Virgin Australia has quietly exited three short-haul international markets in the South Pacific. While no Virgin Australia’s international flights presently operate, some people hold tickets for travel purchased before the travel downturn and subsequent route suspensions. Last week, an update to Virgin Australia’s commercial policy regarding passenger protection for ticket purchases revealed Virgin Australia has permanently withdrawn from the short-haul international markets of Nukuʻalofa in Tonga, Rarotonga in the Cook Islands, and Port Moresby in Papua New Guinea.
Exit quietly confirmed in an updated internal Virgin Australia policy document
The airline updated its policy on January 14. The update sets out the rules and protocols regarding refunds and changes for tickets bought before April 20, 2020, for future travel.
Before the 2020 travel downturn and Virgin Australia’s subsequent collapse, the airline had a limited long-haul international network and several short-haul international destinations in New Zealand and around the Oceania region.
The airline won’t be going back to long-haul flying anytime soon. Aside from border issues and a slump in demand for long-haul travel, Virgin Australia has offloaded its long-haul aircraft. These days, Virgin Australia exclusively operates Boeing 737-800s. That aircraft is perfect for short-haul international flying around the region. Virgin Australia has previously said that it intends to return to international flying. But it doesn’t say when that will occur. However, the airline has said would look at regional short-haul flights first.
Buried in the fine print in the January 14 Virgin Australia policy update is confirmation of withdrawal from Tonga, the Cook Islands, and Papua New Guinea. Given the airline doesn’t currently fly there, that’s not exactly news. But it reveals Virgin Australia doesn’t intend to re-enter these markets once they resume short-haul international flying.
The decision leaves the Cook Islands market to Air New Zealand and potential startup airline Pasifika Air. Until international services were axed, Virgin Australia also offered the only nonstop service between Australia and Tonga. When travel does resume, passengers will now have to transit via Auckland or Nadi.
Virgin Australia’s exit narrows Australia – Papua New Guinea market to just two airlines
It leaves the small but important market between Australia and Papua New Guinea to Qantas and Air Niugini. Right now, only Air Niugini has flights running but owing to Australian Government arrival caps, no flights are available to book until the next quarter. According to Australian Government statistics, in the 12 months to December 31, 2019, 283,398 passengers flew between Australia and Papua New Guinea. There were 496,314 seats available, indicating an average passenger utilization rate of 57.1%.
Before the travel downturn, Virgin Australia flew between Brisbane and Port Moresby five days a week using Alliance Airlines Fokkers on a wet lease arrangement. In 2019, 28,865 passengers boarded a Virgin Australia flight to or from Papua New Guinea. Over that year, the seat utilization rate was 50.5%. Coming back to Australia, the flights carried 118 tonnes of cargo over 2019.
Despite typically hefty airfares on routes between Australia and Papua New Guinea, a 50.5% seat utilization rate will not please the bean counters at Virgin Australia. In part, that may explain why Virgin Australia is now giving Port Moresby the cold shoulder. But there’s another layer to factor in.
Virgin Australia can’t repatriate hard currency from Papua New Guinea
Papua New Guinea is short of foreign currency reserves. The local currency, the Kina, is in long term decline against most hard currencies, including the United States dollar and Australian dollar. Consequently, a few years ago, Papua New Guinea’s central bank began to restrict the outflow of hard currencies from local bank accounts.
Buried on page 78 of the August 2020 Administrator’s report to Virgin Australia creditors is the revelation Virgin Australia can’t repatriate their Australian dollars from Papua New Guinea. The equivalent of around US$7.75 million is stuck in the country. The administrator’s report says the monies are;
“… trapped due to a shortage of Australian dollars in Papua New Guinea. As a result, these funds are not expected to be released from Papua New Guinea.”
It’s not the first time an airline has been unable to get money out of a country owing to a cash crunch there. However, it’s not the kind of situation that encourages an airline to start flying back in again.