Could coronavirus kill Virgin Australia? Experts warn already-struggling airline could COLLAPSE amid deadly outbreak - and it would give Qantas 'complete power' to jack up domestic prices
- Ratings agency Standard & Poor's had downgraded Virgin Australia's outlook
- It said the airline's prospects were 'negative' in light of coronavirus, bushfires
- Virgin Australia Holdings has share price of just 9.7 cents, a big drop in months
- Aviation analyst, banker feared the airline 'could collapse' because of high debt
- A Virgin Australia spokeswoman said airline had strong cash balance, revenue
Virgin Australia's share price is now worth less than 10 cents - sparking fears the airline could collapse as coronavirus stops Chinese tourists from visiting Australia.
A leading aviation expert also fears Australians would pay significantly more for airline tickets if Virgin struggled to service its debt and went into administration, leaving rival Qantas with a domestic monopoly.
Credit ratings agency Standard & Poor's last week downgraded its outlook for the airline from stable to negative, with the airline's losses during the past decade exceeding $2.1billion.
The carrier, co-founded two decades ago by British billionaire Sir Richard Branson, was also in danger of having debt levels six times higher than earnings, by the end of June, as the coronavirus worsened.
Virgin Australia's share price is now worth just 9.7 cents - sparking fears the airline could collapse as coronavirus stops Chinese tourists from visiting Australia. Pictured is co-founder Sri Richard Branson launching Virgin Atlantic flights from Sydney to London in 2004
'We revised the outlook to negative based on our expectation that restrictions on inbound tourism from Chinese nationals will cut Virgin Australia's earnings for fiscal 2020,' S&P said in a briefing note on Friday.
Virgin Australia shares fell by 7.6 per cent on Monday from 10.5 cents to just 9.7 cents - as the broader Australian market fell 1.9 per cent, marking the seventh straight day of losses.
Tom Youl, an aviation analyst with IBISWorld, said Virgin Australia's high debt levels threatened the viability of the airline, which employed 9,800 people.
'If it continues to stretch on, the amount of debt they have, there is going to be a concern there,' he told Daily Mail Australia on Monday.
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'In terms of actual viability of the company, it is of concern.'
A Virgin Australia spokeswoman however said the airline 'strongly rejected' suggestions its future was at risk, citing the listed company's $1billion cash balance and the retention of the B+ S&P credit rating.
'Our S&P ratings remain the same and there is no impact on our borrowing strategy or existing facilities,' she said.
'S&P's updated outlook for the business reflects their view that the industry will continue to experience challenging conditions over the next six months due to the coronavirus.
'Virgin Australia maintains a strong cash position in excess of $1billion and our recent financial results last week showed an increase in revenue and passenger numbers.
'Any speculation about the future of the business is untrue and misleading.'
Credit ratings agency Standard & Poor's last week downgraded its outlook for the airline from stable to negative, with the airline's losses during the past decade exceeding $2.1billion. It also expected coronavirus (Chinese city of Suzhou pictured) to reduce earnings by $75million by June 30
But Mr Youl said the Australian government may have to intervene to stop Virgin Australia from going under - and giving Qantas the power to push up airline ticket prices.
'There is some argument to suggest the government or any sort of regulatory body wouldn't want to see Qantas return to a monopoly in the domestic market,' he said.
'They'd have complete power, they could almost do what they want with prices.'
A Sydney investment banker, who declined to be named, told Daily Mail Australia the unpopularity of Virgin Australia's corporate bonds was a real worry in light of S&P's outlook downgrade.
'There is a danger they could collapse,' she said.
'Their bonds are really underperforming and there is a bit of concern that they will not have enough free cash to service their debt payment.'
Should Virgin Australia be placed into administration, it would the first collapse of an Australian domestic carrier since Ansett Airlines was wound up in 2002.
The airline industry in general is already struggling, with Virgin Australia's share price having fallen from 17 cents since September.
They have dropped from 13 cents since February 21.
Tom Youl, an aviation analyst with IBISWorld, said Virgin Australia's high debt levels threatened the viability of Virgin Australia, which employs 9,800 people
Meanwhile, the broader Australian share market has sustained losses of 13 per cent or levels approaching $300billion following seven consecutive days of decline.
'Because of coronavirus the market is in a really bad place anyway,' the banker said.
'Airlines are underperforming and people are not travelling.'
S&P also forecast the coronavirus outbreak could reduce Virgin Australia's earnings by $50million to $75million by June 30 - before the effects of the summer bushfires were factored in.
'In addition, Australia's prolonged bushfire season and softer economic conditions are contributing to a broader industry downturn,' it said.
It forecast the airline having a debt-to-earnings ratio of 6:1 by the end of this financial year.
Last year, tourists from mainland China were Australia's greatest source of international visitors, Australian Bureau of Statistics data showed.
Last year, tourists from mainland China were Australia's greatest source of international visitors, Australian Bureau of Statistics data showed. Pictured is Broadbeach on Queensland's Gold Coast
Still, the 1.453million Chinese visitors was up by just 0.9 per cent, with the weakest annual growth pace in almost a decade occurring before the first cases of coronavirus were confirmed in January.
Virgin Australia announced it would make a loss of $88.6million after tax in the six months to December 31.
During the past decade, its full-year losses have added up to more than $2.1billion, even when the years of profit were factored in.
Mr Youl said Virgin Australia had spent big on new, more fuel efficient airlines.
Despite that, it had failed to dent Qantas's hold over the business class market.
Virgin's budget offering Tigerair had also failed to steal sufficient market share from Qantas discount carrier Jetstar.
