Change agent

“It’s been a lot busier and it’s been a lot more full of challenges than I think anyone in any airline may have expected,” Borghetti told Australian Aviation of his first 12 months in an interview in his Sydney office in early June. “And if I take a step back and think the events that we have gone through just as a business over the last 12 months – forget the Game Change, forget all the changes that we are doing – but just as a business they have been phenomenal, everything from floods, cyclones, computer shut downs issues, downgrading, fuel, currency. Put them all together and in any airline they would say that is an incredible year to deal with.

“We had to deal with all of that but on top of that we have also had the Game Change strategy to basically totally change the strategy. So whilst we had to cope with all these events we didn’t let them get in the way of doing what we did, and the only reason we have been able to do it is, frankly, because we have a great team and by a team of people I don’t mean in management because we have a great team of management, but we have a great team of employees and staff and that makes that job a little bit easier.

“To be honest I’m staggered at what we have achieved given the hurdles that have been thrown at us and I’m immensely proud of what the guys have done.”

The pinnacle of those achievements was the May 4 launch of the Virgin Australia name, branding and livery, and new interiors featuring business class (see June AA). Those are the most visible elements of the Game Change strategy to reposition the airline as being much more relevant and attractive to business travellers and corporate accounts, while still remaining relevant to leisure passengers. Other key elements of the strategy have included alliances with Etihad, Air New Zealand, Delta and Singapore Airlines aimed at giving Virgin a virtual international network; acquiring widebody A330s for domestic transcontinental services, setting up, in partnership with Skywest Airlines, a regional operation to use soon to be delivered ATR 72 turboprops; axing unprofitable routes and aircraft (in the six Embraer E-170s), and product initiates such as valet parking and new lounges. More, such as a reinvigorated frequent flyer program, is to come.

“It’s been terrific – it’s had its moments, but I said 12 months ago and I still believe it, what we are trying to do in basically a 12 month period in the last 12 months is what an airline would take at least two years to do. Because if you think about it and you say, look the first month in my role was really getting to know who is who and all the rest of it – in the middle of a downgrade by the way, then you had to formulate a strategy, bring everyone along with it, implement the changes, convince the market, so that really only leaves you about the last 10 months to do that in. And look at what we have achieved. I don’t know of any airline that has done this, certainly not in this part of the world, so it has been interesting.”
Interesting is perhaps something of an understatement of describing Borghetti’s first 12 months, and his achievements. But interesting too is just what he has in store for the airline over the next 12 months, and beyond.

“If we think we have changed a lot in 12 months, and we have, it is nothing compared to what we are going to change in the next 12 months, and I mean that,” Borghetti promises.

“I don’t spend much time now [on the Game Change Strategy]. “I would say that probably 30 to 40 per cent of my time now is actually thinking of 2013, 2014 and 2015. The game change strategy … is there, it is being done, I don’t have to focus on that now because the guys are just doing it. So my mind is already “what do we have to do for 2014”.

That executive team implementing the Game Change Strategy is another of Borghetti’s major changes. Borghetti has appointed several new executives at the airline, giving him an almost a new look management team compared to that which served under his predecessor and founding Virgin Blue CEO Brett Godfrey. From the Godfrey era Martin Daley has taken on the expanded role of group executive product and guest services, Merren McArthur remains head of legal, and Richard Tanner remains in charge of HR.

But the rest of the senior managers are effectively all new. Group executive commercial Liz Savage joined Virgin Blue in the last months of Godfrey’s tenure, while there are new heads of operations (Sean Donohue, ex United), government relations (Jane McKeon, ex Qantas), and corporate comms (Danielle Keighery), while Sankar Narayan has replaced Keith Neate as chief financial officer. Another key change was eliminating long haul subsidiary V Australia’s separate management structure, while a number of other well regarded ex Qantas managers have come onboard at Virgin, including Will Owens (at Qantas in charge of pricing, at Virgin now responsible for yield management), and Roger Lindeman (at Qantas in charge of airport customer, at Virgin Australia GM service experience.

