Game Changer

‘The next morning, I called some of the executive committee into the room and I said, “Well, you know I asked for a three-year strategic plan and no one’s given me one. I asked for next year’s budget. It’s not finished. You say we’re going to become a New World Carrier. Well, that’s good, but can you articulate for me what that is? You tell me we’ve got to get back to being a low-cost carrier. That’s fine. They’re all very good ideas. Let’s throw them all up and then let’s agree on one idea, and that’s the strategy that we’ll pursue. ”’ It was a risky opening gambit – but Borghetti knew he had to bring things to a head. ‘My thinking was that this would bring everything to a point where I could then influence the discussion. ’ Borghetti knew where he wanted the company to go, but he also knew that he had to convince his direct reports that his was the only valid option.

The first step in Borghetti’s plan was to erase the persistent but confusing New World Carrier concept, something Brett Godfrey had introduced nearly two years earlier. The low-cost market was over-crowded, but Godfrey knew he couldn’t go after the premium sector because Qantas had that well and truly secured. Instead, in response to the insistent questions about what Virgin Blue would do next, he’d come up with a catchphrase that promised a great deal but actually meant very little: the New World Carrier.

I’ve made the biggest mistake I’ve ever made. I’m sorry I dragged you into it. Bad mistake. I can’t stay here.

By the time Borghetti arrived in Virgin Village, the tag had lost most of its currency. When no one could spell out for him exactly what the business model entailed, he succeeded in having it permanently sidelined.

The more difficult concept to shake was the low-cost carrier (LCC) model, which was now well entrenched around the world. Although it had taken a while, by 2010 the global airline industry had adapted to the LCC phenomenon with developments such as budget airport terminals with minimal facilities. The LCC model undeniably worked; plenty of people were prepared to put up with no-comfort, no-service travel in return for for never-before-seen prices.

Virgin Blue had begun as a low-cost carrier, and the executives Borghetti inherited knew no other model. Cost- cutting was their answer to every challenge. But Borghetti knew that there was no way the airline could cut costs enough to compete with Tiger Airlines for the cheapest end of the market. ‘We can’t match their cost base,’ he had to repeat time and time again, despite the simplicity of the argument. These were senior managers, with experience and competency aplenty, but their vision was limited by the model they had always worked with. Borghetti wanted them to go in the opposite direction to the one they were accustomed to. But they simply could not envisage the journey he wanted them to take. And, let’s face it, some of them would have been resisting Borghetti’s plans just for the hell of it, resentful of the interloper’s presence.

‘How do we maintain costs but grow the revenue line?’ he asked, to be told that the airline would have to fly to more places. Maybe China? ‘No. We’re not flying to any more places. So how do we improve the revenue line that we’ve got today?’ It was slow going, but ‘by a process of elimination, we arrived at where we needed to be. If someone had actually come up with a [different] plan that was achievable, I would certainly have listened. And if it was a better plan, then we would have followed it. This plan was, however, as clear as day in my own mind. Crystal clear! It made sense then and it makes sense still.

‘Any market that has a monopoly is ready for the plucking. The only question you have to ask is whether you can withstand the onslaught of attack when it comes. And it will come. ’ The plan was to go after some of that Qantas market share, which meant the better-heeled travellers who were prepared to pay a premium for comfort, food and frequent flyer points. There were two sectors to this market: the well-heeled individual travellers (whether travelling for business or pleasure), and the corporate and government travellers whose fares were usually purchased in bulk via contracts in exchange for substantial fare reductions.

This was Qantas’s bread and butter, and the older airline would not take any attack on this market without swift and terrible retaliation (or so everyone thought). [Qantas CEO] Alan Joyce was on record as saying that his airline’s profitability would be under threat if its market share declined below 65 per cent. This number was the now-famous ‘line in the sand’ he had inherited from Geoff Dixon. When Borghetti arrived in Brisbane, Virgin Blue was on the beach, but nowhere near the line in the sand.

