Best of both worlds?

“Talking to both the clients and the Skywest people here, the differentiator, I think, is that right across the business from the pilots to the crew to the engineers, all across the operation, they’re totally focused on the resource clients’ needs and understand that it’s critical to them to get their workforce up onto the site and working their shifts. However, they need to be more flexible and responsive and a little bit more creative in how you problem-solve than you do in a more scheduled RPT operation and that’s why Skywest has been so successful. ” Perth-based Skywest was a key player in the WA intrastate and fly-in/fly-out (FIFO) resource sector charter market, and its formal relaunch on May 7 as Virgin Australia Regional Airlines adds another 32 aircraft and 300 staff to the Virgin Australia Group.

More than that, though, the Skywest acquisition provides Virgin with a low-cost, nimble operation to better take on QantasLink on regional routes and establish a much larger presence in the highly competitive FIFO sector. It also brings Skywest’s ATR 72 operations, which fly on regional routes in Queensland, NSW and the ACT for Virgin Australia, under direct Virgin Australia control.

Managing that integration is a natural fit for McArthur who joined the then Virgin Blue in 2008 from Rio Tinto as general counsel, but in her subsequent role as head of alliances and networks worked closely with Skywest setting up the ATR 72 operation and the Virgin-Skywest codesharing arrangement.

“It’s actually really nice for me to be in this position, I have to say, because I was involved in the initial establishment of the partnership as the head of alliances and then as also the head of networks,” McArthur relates.

There are strong relations between the two airlines in a lot of respects.

“I was the key customer of the Skywest business . . . and my team was scheduling where we wanted to put the ATRs and we were working with Skywest to bring the ATRs into service and start flying them. So, I worked really closely with Skywest from afar for a while and we’ve got a lot of other relationships across the operation. That’s made it much easier to integrate the two businesses because there are strong relationships already between the two airlines in a lot of respects. ” Virgin Australia’s relationship with Skywest dates to a codesharing agreement first implemented in 2008, while the ATR operation began flying in 2011 under a similar ‘turnkey’ style operation where Cobham operates 717s for QantasLink, with Skywest operating and crewing the ATRs, but with the ATRs under Virgin’s full operational control. That deep business relationship gave Virgin plenty of exposure to Skywest’s management and operations and has smoothed the way for Virgin to acquire the one-time Ansett subsidiary.

So far Virgin’s Skywest acquisition has been a good match.

“In terms of the people and the enthusiasm that I and the rest of the Virgin team have received in arriving here and having to work on the integration of the business into the Group has been extraordinary,” explains McArthur.

“When I first arrived, about a month before the completion took effect, I was interested about what I would find and how people would perceive my arrival and the team’s arrival, but everyone’s really excited because I think they can see the opportunity for the airline to grow and to get access to the Virgin Australia brand and network infrastructure to enable it to become an even better and more sophisticated airline than it has been.

“It’s been a very successful airline, but I think under the Virgin Australia umbrella it will really flourish and that’s what the people are telling us and that’s why they’re so enthusiastic about it. ” Interestingly, McArthur draws parallels between the can-do culture of the old Virgin Blue and the corporate culture at Skywest.

“The culture here reminds me quite a lot of the Virgin Blue culture. It’s got that passion and enthusiasm that needs the support of the Virgin Australia Group and John Borghetti’s leadership to go that next step in terms of the systems, processes, professionalism which this merger will bring. ” McArthur also says she is sensitive to avoid perceptions in the takeover that Virgin knows best and that the change from Skywest to Virgin Australia Regional means radical change to conform to the Virgin way of operating.

“I was sensitive to that issue, but also I was able to reassure everyone here that we don’t intend to change their business model, we just intend to support them and enable the business to grow.

“John’s strategy is very clear in terms of the acquisition of this airline and this is what I’ve been telling everyone. He’s made a deliberate choice to keep its AOC and to keep its management based here in WA.

“A few years ago, and I was involved in this, the reason he partnered with Skywest to operate the ATRs in the regional operations on the east coast was because he didn’t want to make the Virgin Australia business model too complex with the addition of a new fleet, and particularly turboprop aircraft.

It’s been a very successful airline, but I think under the Virgin Australia umbrella it will really flourish.

“So, he can see with Skywest, they’ve got expertise in charter operations, they’ve got expertise in operating turboprops, expertise in operating low capital cost Fokker aircraft. That’s what he wants the business to focus on. ” That means, notes McArthur, staff positions are secure and the takeover becomes “an opportunity for growth” for the former Skywest business.

“The philosophy that we’re taking to the merger is the best of both. ” In practice, that means “If Virgin Australia Regional Airlines has a system or a process which works well at a low cost, it shouldn’t be assumed that we should just adopt the way of doing things from Virgin Australia, so we’ll look at everything, all the integration pieces, looking at, okay, what’s the best way of doing this? Will it save money, will it make it more efficient, and will it provide a better service? If so, yes, let’s integrate. If not, then let’s maintain the independence. ” Continues McArthur, “I think they’re a very efficient airline, so I’ve been very impressed at how they operate and, as you’d expect with a small airline, people wear a number of hats and they manage a number of different roles. So, I think that’s a really important part of the DNA and their operating capability and, again, that’s something that we want to preserve. We don’t want to build extra costs and bureaucracy into the business. ” So management changes at the former Skywest have been relatively minor. “It’s largely all of the same management team that was already there with some additional resources from Virgin Australia, just to add a bit of bench strength. It’s a really good integration of the two management teams, again trying to maintain the status quo as much as we can, but to leverage off some of the skill-sets from Virgin Australia and that’s been really well received and the team’s working really well. ” Extra muscle has come in the form of 30 new staff, announced by John Borghetti at Virgin Australia Regional Airlines’ launch.