These have been significant internal changes that have matched the more visible external changes of a new name, livery, and inflight product.
“I think it is fair to say that in any business, in any industry, when a new CEO comes in with a strategy that is different to or an evolution of the existing strategy, decisions have to be made not just on capability within the business but also within the business decisions have to be made about who does want to do this and who doesn’t, so it is inevitable that there will be management changes, whether it is because of skill gaps that need filling or whether it is because of different views or whatever it might be.

“So it is not unusual, and when you think about it, sure we bought in new management and we have put in skillsets that are required for what we are about to do – that’s not to say that there weren’t skill sets here that were very good they are very good – but you are going on a different strategy with slightly different skills so we bought those skills in.

“But if you look at it in total terms, even though we have bought in a lot of people we really haven’t bought in that many – the bulk of the management is still here and doing an exceptional job. That is where I have been fortunate, I have inherited very good management, and very good staff. So sure some of the management has changed absolutely but you would expect that and it will keep changing by the way it doesn’t stop here it is an evolution thing. I think companies that think that, ‘I’ve made my management changes that’s it now, I’m not going to do any more’ are deluding themselves, because as the business evolves people have to evolve, and skillsets have to evolve, so it’s always change.”

For all the change at the top, Borghetti has been well regarded for his staff engagement and leadership skills, and certainly makes the point of publicly, and regularly, acknowledging the efforts of his airline’s staff, and talking with them regularly, “If you said to me what are the two things that you think you are blessed with terms of walking into this business I have to say the brand, because you have got a brand that is recognised all over the world. And the second thing is – I hate using this word – [but] the engagement of the staff. These guys are hungry for the changes that we are making, almost as much as I am, if not more. And any CEO that walks into a company and has got a great band that you can use, and great staff that are totally engaged and want to make the changes, you are there. The rest you should be able to manage.

Borghetti said that many of the changes he has been introducing at Virgin Australia had also been changes proposed by staff.

“I was very fortunate because whilst I had a strategy my mind, when I walked in I also spent two months from the day to appointment to day of starting travelling around the network talking to talk with staff and talk with people and learning the business. And what I found was that the feedback that I was getting from the cabin crew, the pilots, the ground handling staff, some of their recommendations some of their thoughts on what the airline should do are identical to what I was doing, so it was actually very easy because a lot of these things came from that. By the time I started almost half of my strategy had already been validated by the staff, so then it was just a question of continuing to talk with staff and keeping them in the loop as to what we were doing as much as possible.”

That process of talking to staff, Borghetti said, is an ongoing one.

“And to this day every time I catch a flight – and by the way I catch a flight every day – I will always talk with the cabin crew and the pilots because there is nobody, and I mean this nobody, in the airline, not management, not anybody, that knows more about the business than the pilots and the cabin crew, nobody. Very simply because they see all bits of the company, they see the airport, they see what happens up in the air, they see passengers, they are the eyes to the business, particularly pilots, so we need to engage with them we need to listen because these guys know what they are doing.

“I don’t know any other way you can manage a business – I don’t know the answers – I sit in an office if I don’t go out and talk to my staff how do I know what happens outside these walls – you have to talk to customers and you have to talk to staff. There isn’t a day in my life that I don’t talk to a customer or a staff member – I’m not talking management because I talk with management everyday – because you have to. I’m a firm believer in that.”

So has Borghetti found any resistance to the changes he has introduced?

“I’m sure there has been some, [but] I haven’t experienced much of it. With 7000 thousand people you will always get somebody who doesn’t agree with you, and that is a good thing, because you want to hear why they don’t agree with you because they might actually have a better idea and you should listen. But ultimately you have to make the decision.

“If you said to me what are the two things that you think you are blessed with terms of walking into this business I have to say the brand, because you have got a brand that is recognised all over the world. The second thing is – I hate using this word – [but] the engagement of the staff. These guys are hungry for the changes that we are making, almost as much as I am, if not more. And any CEO that walks into a company and has got a great band that you can use, and great staff that are totally engaged and want to make the changes, you are there. The rest you should be able to manage.
“So has there been resistance? Look, if there has I haven’t seen much of it. I’m sure there has been in quarters, but it’s my job and my management team’s to bring people along. And if you can’t bring them along then decisions have to be made, by both them and us.”