Eventually, Borghetti got most of his executive committee on board with this new focus. Even once the general strategy was in place, however, he had ongoing trust issues with some of his inherited managers. ‘I’m a reasonably trusting individual and if I know I can trust you there’s nothing I won’t talk to you about or discuss with you,’ he says. Clearly he felt that he didn’t have that level of trust at Virgin at the time.

Borghetti found that there were four different kinds of people in the management team he had inherited: ‘There were individuals going their own way and sort of hoping that they’d meet up somewhere in the middle. There was a bunch of people who had very little knowledge of this market, hardly any, but they tended to be people who hadn’t been there a long time. Then there was that other bunch of people who had a lot of history in raising the company, in bringing it to where it was, but the skill sets were not necessarily at the level required to go forward. They were fine while it was a small company growing, but you get to a point where’s there’s a different set of skills needed. Then there were those who, no matter what you said or did to them, they would do their own thing. ’ As an example, Borghetti describes the battle he had to change the scheduling for flights to and from Los Angeles. When he questioned the current scheduling, he was told, ‘Well, we leave at night because no one else does. ’ The problem with leaving Australia at night, however, was that by the time the aircraft landed in LA, all the connecting flights to other points in the US had gone. ‘Did you ever think that maybe there’s a reason no one else leaves at night?’ he asked.

Again and again, Borghetti came up against such resistance to any change of direction.

Another example was aircraft configuration, which is absolutely critical to maximising yield. It’s so critical that airlines play around with it continuously, moving and changing seats (and the amount of space between them) in the search for the optimal solution. Lots of closely spaced seats mean more passengers, but cramped conditions generally mean lower fares. The real money comes from those passengers who are prepared to pay big dollars for some space and comfort – but put too many of those big, widely spaced seats in your plane and you might find yourself flying with a lot of them empty.

For low-cost carriers, configuration is not so much of a challenge. The only question for a budget airline is how many seats you can squeeze in before passengers start complaining about the lack of space and move their business elsewhere. But Borghetti had made clear that he wanted the airline to move away from the budget model (where it had no room to grow) and into a mixed-product cabin, with some nice big seats up front for the high payers and the usual down the back. The question was how many of each. Each of those comfortable seats up front would eat up enough space for two or three of the seats down the back – but if you could fill them, they would make a lot more money.

The new CEO found that many of his inherited senior executives had no concept of the mixed-product cabin. They were convinced that ‘the more seats the better’ and could simply not understand why you would consider reducing the number of seats in a plane.

It wasn’t just about bigger seats; on every front, Borghetti encountered suspicion of anything new. ‘Things like product changes, frequent flyer, sales …’ he recalls. ‘Actually, sales is probably the best example. Because the airline was a low-cost carrier, it had put a lot of emphasis on internet sales, but that led to ignorance about the travel agency network community. If you need to broaden distribution, you really need the travel agency network. But how do you access that network if you don’t have anyone who has experience of it? Or if the only people you’ve got who have some experience in that network are so far down the organisational chart that they are not going to be policy makers and direction setters? You need a bit of grey hair, a bit of experience in that space, and we didn’t have it … You’ve got to know what you’re talking about, or you’ll lose your cufflinks pretty quickly.

‘When I started, the chief commercial officer position, which reported to the CEO and was ultimately responsible for sales, had only recently been filled after being vacant for six to eight months. And the position immediately below that in the sales area, general manager of sales, had been vacant for over a year. I have to think that that says a lot about the importance the company placed on those roles, because if they were important they wouldn’t have been left vacant that long. ’ It was all part of a culture that had worked very well for [Virgin Blue founding CEO] Brett Godfrey for a while, both internally and in marketing the airline to the public. And it was a culture that had been implemented right from the start back in 2000. If you flew Virgin Blue back in the pioneering days, you will remember the cheery, over-familiar greetings when boarding (you were always Peter or Belinda, never Mr Jones or Ms Ng). And then there was the in-flight entertainment, courtesy of the young and sparkling cabin crew. There were comedy routines and group sing-alongs. The safety briefings were enlivened with jibes and jokes. Flight attendants were hired based on a process more akin to an audition; heaven help you if your smile was too small or too old.

