Great Southern Rail is an example of how management skills have been deployed through the VLCP program in turning a company around from the brink of failure to a viable tourism experience.
Great Southern Rail (GSR) owns and operates the luxury trans-continental
passenger rail services, The Ghan, The Indian Pacific and The Overland.
In 2015, Allegro Funds acquired GSR from its previous owner Serco. At the
time of Serco’s acquisition in 1999, GSR served an important role of
providing affordable transport to people travelling across Australia and
was heavily subsidised by State and Federal governments.
However, GSR suffered a major disruption to its business model with the
arrival of low cost airlines in the 2000s. Transport passenger numbers dropped rapidly, from more than 140,000 in 2005
to 40,000 by 2015. With declining passenger numbers it became untenable for
governments to continue the subsidies.
Without government support, GSR’s
existing business model was unsustainable and the business would be
severely loss making. As such, a new business model was required in order to turn the business
around, keep the iconic trains in service and retain the jobs of thousands
of employees supporting the business.
Allegro’s investment thesis was to
transform GSR from a low value transport operator into a high value
experiential tourism business. Allegro’s experience in transforming businesses, coupled with a highly
regarded and motivated GSR management team, were critical in ensuring the
transformation was a success.
Upon acquisition, the first step in the
transformation program was to create a sustainable stand-alone business,
completely separate from Serco and no longer reliant on government funding
to underpin operations. Once this was done, the transformation to luxury
rail cruiser began. This included a new vision to focus on providing
exceptional experiential travel experiences.
GSR CEO Chris Tallent said when Allegro acquired GSR it needed capital and
a dedicated focus to reach its potential. “With a suite of iconic assets
supported by a strong team, including Allegro and my management group, we
were well positioned to capitalise on the forecast growth of the luxury
experiential tourism sector in Australia.”
The business invested over $80m to upgrade the carriages and facilities
while reshaping the product offer and experience by creating richer
experiences, lengthening the journeys, all-inclusive offerings and unique
At the same time, the whole operating model of the business was redesigned
which included making the trains longer with reduced frequency and
significant investments into systems, data and capability to ensure the
business had the foundations in place to be a leading Australian tourism
business. This operational transformation laid the foundation for the next phase of
growth for the business.
During Allegro’s ownership, the business tripled
in profitability, the number of employees grew by more than 30%, forward
orders doubled and the business achieved world class net promoter scores.
Following a successful transformation of the business, Allegro sold a
majority stake to Quadrant Private Equity who have used GSR as the platform
asset for Journey Beyond, Australia’s leading experiential tourism and
leisure owner and operator in Australia. Under Quadrant’s ownership, GSR has continued to grow from strength to
strength and execute on the growth plans.
Through Allegro’s investment, GSR
transitioned off federal government subsidies, the businesses viability was
assured, jobs were saved and GSR continues to provide iconic experiences
that showcase the best that Australia has to offer.
A key aspect of the turnaround was the ability of Allegro to provide GSR access to financial capital as needed. This included the upfront acquisition and investment, as well as a structure that allowed the business to retain surplus earnings and funds without any obligation to have to distribute those funds to fund investors for otherwise tax or regulatory reasons.
In September, the Australian Investment Council lodged a very
important submission with the Federal Department of the Treasury in
response to the Venture Capital Tax Concessions Review which was
announced as part of the Government’s Digital Economy Strategy in
the 2021–22 Federal Budget. The review has been focused on how
effective VCLPs, ESVCLPs and AFOFs have been in attracting domestic
and foreign capital, developing innovation, and expanding venture capital
management skills and experience in the domestic market. Read the
Published February, 2022