Anecdotally there have been few reports of staff discontent at Virgin Australia, apart perhaps from a few grumbles about using polyester in the new Juli Grbac cabin crew uniforms introduced in March. Certainly, and despite all the changes there has been nothing like the workplace angst as is experienced at Borghetti’s former employer, Qantas.

And, says Borghetti, Virgin Australia’s staff have embraced the changes being introduced.

“Internally [the response to the Virgin Australia launch has been] outstanding. I can’t tell you how many emails I’ve had from staff just [being] blown away by it, saying ‘this is everything we were hoping you would do and more’. The interior of the 737 and the A330, any staff member that has seen it, I haven’t meet anybody who hasn’t just been blown away. So internally a huge success by any measure.”

Passenger response has been overwhelmingly positive too.

“When I ask crew ‘have you flown on the new aircraft yet?’, the ones that have I ask ‘well what was the reaction?’, and they say, ‘John, just unbelievable’. We have had people come to the [aircraft] door where you hand your boarding pass … look at the aircraft and they say ‘sorry, I’ve got the wrong gate’ and we say, ‘no, no, you’re at the right gate,’ and they say ’no, no I’m flying Virgin’! People are doing this on a daily basis almost.
“The remarks from the customers have been very, very strong. So we know we got it right, beyond doubt.”

With the Virgin Australia rebrand now underway, a key challenge the airline and Borghetti face is implementing the change, and managing passenger expectations of service levels and consistency of service.

For this reason Virgin Australia is embarking on very aggressive timetable to rebrand itself, so it can meet passenger expectations of experiencing the new Virgin Australia product when they buy a Virgin Australia ticket.

“That [passenger expectation] is the biggest issue for any airline doing any kind of makeover, let alone one that is completely reinventing itself. And that is why we are putting so much focus on shortening the [transition] period as much as possible.

“I will give you an example the uniforms were launched in February so that was the first bit of change, so if you take that point and you go down to the end of the year by December 31, every 737 flying domestically will have the new interior, we will have over 20 aeroplanes painted in the new livery, we will have new lounges in potentially five ports, we’ll have ground uniforms which will be changed in July, a new domestic terminal space in Brisbane … all that stuff is in 11 months. If you just took painting alone, most carriers that come out with a new livery wouldn’t do 20 planes in one year, they wouldn’t do that in two years, so I think the only way you can manage the expectation is to do it quickly, because the market is impatient, and so we are doing it quickly.”

Borghetti is quick to emphasise that a consistent customer experience is a key goal.

“You can ask my executives this, they are sick of me saying – if you say ‘what is running a good airline all about?’ [the answer is] obviously safety is number one, that’s a given, but it is all about consistency and it’s all about detail. You have to be consistent with whatever you do and you have to look at the detail, because your customer does, so if you have a choice of having an airline that was one day a week brilliant, three days a week terrible, or you had an airline that was very good but consistently so, I’d pick the second one every time. I don’t want to be brilliant one day I want to be constantly very good. And so consistency is the umbrella that sits above all this program, which then ties in the timeframe… I want to know when I buy a ticket I want to get what I think I’m going to get, not what I got yesterday is different to tomorrow.”

Customer service programs for cabin crew and frontline ground staff will play a role in providing that consistency of service. Borghetti rules out Virgin Australia building centre similar to the $10 million Centre of Service Excellence he was the key driver behind at Qantas, noting “There s no way that we will ever spend that kind of money in a facility like that – our needs are totally different totally different and I think that the plan that we have got is good.”

But revised customer service programs are being rolled out across the airline, although Borghetti would only observe, “there are some very specific plans on training but at this point I’d rather not go into too much”.

The airline is also tweaking what it looks for in recruiting frontline staff.

“We still want vibrant energetic individuals with personality – but it a degree to which you go in all those things. We’ve grown out of the ‘let’s tell a joke on the PA’ phase, and we need to have a service delivery that is representative of our brand, and our brand is very different to the Virgin Blue brand, that is the whole reason we had to reposition.