It was the Richard Branson brand in bright lights, and it had worked for a while … until many passengers tired of it, realising that they just wanted to be left alone with their thoughts – or the sandwich and Coke they had purchased on board. And, of course, Borghetti was an ardent proponent of traditional customer service, which was designed to make people feel they were valued and welcome back any time. If he was going to succeed at Virgin, he would need to shift the culture – at every level of the business.

On Brett Godfrey, Borghetti says that he has a great deal of respect for the man and what he achieved with Virgin Blue: ‘It took great courage and determination to start an airline from scratch when there were already two giants, Ansett and Qantas, and he did an amazing job. ’ Another hangover from Godfrey’s reign was the rule that executives and managers had to get out of the office once a month or so and work on the front line, checking in passengers, hoisting bags onto the conveyer belts or dealing with customer complaints. Godfrey saw this as a demonstration of Virgin’s egalitarian culture. It had been introduced with great enthusiasm, but had eventually slipped into tokenism as managers found that they did in fact have other things to do. It still happened, but not with the same fervour as in the beginning. Then there was the rule, or at least the convention, that executives and managers, when flying on company business, would stay behind after the other passengers had disembarked to help the crew clean the cabin.

John Borghetti found the whole thing disconcerting at first, and then illusory. Although they made a show of getting their hands dirty, Borghetti found that many of his managers in fact knew very little about the wider industry. They might have checked in a few suitcases or vacuumed a few seats, but they had only a shallow understanding of what went on beyond the office. ‘What struck me was that there was not as much “walking around” by senior management as I expected,’ he says. ‘I make a point, every time I get on a plane, of always going up and saying hello to the captain and the first officer, not for any other reason than to respect the fact that he or she is the captain. And after the cabin crew have finished their meal service, I always go back to them, even if it’s just to say hello. It’s something I started doing pretty much within a week or two of starting in the job. I learn more from them than I do from anywhere else. ’ It was a practice that would lead to some significant breakthroughs in a very short time.

One of Borghetti’s business tenets is to demonstrate to the staff, very quickly after your arrival in a new job, that you are listening and capable of effecting change. It is a practice that, if successful, gets widespread attention and fosters the belief that real and positive change is possible. It also helps to put to bed any doubts or concerns staff may have about the capability or commitment of their new boss.

It was a practice Borghetti had employed, sincerely and successfully, on more than one occasion when he was moving up the corporate ladder at Qantas.

‘I remember when I took over reservations at Qantas in 1989 and suddenly had responsibility for 300 people in an office in North Sydney. Morale was low, so I thought I had better find out what was going on. I walked the floor just talking to people, looking for something I could hook on to. It quickly became apparent that everyone was whingeing about the air conditioning. “Oh, the air conditioning here never works. We always tell management it doesn’t work but nothing happens. ” I figured that if I could get something fixed that my predecessors hadn’t been able to do, I’d get their attention. I called in the supervisors and told them I wanted the air conditioning fixed. From there it went to the building managers, the handling agents, wherever. But we got the air conditioning fixed. And I had won the staff over. They were saying, “This guy’s good value, he listens to us. ”’ At Virgin Blue he was dealing with a much bigger and much more widely dispersed staff, but he was quickly on the lookout for that breakthrough opportunity.

