Staking a claim

“Launching it last year in the midst of the GFC, at the tail end of a fuel crisis, a Boeing strike and a fourth airline coming on – if you wanted to write a book, you probably couldn’t have got a more clouded outlook,” outgoing Virgin Blue Group CEO Brett Godfrey told Australian Aviation in an interview during early April.

But, he added, things are looking much better for the carrier. “Twelve months on, we’re seeing the wood for the trees and we’re seeing some very positive signs, so much so that we still think that come September we’ll be making money. ” Data from the Bureau of Infrastructure, Transport and Regional Economics (BITRE) also tells a positive story, with V Australia consistently achieving healthy load factors of between 70-98 per cent across its network during the last quarter of 2009.

As it was originally conceived, V Australia was to be largely focused on the trans- Pacific market, competing primarily against Qantas and United Airlines on the Sydney- Los Angeles route where it operates daily services. In addition, it added three times weekly flights from Brisbane to Los Angeles in April 2009 and in December began twice weekly services from Melbourne.

While promising much in years past, the Pacific market has proven challenging for the carrier, with the global financial crisis savaging demand and the entry in July of Delta Air Lines with its daily 777-200LR services on the Los Angeles-Sydney route adding greater competition. The ongoing introduction of Qantas’s A380s on the route and additional seasonal services from United has also kept capacity up, with no signs of any of the competitors withdrawing soon.

“The trans-Pacific route has always been held back, and the fact that we now have four quite solid players on it means that prices have tumbled. Prices have probably tumbled a lot more than we expected – we would like them to be about $200-$300 more expensive,” said Godfrey.

As a result of the challenging conditions, V Australia was forced to make some adjustments to the market over the year, including dropping one of its planned three times weekly nonstop Melbourne-Los Angeles services. The launch of these services was also pushed back from an originally planned date in September to December 1.

Another tactical move over the year by the airline has been to reallocate some of its capacity away from the bloodbath which the Pacific had become. “When we saw the demise of the market and impact of the GFC and particularly the impact itwas having in the US, and also some other regions in Asia, we started to change our thinking towards maybe we should redirect some of our new capacity into some interesting markets,” said Godfrey.

“Australia was a standout economically, and so instead of looking at markets where we were reliant upon inbound traffic, we thought that we needed to look at some outbound markets where Australians were travelling to,” he added.

Part of that thinking was based on the success that the Virgin Blue Group had in redeploying Boeing 737s from the domestic market into Asia. “We took a lot of capacity last year [from Virgin Blue] and threw it into Bali on the short haul. On the long haul, we thought that Bali was working, so we thought Phuket was going to work. ” That appears to have been a correct judgement, with BITRE data showing that on the 13 outbound services to Phuket the airline operated in December, load factor for the month was a whopping 91. 6 per cent, with similar figures reported in January.

“Truth be known, we may not stay in those markets – not with the 777s – because ultimately long term we would probably rather use the range of them to fly to other destinations,” said Godfrey. “Having said that, the routes have more than met our expectations. ” Another route launched by V Australia in December was the daily Sydney-Nadi service. While this has also spread its network, the primary driver behind the service was to increase utilisation of the airline’s 777 fleet, as it takes advantage of an aircraft which would otherwise be left sitting on the ground at Sydney.

A further expansion of its market came on March 1, with the launch of its first services on the Melbourne-Johannesburg route, opening up a new city pair on the Australia-South Africa market. The route is now flown twice weekly and is reportedly experiencing strong demand.

Godfrey says that flying to South Africa from Melbourne made sense, as it was not being served by the incumbent Qantas- South African Airways duopoly. “We knew that Sydney and Perth had the two largest South African populations. Melbourne was a great story (in terms of market potential) and Brisbane wasn’t far behind,” he said.

V has now earmarked the route for more capacity, announcing on March 1 that it will add a third weekly service to Johannesburg from December when it receives its fifth 777.