Is that a more ‘grown up’ brand?

“That’s a good way of putting it, in fact that’s the exactly right way of putting it. That doesn’t mean that you become staid and boring, we don’t want that, that is the last thing we want, we do not want to be that type of airline – we are wanting people to feel like they are individuals, whether they are working for us or customers of ours. So that requires a number of things, it obviously requires a change to the recruitment process a change to the training process change the management process and communication and everything else, but that doesn’t mean a complete overhaul – we are not scratching everything, it’s not all different, all we are doing is adjusting 10 or 20 percent of it because 70 or 80 percent of it is still valid so it’s an adjustment not a right it off and start again.

That justification for that, explained Borghetti, is that “We are now going to be dealing with a spectrum of a customer base, rather than a narrow customer band, so we have to be chameleon almost and be different things to different people as we are dealing with. For example if a gentleman or lady in a business attire in their mid 50s walks on the plane our crew will address them as Mr Smith or Ms Smith, if there’s a young person listening to an iPod then they will probably be referred to as John or Jane. So it’s tailoring the whole experience to the individual, and that is the beauty of where we are. We don’t have to be black or white like most other airlines, we can be grey, I keep saying, we can walk and chew gum [at the same time] and you do that by not giving a narrow definition to staff, you give them a guide and parameters by which they can flex to a certain degree and that’s what we are doing.”

Again, Borghetti is quick to praise his staff, and their willingness to embrace the Virgin Australia changes.

“ These guys are just fantastic. I’ve said it a hundred times but I really mean it, these cabin crew are just brilliant. I believe we have the best cabin crew in the world, and I really admire them because a lot of them have been here for a number of years and they have gone from the phase that you are talking about to the new phase, and the way they are adapted they way they have moved is just phenomenal.”

“And if you look at the pilots that we’ve got, you listen to their PAs, they are a very professional bunch of guys and girls, and you just have to let them do it, because they know it.”

An interesting, but illustrative aside on some of Borghetti’s attitudes which drive the changes at Virgin Australia is the introduction of ties for pilots as part of a new, more traditional and conservative pilot crew uniform.

“To me a captain of an aeroplane is the CEO of the company inside that fuselage. I don’t care if I’m on the plane I regard him as the boss on the plane I think the gravitas of the position that he or she holds needs to be displayed in that matter, so how important is the uniform, very important. … You don’t want to become a highly bureaucratic organisation, but there are points when decisions have to be made then you need the authority and you need to make them – so I think that they way people present themselves, how they conduct themselves, how they behave, their ethics, their moral standards, they are very important to the brand. That doesn’t mean you can’t have fun when you are all together as a team, but I think it is important for a captain to look like a captain, for a pilot to look like a pilot. Just like a senior flight attendant needs to be seen as a senior flight attendant.”
So professionalism, a consistently high standard of service, and retaining the trademark Virgin flair, are key to what Borghetti wants the Virgin Australia brand to represent.

“It means not the old staid way of doing things. It’s, fresh it’s vibrant, frankly it provides good service at good value, it isn’t about copying a legacy old fashioned business, it is about designing a business and running it in a way that is relevant for everybody today, not something that was yesterday with bandaids.”

“It’s fresh, it’s vibrant, frankly it provides good service at good value, it isn’t about copying a legacy old fashioned business.”

But using the term ‘Australia’ in the name is significant too, Borghetti stresses.

“Above all, service one, two and three,” is what Borghetti wants the Virgin Australia brand to represent. “[But] the second part of the brand is Australia and I think that we are Australian we employ Australians and it is there for our duty and I’ve said this before publicly to ensure that we do as much work onshore as possible in Australia I mean having the word Australia on the aeroplane I believe comes with a responsibility a responsibility to the country now whether that is through employing as many people as in this country as possible or whether it is helping Australia in times of need…
“I know a lot of people are thinking that off shoring is the way to go for the future I don’t believe that. How can you have the word Australia on the fuselage and do that? It just doesn’t make sense so what have we done to prove that? Well we have just made a big commitment in building a hangar in Sydney so we can do maintenance here – some of that work was going to go overseas.”