‘When I joined Virgin, I was looking for the same thing … What can I get happening that will immediately attract everybody’s attention and serve as a demonstration that things are changing, and for the better? And it turned up within a week. It was easy. It was uniforms. And it was cheap. Just a million bucks or so for the first issue, with the rest replacement costs. ’ In his early one-on-one chats with the frontline staff, it had become

Even people who knew me were going to say, “John, this is a big risk”.

obvious to Borghetti that they were not enamoured of the current uniforms. The pilots in particular felt that they didn’t look like pilots; they looked more like cabin crew. And the cabin crew and airport staffers both reported that they didn’t feel ‘smart’ in the outfits they were wearing on duty. It was a no-brainer.

‘I remember calling someone in and telling them I wanted new uniforms by February, only to be told that that was impossible. “Good,” I responded, “another reason for doing it. Go and get it done. ” And we did. We rolled out the pilot and cabin crew uniforms first and the airport staff a few months later. And you know what? The transformation in behaviour and grooming of the crew, on their own initiative, was unbelievable. I knew it would have an impact, I just had no idea it would have that big an impact. I still remember that in the first few days, the first few weeks, the crew would actually walk up and down the aisle, or up and down the airport terminal, deliberately, just to be seen. It was like a catwalk. And if you feel good about yourself, you’re going to do a better job.

‘Obviously that effect doesn’t last. You’ve got to find other things. But those uniforms were a pivotal point in staff engagement. ’ Representatives of the crew and other staff were involved in the design process, before the uniforms became a reality. And Borghetti recalls that even that process had its surprises.

‘I’ll tell you what my biggest fear was. The uniform for the men was initially designed without a tie, and the reason for that was that I thought [introducing a tie] would be a step too far. So, much to my surprise, right at the final stages of design, one of them put their hand up and said, “Can we have a tie?” I thought that was interesting enough to push back on, so I deliberately, provocatively, tried to convince them to forget about the tie. But they persisted to the point where I said to them, “OK, I give up. I don’t think we should, but if you guys want a tie then we’ll have a tie. ”’ Borghetti’s ability to get inside the heads of the coal-face staff, those remote from the head office culture who actually delivered the services the customers were paying for, had been noted when he was at Qantas, as was the sincerity with which he achieved it. It wasn’t a scam. It wasn’t manipulation. It was quite simply recognition that it’s ‘out there’, on the telephones, in the airports and on the planes, that the revenues of the future are secured.

‘In the end every airline in the world – and I don’t care what CEOs might say – are all the same,’ he told a stockbroker conference in Melbourne a month after he took over. ‘They are all flying the same tubes at 35,000 feet with seats. The only thing that makes the difference is the people that are handling the customers. [In a restauraunt,] if the waitress is snooty, you will not go back. But if you go to a restaurant that gives you good food, good surroundings, and the service is really good, where they smile at you and look you in the eye and call you by your name, I’ll bet you will go back.

‘We have an opportunity to design something more appropriate for today’s travellers,’ he went on, referring obliquely to Qantas’s premium product. ‘We’re not going to have stroganoff in business class that happens to be the same as what is served in economy, but on a bigger plate. ’ He might have begun to win over the front-line staff, but the management remained another question. Borghetti was never going to get all those inherited executives right behind him. Nor did he need or want them all. But you can’t sack or educate all the department chiefs in the first month.

‘New CEOs usually do one of two things. They either go into a company and they wipe the [executive committee] room clean and bring in their own people all at once; or they’ll leave it for another day and before they know it, twelve months down the track, they actually haven’t changed anybody and they’ve been captured by the status quo.

‘I thought that the best way to go was to recognise that the transition to a different business model was going to take a year or two and that, just like you transition the model, you transition the management. You deal with [them] one at a time, when the time is right and the new skills are required.

‘It’s more than fair to say that the skills set mismatch also applied to me. I didn’t have those skills that some of them had for the low-cost carrier environment. I had them at a macro level, thanks to Jetstar, but not in the detail; although it didn’t take long to pick that up.

‘It was obvious to me in one of the early [executive committee] meetings that as good a management team as it was for a low-cost carrier, it was certainly not the team that could take the airline forward in the direction it needed to go. We were about to fight a competitor that had depths of experience, and it wasn’t going to be easy to break into their market.

