A week on from the fan fare and hype in Australia for the re-branding launch of Virgin Australia. Urban Globetrotter takes an in depth look at the Virgin Australia outlook.

SIR Richard Branson landed last week with a pocket full of notes which he believes are the secret to becoming Australia’s best airline.  His personal assistant has the unenviable task of making sense of the scribbles Sir Richard takes when talking to his staff on flights around the world.

This pocket full of scraps has led him to installing new premium economy seats across the fleet which he believes to be “the most comfortable in the world”, food designed by celebrity chef Luke Mangan and in-flight gadgets galore.  All of which can be found on the airlines new A330-200 and Boeing 737-800.

“I flew in from America this morning and I have a pocket full of notes on little things like the new uniform and how we made it more comfortable,” Mr Branson said at the launch of Virgin Australia. “We make sure all these little things are right for the staff and to make sure they are 100 per cent happy.”

Virgin Australia CEO, John Borghetti, said it is the airline’s crew who decide ultimately what passengers will experience.  “We have consumer feedback, emails, random surveys but one of the most important elements of information is the crew because they see things every day and they know what works and doesn’t and what should be changed,” he said.

“The majority of the changes we have made have come from the crew. “We talk about the cabin interior and making seats bigger and more comfortable, but above all I think what the people want apart from a smooth operation is service – a friendly, genuine, engaging service and that’s something we have got and will continue to provide as we have but step up one more level, which we will,” he said.

Virgin’s much touted new service and “luxury” additions have raised questions about another increase in the cost of airline tickets, but Sir Richard counters with the belief that a better business class offering is the secret to keeping economy travellers happy.

“By capturing the business traveller on Virgin Australia, that will enable us to afford better seats in economy and it we can then also address the fare problem and be more competitive,” he said. So it seems that a premium economy will offset a normal economy when it comes to flight tickets in this very crowded airline market.

John Borghetti has had something of a bumpy journey since he took the helm of Virgin Blue last year, with Queensland’s floods and cyclone, stratospheric jet fuel prices, flight delays and regulatory rejections making for a challenging start to his tenure. It does seem that finally the pieces of his strategy are falling into place.

A key plank of the Borghetti strategy of shifting his airline – rebranded Virgin Australia last week – slightly up-market to compete with Qantas for business travellers has been to create a virtual international network through alliances with other, bigger carriers. There are a number of rationales for the strategy, which is broadly aimed at boosting the volumes and importantly the yields of passengers carried on its domestic network, which today is too heavily oriented to the leisure end of the market in massive competition with Tiger Airways and badly over-exposed to the Queensland market. Virgin needs premium airlines in Asia so that it can provide corporate travellers with a network that links Australia to Hong Kong, Shanghai and Tokyo.

 ASIAN FOCUS

Its plans for Asia could include tie-ups with several airlines. The Virgin Australia chief executive John Borghetti said the deal’s approval allowed Virgin to focus on the last plank of its international strategy aimed at cementing alliance partners in Asia by the end of this year.

VIRGIN Australia will step up efforts to find airline partners in Asia after finally securing the rights to form an alliance with Delta Air Lines on the Australia-US route.  In a timely boost for the Australian airline, the US air regulator has reversed its decision to block the joint venture with Delta because the airlines had made ”substantial changes” to their initial application. Virgin made a ”very small profit” on the Australia-US route in the first half of this financial year, but Mr Borghetti hinted that it had fallen back into the red since fuel prices soared early this year.

The deal is part of Virgin’s strategy to snare a bigger share of the corporate travel market from Qantas.

There is a gap in Virgin Australia’s coverage, which Borghetti freely acknowledges. He needs at least one more alliance of some kind in Asia. He says there will be something in place before the end of this calendar year.   ”Right now what we are focused on is bilateral alliances. The only part missing is Asia,” he said.

Industry insiders consider Malaysia Airlines or Japan’s All Nippon Airways as likely alliance partners. Singapore Airlines would be the best bedfellow but is less likely, especially with the new announcement of Qantas’ intentions to set up a rival premium Asian Airline.

Qantas, of course, through its Jetstar brands, has a big head-start on Virgin Blue in Asia, with one of the bigger and faster-growing networks in the region. At the very least Borghetti would want to be able to shadow some of Jetstar and Qantas’s more important routes into and within Asia.

ALLIANCES

From its original launch Virgin Blue’s strategy has been to try to have a presence on as many of Qantas’ profitable or strategically valuable routes as it can across the pacific.

The alliance with Air New Zealand, however, (an alliance initially opposed by the Australian Competition and Consumer Commission, which subsequently changed its stance) also allows the allies to co-operate to manage capacity better and improve the economics of an over-serviced route.

A similar relationship, for similar reasons, with Delta Air Lines on the trans-Pacific route was also rejected by the US Department of Transportation on anti-trust grounds, before it, too, changed its mind. Today Virgin Blue announced the department planned to grant the allies anti-trust immunity.

Yet another alliance with Etihad Airways, has had a smoother passage, perhaps because Virgin had no capacity on the Australia-Middle East-Europe routes that Etihad flies.

With its three alliances now approved (the US approval needs a final confirmation) Borghetti ought to get some synergies from the trans-Tasman and trans-Pacific co-operation but he now has alliances that connect his business to both Europe and North America – the deal with Delta will give him access to more than 200 destinations in the Americas.

Virgin Australia will be able to connect its passengers with Delta and Etihad’s and Air NZ’s networks and enable them to earn frequent flyer point, and vice verse. Now that it has the right to use the Virgin brand for its international services, Virgin Australia has significantly increased the potential of its trans-Pacific operations and can really step up the fight against its bigger and financially more powerful competitor Qantas as Virgin is a highly recognised brand in North America. Borghetti it should be remembered is a Qantas veteran and knows his competitor inside out. By seeking to add another dimension to the basic strategy and use an up-market international product he is hitting Qantas right where it hurts.

The Qantas international frequent flyer program is highly profitable and if Virgin can offer a similar program across its new alliances and a re-worked domestic product to boost his volumes of business class travellers it will undermine the yield premium Qantas enjoys because of its dominance of the business segment.

It may take some time, but even relatively modest shifts in business travel market share could have quite material effects on Virgin Blue, and Qantas. Which as promised, will ultimately lead to better Airline ticket prices for all Virgin Australia customers.

The New Virgin Australia at a glance:

• New look Aircraft Inside and out.

• Upgraded Premium Seating, Gourmet Menu, Uniforms and In-flight Entertainment.

• Remodelled Premium Lounges and Limousine services.

• New Expanded International Routes through Alliances.

• Improved customer services and ammenities.

So how does this fit with you? Some have called this latest move the last throw of the dice for Virgin in Australia, who have been in financial trouble for some time.  Will you be tempted back to Virgin Australia for extra amenities even if you have to pay a little more?

What are your thoughts? Just drop us an email at: urbanglobetrotter@gmail.com

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