V Australia’s 777s are configured to carry 361 passengers, comprising 33 business class seats, 40 premium economy seats and288 economy seats. Unlike some other carriers, V Australia’s 777s feature a less dense nine abreast seating in economy class, which allows for wider seats.

While still small, V Australia has been turning heads in the industry. In October, the carrier won the Best Overall award in the small airlines category at the World Airline Entertainment Association’s Avion Awards for its RED interactive inflight entertainment system and business class product.

Then more recently a Choice magazine survey rated V Australia as the second best carrier on the US route, being beaten by one point by Singapore Airlines which does not fly to the US direct. In particular, respondents scored the airline’s value for money and inflight service highly.

With its services to the US particularly viewed as a business-heavy market, Godfreysays that V Australia has been quietly building up its presence in that market. “We are the new kid on the block so we are not going to be able to tap into 100 per cent of the available business market. But we have high net worth individuals and the Hollywood set where we’ve done very well there,” he said.

Godfrey also noted that V Australia is hoping to gain some traction in the government market, and sees its late night service from Sydney to Los Angeles as offering a convenient connection for politicians and bureaucrats from Canberra.

“We’ve already had the deputy prime minister on board and the comment was it worked, because basically you didn’t have to leave parliament early. ”

Working partnerships

With its own services now consolidating, Godfrey says that a key for V Australia is now building on its partnerships with other carriers, particularly in the US.

“We’re just bringing on those partners now,” he said. “We launched without a single partner, so at that stage we were a Sydney-Los Angeles centric airline which was difficult as 60 per cent of the traffic flows on to the rest of the US. ” Initially, V Australia launched with a few interlining agreements with Delta and Alaskan Airlines, and more lately has added an interline with Continental Airlines.

Since February, it has started codesharing on Delta services to a number of key cities in the US from Los Angeles.

While it has been open to working with multiple partners in the US, there is little doubt that for the Virgin Blue Group, its primary relationship going forward will be with Delta. The two airlines announced in 2009 a proposal for a wide ranging joint venture arrangement, which would see the two airlines pool revenues and services across the Pacific and coordinate on fares, schedules and even product.

Despite some protests from carriers such as Air New Zealand, the Australian Competition and Consumer Commission approved the proposal in December. The two partners are currently awaiting the granting of antitrust immunity from the US Department of Transportation.

“We would hope that it is sooner rather than later, and when that happens we can actually start to talk,” said Godfrey.

“This is not like some joint ventures where it is about rationalising capacity, this is about trying to have a stronger presence which is better than the two individual airlines,” he added.

Once this starts, it will give V immediate access to Delta’s daily service on the Sydney- Los Angeles route, which Godfrey says will give it more appeal in the corporate market.

“With Delta coming on, they have the first flight out of the morning which bodes well for the corporate market, having the first flight out and the last flight out. ” Added to this, the carrier is also working towards a closer relationship with Virgin America, which it shares its terminal with at Los Angeles. With VA focused on long haul services from LAX, once a full codeshare is implemented it will allow for more options other than Delta, particularly for onward connections to San Francisco, New York, Washington DC, Seattle, Boston and Fort Lauderdale.

Most recently, Virgin Blue signed a partnership with Virgin America which will allow Velocity members to earn points on Virgin American services, widening the potential of that relationship for V Australia passengers.

Closer to home, V Australia has a codeshare agreement with Emirates on some of its services from Auckland and Christchurch to Sydney. While these services compete to some extent with sister carrier Pacific Blue, Godfrey explains that the Emirates codeshare allows for better connections to its outbound Los Angeles service from Sydney. “The reason we codeshared with them in the first place is that they connected very naturally with our flight out of Australia, whereas with Pacific Blue it was something like four hours connecting time,” he said.

In addition, the codeshare has helped to build up its offerings to the high end market.

“What we were focusing on there was connecting our corporate and business class traffic on them. Emirates business class into Sydney, V Australia business class over to Los Angeles has been quite successful,” said Godfrey.

