Like many companies and businesses, Richard Branson’s Virgin Group has fallen victim to the effects of the Covid-19 Pandemic. While Branson has built an empire over the years, its future relies deeply on leisure and travel, which the Pandemic has directly threatened.
Both Virgin Atlantic and Virgin Australia, Branson’s airlines are struggling, especially when flights around the world were grounded. Though the use of flights has slightly picked up over recent months, Virgin and other companies are not making nearly as much profit as they once were and have been unable to recover the losses faced since March 2020. Also, Virgin was planning on a cruise line making its maiden voyage in the Spring of 2020, which was inevitably delayed. In a similar fashion to most of the world’s hotels, Virgin’s chain of boutique hotels has had to reduce intake and shut down a few open hotels.
Consequently, the company needs funding. Virgin is putting a lot into their space tourism ventures at Virgin Galactic and is selling up to 25 million shares to raise capital for Virgin Group’s global leisure, holiday and travel businesses.
Virgin Atlantic Airways
During the Pandemic, both of Branson’s airlines, Virgin Atlantic and Virgin Australia, have filed for bankruptcy. This came as a wake-up call to many, if an empire like Virgin can suffer so deeply, how are the rest of us supposed to survive? The long-standing effects of the Pandemic are a whole other issue to discuss.
In 2020 Virgin Atlantic attempted to obtain a £1.2 billion rescue plan (equivalent to $1.6 billion) filing for Chapter 15 bankruptcy protection in New York. Filing under Chapter 15 allows foreign companies to go through US bankruptcy courts to acknowledge their company’s restructuring efforts that are taking place outside of the US. This also recognises that though the company is liquidating operations, it is not yet going out of business.
However, on the other hand, Virgin Atlantic stated in a London court that the company would run out of cash if the rescue plan is not approved. To save the company, Virgin Atlantic is trying to renegotiate leases on its planes and on loans it has taken out but cannot repay. In their favour, Virgin Atlantic has an asset management firm that has agreed to loan them £170 million, once stakeholders approve of the five-year agreement, the loan will save Virgin Atlantic from immediate financial forfeiture. In a court statement, Virgin Atlantic has alluded to the fact that shareholders will contribute to the remainder of the rescue plan while £200 million will come from the larger Virgin Group, cost savings, and private investors.
Virgin Active
Virgin Active is another company under the Virgin Group and has 243 health clubs globally at the end of 2019, with more than half in southern Africa and others in Italy, Australia, UK, Singapore, and Thailand. The company has attempted to mitigate Pandemic-caused losses in several ways, for instance, senior staff took a 20% pay cut during closures. However, they still took an additional loan of £25 million in June 2020, which was then matched by shareholders and further bettered by deferrals of licence fees. Even still, according to industry insiders, Virgin Active is looking to raise millions in cash through the sale of equity to stay in business.
It isn’t over yet…
The ongoing Pandemic has had a massive adverse impact on all companies, especially in industries that have been direly suppressed, such as tourism, travel, leisure. Virgin Group and its companies have attempted to manage their liquidity in light of unforeseen, unprecedented conditions in terms of both finances and operation. However, the Pandemic is still raging strong as ever, the Virgin travel and leisure empire will continue to face setbacks, as many others will. Virgin Atlantic’s rescue deal can be considered a huge effort in securing private sector funding and may also set as a ‘precedent’ of sorts for other similar companies who fear falling into bankruptcy. The road ahead is long and uncertain, it is unpredictable and can change every day, it is important for Virgin Group to remain vigilant, to read data, and continue in efforts within the conglomerate that would further mitigate losses. It is unlikely a loan will be granted, Branson’s empire must be prepared for this.
