The Goldilocks Strategy

While the new VB chief has yet to speak publicly about his remake of the airline, plenty of detail has emerged, and the planned changes are comprehensive.

His list of changes already implemented, underway or expected includes: a significant management reshuffle; recruitment of senior execs from Qantas; the merger of the management of V Australia into the VB parent; plans for a new single brand and livery and standardised products for the existing Virgin Blue, V Australia and Pacific Blue operations; significant product innovations and improvements including a proper domestic business class as part of a focus on business and high yielding traffic; new uniforms for flight attendants, customer relations staff and pilots; terminal and lounge refurbishments; and even the acquisition of new widebody airliners (such as 767s or A330s for domestic services).

The strategy seems fairly obvious – to go after Qantas where it hurts the most, and where there is the most revenue growth potential for VB – the premium market. But the strategy seems to be to hurt Qantas in other ways too, particularly in poaching key Qantas execs to work at the Virgin Village.

It’s worth remembering that Borghetti worked at Qantas for 36 years. Although his inside knowledge is dating by the day, he does know his former employer’s strengths and weaknesses intimately, what its network strengths and weaknesses are, the keys to the success of its frequent flyer program, its yield management secrets, and so much more.

It’s a strategy that makes sense too when set against VB’s recently lowered profit guidance for the financial year just completed, down significantly on the back of weakness in the leisure/low fares market.

Borghetti has indicated that the low fares leisure market will still form a core business at Virgin Blue, but the premium traffic push has the potential to both significantly bolster VB’s bottom line, diversify it away from over-reliance on one segment of the market, and at the same time significantly hurt its biggest competitor.

In effect it is the opposite to the Qantas two brand ‘pincer’ strategy of Qantas mainline at the top of the market and Jetstar in the low fares segment at the bottom. It’s more of a ‘Goldilocks’ strategy, if you will, not too hot, not too cold, but just right. Certainly there is sense in covering the premium and leisure markets with a single brand and operation if it can successfully straddle the competing needs of those two segments, without the overheads of separate business structures.

So as VB approaches its 10th anniversary, it’s clear the entrepreneurial age at Virgin Blue under founding CEO Brett Godfrey is at an end – as if to underscore that, Virgin Blue announced to the Australian Securities Exchange in early July that Godfrey had resigned as a director of the company.

It’s becoming clearer by the day just how this new age at Virgin Blue is shaping up.