Continues Borghetti, possibly alluding to Pacific Blue operations, “We are now looking at our commercial operations overseas, I won’t go into detail, it’s obviously sensitive, but you know the way it is heading it could mean a couple of hundred jobs in Australia, so it’s about on shoring rather than about off shoring.

“So with brand I think it is important that the words you use you have to live by, because if you don’t people will see through it.”

In an hour long interview Borghetti didn’t mention, nor speak badly of, his former employer once, but it is clear that some of the issues the Qantas Group is facing, including its disputes with pilots and engineers about offshoring pilot jobs and overseas maintenance, provide Virgin Australia an opportunity to play on its ‘Australianess’

“It [using ‘Australia in the airline’s name] is deliberate because I fundamentally believe in it – we are an Australian listed company – we are not American, we are not British, we are not Chinese, we’re an Australian listed company and so to me it is natural.”

Borghetti confirms that for all the speculation around the renaming of Virgin Blue, with at one point the name ‘Virgin Pacific’ rumoured as a contender, that the new name “was never going to be anything but Virgin Australia from day zero”.

The key issue around the name was being able to negotiate with Singapore Airlines to use the Virgin name on the airline’s Pacific Blue and V Australia operations. Borghetti said he had “very pragmatic, very logical discussions” with Singapore Airlines and Virgin management.

Evidently those discussions with Singapore Airlines were very fruitful too, as a week after talking with AA, Borghetti was able to announce at the IATA AGM in Singapore that Virgin Australia and Singapore Airlines had reached a partnership agreement including codesharing, reciprocal frequent flyer benefits and lounge access, schedule coordination, and joint sales and marketing.

That announcement was the last piece in the puzzle of Virgin Australia’s international airline partnership arrangements, alongside its earlier agreements with Air New Zealand (now a major Virgin Australia shareholder), Etihad and Delta. Those alliances will provide Virgin Australia with a virtual network offering global reach, a key consideration for business travellers, corporate account holders, and frequent flyers.

“Picking the partner is important from a customer and a consistency and a product point of view, just as it is a financial and network and all the rest point of view. It is important because you are entrusting these airlines with your customer, just like they are trusting their customers with you, so you have to lift your game and be worthy of their wanting to do business with you too, and I think what we are doing says that. I always say that you forget the customer at your peril in any deal that you do, doesn’t matter what the deal is, whether it’s a alliance deal, a union deal, I don’t care what deal, if you don’t think about the customer while you are doing that deal you will regret it at some time.”

Clearly, in rebranding the airline, introducing a business class, and building a virtual international network, Borghetti is focused on the business and corporate customer.

“I see it as an opportunity because I see it as a monopoly, and any monopoly is an opportunity,” Borghetti explains of the rationale in targeting the domestic business market. “If you have a look at since Ansett stopped flying 10 years ago, there hasn’t been any competition at the top end of the corporate market. We just started our flights to Perth with business class and look what has happened to the pricing already with Qantas. Now one can beg the question, if we weren’t around and didn’t do, this people that are flying in business class would continue to pay those prices, and have a look at the pricing in economy we’re putting in, let alone the standard of service and product which is light years ahead of any operator in Australia, so I see it as an opportunity and the more we can get of that market the more we can discount economy.”

And in a world of low cost airlines regularly making headlines for poor customer service experiences and delayed and cancelled flights, Borghetti clearly sees an opportunity in building on the Virgin brand’s positioning in the leisure, low fares market.

“There is a misconception that says cheap tickets for consumers mean a cheap experience, and that is wrong. You can have low fares but have a good experience. Why shouldn’t you be smiled at when you bought that ticket, why shouldn’t people be nice to you, why shouldn’t the aeroplane go on time just because you paid a $50 ticket instead of a $150? And that’s where we will remain relevant, because you will still get that price, but you will get the things that a lot of other low cost carriers aren’t giving.

“There is an opportunity there and the theory that some people like to throw around that ‘you won’t be able to do that because your cost base is going up’, well I know the truth. They don’t know the numbers, I do, I know what they are, and the fact is our cost base is lower than the competitor that we’re targeting for the corporate market, so we know we can out price our competitor any time we want.”