‘The original management team had done an outstanding job with Virgin Blue. They took the fight to Qantas and pressured that airline to the point that it had to start Jetstar. But now we had to go in a different direction. ’ Borghetti was going to need new talent and old experience, but it would take time to get it right. One of the problems he faced was the fact that the airline was based in Brisbane. All those tax incentives had been great at start-up, but ten years on there was a considerable downside. ‘There was a big issue there that mustn’t be underestimated,’ he says. ‘The pool of executives in business in general, let alone in the airline industry, is much smaller than in Sydney. ’ This was only compounded by Virgin’s poor results, which made it

Even if it was perfect today, it won’t be tomorrow. So you’ve got to keep changing it.

difficult to attract senior staff. ‘Anyone you tapped on the shoulder who had a lot of experience, whether they were in Brisbane or elsewhere, you were asking to them to give up a good job, to do what? Come to Virgin Blue, which had just done a profit downgrade, with a strategy in question, a new CEO, and everyone thinking that this guy’s going to stuff up? Would you join the company under those circumstances? … Even people who knew me were going to say, “John, this is a big risk. You’re asking me to come over there and in six months, you could go broke. ” And I didn’t blame them, because I would have done the same thing. So we had to buy time and establish a certain degree of credibility. ’ What Borghetti had not counted on, however, was the deluge of aspiring defectors from Qantas. Whether they were motivated by respect for Borghetti or by dissatisfaction with Qantas, or both, they started coming hard at him. He was overwhelmed by the volume of emails and phone calls, many from people he didn’t even know, who wanted to sign up. Borghetti was generally polite but dismissive, unless the callers had already resigned from Qantas before approaching him. He didn’t want to swamp Virgin with Qantas defectors and send the wrong message to his new colleagues; he was not out to turn Virgin into Qantas Mark 2. Besides, he simply couldn’t keep up with the onslaught when he had other matters to deal with. But the emails and calls kept coming.

‘People have said to me, “Ah, you stole all the Qantas Chairman’s Lounge people. ” Well, actually, I didn’t go after one Chairman’s Lounge person. They all came to me. If someone knocks at your door and says, “Will you give me a job?”, if they’re good enough, why wouldn’t you give them a job? And it’s a small market. You had to take people here or go overseas. ’ Borghetti tells of asking one senior Qantas executive to pass on a message to Alan Joyce. ‘I’d heard that they were going around giving pay rises to some of the senior executives so that they wouldn’t leave. So I said to him, “Do me a favour and tell [ Joyce] to save his money, because I have no intention of poaching. And if he knows me at all, he’ll know I wouldn’t do that. ” ‘I look back at it now and we have got some quality ex-Qantas people here, and I think they are all outstanding individuals who have made a huge contribution. But I always thought that it was so important that if someone came from Qantas, they needed to be seen as knowledgeable, friendly, not an arrogant, thump-the-table type. Everyone who’s come from Qantas fits the model. ’ As well as bringing in new people, Borghetti created new positions and rejigged reporting lines. In some cases, he identified hidden talents in the old management team and redeployed staff into new roles. Merren McArthur, who was the in-house lawyer at Virgin Blue at the time of Borghetti’s arrival, intrigued him from the outset. He saw something in her during all the strategy discussions. ‘She said very little, but I could see she listened and appeared to be extremely intelligent and thoughtful. I thought that if one of them would make it for the long haul, it would be her. I was right. I moved her to different jobs to get her more experience, and I pushed her hard. She is now in charge of our growth business, Freight and Charter, and doing a great job. ’ He sees the new structure as a work in progress. ‘Is it perfect now? No, it’s not, and it never will be perfect, no matter what you do. Even if it was perfect today, it won’t be tomorrow. So you’ve got to keep changing it. But certainly the customer now has a much stronger voice around the executive table than they ever did. ’ It wasn’t just the people that provided challenges; technology would also play a part. When Borghetti was just six weeks into the new job, the airline’s new reservations system decided to take a holiday, right at the start of peak hour on a busy Friday afternoon. The New Skies reservation system from Navitaire had been launched just two weeks earlier, at a cost of $10 million. The system outage resulted in long delays right across the country, generating widespread discontent among travellers. The system was restored to service relatively quickly, but it took another three hours to get everything back to normal. This is not the sort of thing that gives anyone – customers, staff or analysts – confidence in the viability and reliability of an airline.

