Blue No More

And given Borghetti has been CEO of Virgin Blue/Australia for barely 12 months, implementing all this while at the same time renewing much of the airline’s executive management team, having to cope with last September’s crippling outage of its New Skies reservations system, plus mitigating the rise and rise of fuel prices, rolling out the game change elements in such a short timeframe is a laudable achievement.

Now the next 12 months to two years looms as a time of execution, arguably as big a job as devising and rolling out a new strategy in the first place. And successful execution will rely on selling to the travelling public the message of just what Virgin Australia is, and how it differs from both Virgin Blue before it, and Qantas in competition against it.

Judging by opinions expressed on various websites and blogs in the aftermath of the Virgin Australia launch, sentiment can generally be summarised as a little underwhelmed by the new branding and livery, at least as it is used on the aircraft itself, but a general enthusiasm for the aircraft interiors and more generally for the initiatives aimed at business travellers.

Having attended the media launch and having the opportunity to look over the new interiors, your editor can attest to the attractiveness of the onboard product Virgin Australia now offers (business class flights begin with the new A330 Sydney-Perth services launching on May 26). If the aircraft liveries are a little plain – it is still a smart, more corporate look that has instantly dated the old Virgin Blue scheme – the aircraft interiors look terrific, especially on the brand new 737 with its ‘Boeing Sky’ interior (admittedly, Qantas will soon take delivery of its own ‘Boeing Sky’ fitted 737s).

The business class seats look smart, are comfortable and roomy, and even economy class with its new grey leather seats and grey, purple and red headrests looks classy, and a world away from the current Virgin Blue blue leather with red trim seats. It looks to be a compelling product, with the business cabins as good as any domestic business anywhere in the world.

Qantas should be concerned, and its deployment of internationally configured A330s and 747s on the Sydney-Perth route in response (with their Skybed business class seats) is a good indication of how seriously it takes the threat. If Borghetti is successful in his aims, he will have wrested about 10 percentage points of business market traffic off his former employer, a not insignificant number. And there seems to be a willingness among some business travellers (particularly among former Ansett fliers) to at least give the newcomer a try.

Borghetti’s target of a 20 per cent business traffic share is not unrealistic, as he notes that his airline flies about 30 per cent of the capacity in the Australian domestic market, but has only about a 10 per cent share of the business market.

But as much as the onboard product is important, this will be a battle fought with an armoury that also includes airport lounges and frequent flyer schemes. The latter is currently Qantas’s ace in the hole, but Virgin is promising to launch an “all new” scheme later this year.

Frequency and on-time performance are critical too.

Ironically your editor flew to the Virgin Australia launch on Qantas, as between Canberra and Sydney Qantas has a much better frequency of service, and is usually no more expensive.

And in on-time performance Virgin Blue has lagged Qantas by a big margin (82. 7 per cent of Qantas flights arrived on time in March, compared to 76. 4 per cent of VB flights, according to BITRE). Borghetti has set new group executive operations Sean Donohue with the task of improving on-time performance.

As always, cost control will be a critical factor, and a key challenge for Virgin Australia will be to keep its cost base low while offering the frills that attract business travellers and corporate accounts and remaining relevant to its price sensitive leisure customer base.

Borghetti admitted to media at the Virgin Australia launch that his airline no longer had a low cost carrier cost base, and replacing economy class seats with business automatically pushes up the per seat unit cost.

So yield will be critical, and that will come from having a value for money offering competitive to Qantas’s.

It will be fascinating to watch the Virgin Australia strategy play out. It is certainly clear that the game is changing.