with a credit card or bought the flight as part of a package your cash is protected.

A more likely risk is that the flight will be cancelled, as thousands of other Virgin Atlantic services have been over the past five months. In that case you are entitled to a full refund (including for any component of the same journey that is not cancelled), in cash within a week. That’s what the law says, though in practice Virgin Atlantic customers are having to wait up to four months for their money back.

Virgin Atlantic owes me for a cancelled flight. Will I still get my cash?

The application for bankruptcy protection has no direct implication on the quest for retrieving money. Last week Virgin Atlantic vowed to improve the speed with which it is refunding customers.

Were the worst to happen, and the airline were to fail, then you should still have remedies from your card issuer or package holiday firm (or, should that fail too, the Atol scheme).

I have many frequent-flyer points with Virgin Atlantic. What happens if the airline goes bust?

Previous airline collapses have shown that loyalty points are lost – and flights already booked with them have no value. But Virgin Atlantic insists it has a bright future, once this crisis is over.

Can I confidently book with Virgin Atlantic?

I would happily do so – except that I have no idea when I will be able to fly to its destinations without restriction. That uncertainty is stopping me and millions of others from booking.

Could there be more job losses?

In line with other carriers, Virgin Atlantic is making around one-third of its staff redundant as it downsizes in the expectation of lower demand once flying begins again at scale.

The carrier is particularly exposed to a downturn in premium traffic on transatlantic routes, so further job cuts cannot be ruled out. But the bankruptcy protection filing has no direct impact.

Are other Virgin airline businesses affected by the coronavirus crisis?

Yes. Five months ago today, the UK regional airline Flybe went bust after it had apparently been rescued by a Virgin-led consortium.

The ailing carrier burnt through more than £100m of cash in a year and failed as the coronavirus pandemic took hold.

In April, Virgin Australia went into administration with more than £2.5bn of debts – though the 20-year-old carrier has today announced its own restructuring plan, with 3,000 job losses and a re-focus on domestic operations.


Source link

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a Reply

Your email address will not be published. Required fields are marked *