“When we looked at the structure … we identified some areas that needed some additional resources and strengthening . . . to give it a good platform for growth. So, yes, rather than coming in and stripping out heads, we’ve actually come in and provided additional resources and we’re in the process of recruiting for that now. ” McArthur says the new staff will be in maintenance and safety system resources.

Those new positions should add a bit more management muscle, while the rebranding as Virgin Australia Regional Airlines adds some Virgin brand sparkle. At the relaunch at Perth Airport the first repainted Skywest aircraft were shown off in their near-Virgin colours, a Fokker 50 turboprop and a Fokker 100 jet as well as a newly-delivered A320 (the airline’s third). Given the importance of charter to the Skywest business model, where the FIFO industry is built around relatively cheap-to-acquire secondhand aircraft used at lower utilisation rates than is common in RPT, the Virgin takeover doesn’t automatically mean that Fokker 50s will be replaced by ATR 72s, Fokker 100s by E190s and A320s by 737NGs.

“We’ve got a long-term fleet-wide review going on at the Group level and it does include this business but our underlying principle will be . . . in order to be competitive we need low capital cost aircraft and really the Fokker fleet and the sort of very small A320 fleet at the moment is ideal for that. ” Another question the Virgin takeover raises is that of product consistency with the Virgin Australia brand.

“We will be refreshing all of the fleet and repainting all of the fleet gradually to make it consistent so that people can see and receive a consistent product across all of our network across the Group, but people don’t necessarily expect exactly the same product offering or exactly the same interior quality across the network. It’s about making sure we invest to the right level that we need to meet the needs of the customer. I think some of the regional markets expect a different level of service from some of the high traffic city markets and so. . . we will tailor the product to align to that while ensuring it’s consistent – and service delivery is critical. So probably the most crucial thing . . . we’ve rolled out training for all of the crew in line with the Virgin Australia . . . [which] will ensure consistent delivery. I believe we will be able to deliver consistent service across the network.

“I think that’s something that will be relatively easy to roll out. ” Another element being rolled out following Virgin’s acquisition is moving the former Skywest’s flights into Virgin Australia’s new computer reservations system (this will see the flight code for former Skywest flights change from XR to Virgin’s VA from August 1).

Notes McArthur, that will bring “connectivity and access”. For existing charter clients it means the former Skywest can offer services from charter to domestic RPT to international, while on the other hand it will give intrastate WA services increased visibility (and a seamless booking experience) in the Virgin Australia website and with travel agents.

“It’s really opening up another sales channel,” McArthur remarks. “It’s going really well at the moment. ”

Further, “Apart from that, we’ve had all of the teams work together on what we’ve called an Interface Project, to look at ways in which we, the two operational teams, can work together and leverage off the skill-sets or provide services across the two airlines and that will be rolled out over the next 12 months as well. ” One area of the former Skywest business that will continue to operate largely unchanged is the ATR turboprop services on the east coast.

“We have responsibility for the operation side of it, but the Virgin Australia team has responsibility for the commercial side. So, they’ll do the network planning and all of the selling and revenue management for the ATR network, but we will operate the ATRs on behalf of Virgin Australia just as we have been doing in the past. ” Meanwhile, the now Virgin Australia Regional is settling into operations from Perth Airport’s new T2 terminal, the new low-cost terminal located next to Perth’s T1 international terminal.

“It’s going really well and it’s a lovely modern and open terminal. ” McArthur’s main issue with the terminal is making sure passengers know which terminal their flight operates from. “The challenge is still the connectivity between T2 and T3 [where Virgin Australia domestic flights currently operate from] for us. We’re really ramping up the communication on that and looking at innovative ways that we can get connectivity between the two terminals. But that’s a short-term issue. Once we’re all collocated [when Virgin Australia’s domestic operations move to the new finger pier being built for it in T1, which opens in mid-2014] we’ll have seamless integration between international, regional and domestic, which will be fantastic. ” The integration of Skywest into the Virgin Australia business also means a more seamless approach for corporate accounts, given the Virgin Australia Group now spans from charter through to domestic and international services.

“We’ve got a corporate sales team here in WA and we work really closely with them. We’ve had a number of workshops just to understand the opportunities and identify where we can leverage off each other’s relationships and already there’s been a couple of pitches that we’ve done combined between the charter and the RPT businesses because quite often a resource client will ask for a combination of charter and RPT services, so now we can offer that whereas previously neither airline could offer that. That’s a big opportunity.

“The other big opportunity, I think, is Queensland,” McArthur identifies.

“In my former role as head of network we were starting to field quite a lot of queries for charter opportunities in Queensland but we … generally didn’t have the aircraft time because our RPT fleet is very highly utilised. If we did have the aircraft time . . . it wasn’t competitive cost-wise because we were competing against charter operators with low capital cost aircraft and our aircraft are brand new and have business class, etc. So, we didn’t have a presence there and, of course, Skywest hadn’t had a presence in Queensland. So, now with combining forces we should be able to put in some pitches and win some work in Queensland, which is a big growth opportunity for us. ” It’s a big growth opportunity and an illustration of the potential of the tightly integrated Virgin Australia Group operating across the charter, domestic and international sectors, and providing a competitive option across the full spectrum of the Australian airline sector.