“We price it in such a way that we’re not losing money on it. We make sure that whatever we have to cough up to Emirates we more than recover on the ticket itself, and we encourage people to go on PB if they want a cheaper ticket. ”

Going Boeing

As the first Australian operator of the Boeing 777, Godfrey is full of praise for how V Australia’s four aircraft have operated.

“I think it’s fair to say we’ve found that it’s been an exceptional aeroplane – not just from a customer perspective but from an operational performance point of view,” he said.

As evidence, he points to the fleet’s impressive dispatch rate of 99. 5 per cent, which is slightly above the 99. 3 per cent for the Virgin Blue 737 fleet. The 777 has also managed to avoid major aircraft-on-ground issues, and as of late March has only seen one diversion which was due to an onboard medical issue.

“The aeroplane goes when it’s meant to go, and when you’ve only got four of them, it’s pretty important that it goes when its meant to go because your recovery options are horrendously expensive,” said Godfrey.

V Australia is slated to receive its fifth aircraft in December. As a result of a delivery delay the carrier instituted during 2009 due to the financial crisis, it will be a further 18-20 months before the sixth and seventh 777s arrive.

Godfrey does admit that he would now prefer to bring those deliveries forward.

“Hindsight’s a wonderful thing,” he mused.

“Originally, aircraft six and seven were slated to be coming in about now and we deferred them because of the GFC. Would I like them to be coming in now? Yes, but would I make the same decision as I made 12 months ago? Yes I would, because it was a very rapid time and I think it was a wise and conservative decision. ” “The reason I would like them is because of the overheads and cost base, as it would have helped to build up the scale,” he added, noting that with the arrival of the fifth aircraft the fleet’s utilisation should grow to 17 hours per day from the current 15.

In addition, Godfrey also notes that the airline is looking to expand the aircraft’s capabilities, which could allow it to stretch the network further and optimise some of its routing. “We’re looking at the moment at getting 240 minute extended diversion time on the aeroplane, and we think it’s very possible,” he said.

Looking forward

With the airline surviving what IATA has labelled as the worst crisis in the jet age, V Australia appears to be on a firm footing, and is now entering a consolidation phase.

“There’s another aeroplane that comes in the end of this year, and we’ve already flagged that we’re going up to three times a week on Johannesburg-Melbourne, we’re going to do another Melbourne-Phuket, another Melbourne-Los Angeles and probably another Brisbane-Phuket, but we’ve not yet decided on that one,” said Godfrey.

“We want to get these markets nailed down,” he added. “Long haul is different to short haul, it takes about two-three years to get to a state of maturity, whereas with short haul it can take as little as six months or less. ” Nevertheless, the airline’s management is always keeping its eye out for opportunities.

“We’ve got a day-to-day list of 60 potential markets – some very poor, some quite exciting – and we continue to look at them,” said Godfrey.

That could open the possibility of adding a new, smaller widebody to the fleet which could operate on medium haul routes. “We haven’t spent a lot of time talking about other widebodies, but it does make sense.

Again, it’s a part of our development and it may happen, it may not – it’s just something logical for V to look at,” said Godfrey.

He also confirmed that the airline has looked at the longer ranging 777-200LR, which some reports say the airline is considering ordering to serve ultra long haul routes, such as nonstop Sydney-New York and Perth-London services. Nevertheless, V Australia has not yet committed to taking on any of the type.

In any case, those decisions are likely to be left up to new Virgin Blue CEO John Borghetti, who in May will take over from Godfrey. At a February press conference, Borghetti was tight lipped about his future plans, but most commentators expect that he will put a greater focus on growing V Australia in the coming years.

Some of that growth may be required to head off further competitive attacks on the Pacific market, with Singapore Airlines indicating recently that it intends to lobby the Australian government again to allow it to fly on the Pacific route.

Whatever lies ahead, Godfrey makes it clear that the airline will follow in the mould of Virgin Blue and remain flexible.

“One of our successes over the years was not being predetermined about a model or how we go about making money, it’s basically about making that call when you need to. ”