Interestingly, despite adding eight business class seats to its 737-800s, the total seat count will remain the same, and hence per unit costs will remain the same.

“The new 737-800s that we are getting this year we don’t lose seat any seat count at all because we have slimline seats on them, so we gained an extra row,” Borghetti explains. “As we retrofit the other 737-800s they will all be like that so the reality is you won’t lose any seats.”

On the other hand, Virgin Australia does not plan to add too many new seats and capacity to its market as well, with a conservative fleet plan for the next two financial years.

“I know of a lot of airlines that have gone broke by having too many planes, I don’t know any airline that has gone broke because of too few planes,” Borghetti observes.

“We don’t want to be the biggest airline in Australia or the world, we want to be the number one choice, but have an airline that delivers good returns for the shareholder and has happy customers. So we’re not going to make an order for 50 aeroplanes, we are very modest in our aircraft requirements.”

At the end of December 2010 the Virgin Blue group operated 89 aircraft comprising 63 737s, five 777-300ERs and 21 Embraer E-Jets. But according to a fleet plan presented at a Macquarie investor conference recently, the fleet will have grown to only 106 aircraft by June 2013, largely through the addition of the Airbus A330-200s for transcontinental services (with five to be in service at June 2013), and the pending introduction of the ATR turboprop to the fleet (with eight to be in-service by June 2013). The 737 fleet will increase by a net seven units, while the 777 fleet will remain at five.
“You won’t see us increasing our 777 fleet before 2013, what we do after that I don’t want to go into here,” Borghetti said. The plan for five A330s, meanwhile, suggests that in the near term at least they will be limited to transcontinental domestic services, and not deployed further afield internationally. “You have to wait until our alliance strategies and then after that we will communicate our international fleet.”

At the other end of the spectrum, Virgin Australia’s regional fleet strategy is much clearer, with the decision to retire its six E-170s, and the plan, in partnership with Skywest, to operate up to 19 ATR 72 turboprops on regional routes, rolling out.

“We need turboprops, a lot of the routes that the 170s are flying are not appropriate for the 170,” Borghetti explained. “The 170s will all be gone by the end of the year, to be replaced by ATRs, which are more fuel efficient, have better economics, and more appropriate for the types of routes that we want to operate.”

The ATRs will be operated for Virgin Australia by Skywest under a contractual arrangement not that dissimilar from where Cobham operates and crews Boeing 717s on behalf of QantasLink.

“We elected to go with Skywest rather than doing it ourselves for a number of reasons. The first reason is we don’t have the experience in turboprops, obviously they do. We have also got a lot on, and there comes a point where you say ‘I can’t digest any more’, so a good way of doing it is to have someone who understands that business, understands that aircraft type, and get them to do it. It is also a model that works very well, it is effectively a turnkey, the aircraft will be in our livery, the crew will be in our uniform but it will be Skywest that operates it.”When the first ATRs enter service in the August-September timeframe, it will be yet another visible sign of the transformation that has taken place at what was only weeks ago Virgin Blue.

By any measure Borghetti has made remarkable progress in barely a 12 month period. So how will the success of that progress be judged?
“Delivering what we said we would deliver to the board in our three year plan. And our three year plan has got very specific deliverables in terms of outcomes – financials, customer satisfaction and everything else.”

More immediately, “To date I’m pleased to say that – with exception of the issues we with floods and everything else – in terms of share of the market, customer ratings, rollout of the plan, we are not only on schedule we are ahead.”

There’s no doubt Borghetti’s drive and enthusiasm for his task is behind that early success.

“This is, without doubt, the best airline job, certainly in the country, but I reckon one of the best airline jobs in the world. The opportunity to do this doesn’t exist anywhere else. This is just once in a life time.”

And Borghetti has been finding that most of the surprises have been on the upside.

“The potential here is just huge. Every day when I see something I think gosh, I have underestimated the potential of this.

“It was fantastic by the way, what Virgin Blue did it was legendary, and what it is going to do is going to be really legendary.”