When the system crashed, Borghetti was en route between Virgin Village and Brisbane Airport, heading home for the weekend. When he climbed out of the car and stepped into the terminal, he was confronted by chaos.

‘I remember I left the office and everything was fine. By the time I got to Brisbane Airport, I couldn’t get in the door. There were queues everywhere … I rang the office and Christine told me the computer system had crashed. And I said, “So what are we doing about it?” I looked around the airport and over the sea of people. I was looking behind the counters and there was hardly anyone there. I tried to track down the people who ran various parts of the airport and I couldn’t see anybody and I got very frustrated. So I got on the phone to various people in the airport and asked, “Why isn’t anybody here? Why aren’t there any announcements? What’s going on here?” ‘As I walked through the crowds, because there’d been some [media] We were so focused on operational matters that we didn’t put ourselves in the shoes of the customer.

coverage about me getting the job, people recognised me; and as you can imagine, the comments weren’t all that favourable. And I thought, this is ridiculous. There’s only two or three staff on the check-in counters and there were ten or so counters. Where was management? So I went around the back of the counter and asked where the office was. There was this little office and I went in and asked, “Why hasn’t anyone made an announcement?” “Oh, we don’t know how long it’s going to take …” “Well, tell people that!” ‘I remember taking the microphone and I made an announcement myself. I didn’t really know what to say but I told them the truth. I said, “This is who I am. There’s been a computer problem. No idea how long it’s going to go for. No idea what’s caused it. But we are working hard to try and fix it. Computer systems are very complicated. As soon as I know anything, I’ll let you know. ” ‘Well, it calmed things down, because at least somebody said something. And that was a lesson for me in how immature we were in a moment of crisis.

We were so focused on operational matters that we didn’t put ourselves in the shoes of the customer.

So I was quite cranky at a few people and I said, “When things go wrong, you’ve got to tell people what’s going on. ” That was a real lesson for me about how we weren’t communicating enough. No airline ever communicates enough, I suppose, but we were really not good at it. That was a pretty bad experience. ’ Borghetti’s first few weeks at Virgin were a mixed bag of insights, challenges and small steps towards the vision he had brought with him from Qantas. A lesser man or woman might not have survived the turbulence of those early days. There was very little in alignment and much resistance to change. Probably no one really believed Borghetti would make it, apart from his family, Christine Lewis and a very few close friends.

Despite it all, by the end of eight weeks, there was some momentum at last. There were still rocks to turn over, but fewer and fewer. There was still the daunting shadow of Qantas’s market power, which could move to crush the upstart airline at any moment. There were still countless seven-day weeks to work through. But there was, finally, a sense of progress. For the first time, John Borghetti was prepared to tell himself in private moments that he just might make it – all the way.

In the end, rebuilding confidence at a company-wide level would take close to 12 months. But the process began right then, just a couple of months into Borghetti’s reign, when there was a real sense of a strategy emerging and being owned.

Borghetti called it the Game Change program – and it would truly come to justify the title.

Long-time aviation journalist Doug Nancarrow is editor at large of Aviation Business magazine and executive chairman of Safeskies Australia and general manager of the Australian Division of the Royal Aeronautical Society. He holds a commercial pilot’s licence, has been an owner/manager of a flying training organisation and an aviation theory instructor and has worked as a journalist with News Limited. Game Changer is his first book.