Airlines – Virgin Australia: an airline reborn



Virgin Australia: an airline reborn

A new brand and approval for an alliance with Delta is the latest development for the former Virgin Blue. Emma Kelly examines the airline’s transformation.
When the US Department of Transportation (DOT) decided to grant anti-trust immunity to Virgin Australia Airlines’ proposed trans-Pacific joint venture with Delta Air Lines, it added another crucial element to the transformation the Australian carrier has undergone.

Virgin Australia is the new entity comprised of the former Virgin Blue Airlines and that company’s V Australia and Pacific Blue units. That transformation has played out over the past year under the carrier’s ‘Game Change’ programme, spearheaded by Chief Executive Officer John Borghetti.

The DOT announcement came just a few days after the official public transformation of the airline, as it shed its Virgin Blue brand and became Virgin Australia. The new name is being used for both the company’s domestic and international operations, allowing it to build one strong brand that will be recognised globally.

The airline is already operating domestically under the new name and by the end of the year its international arms, V Australia and Pacific Blue, will also operate under the Virgin Australia name – thanks to an agreement with Singapore Airlines, 49 percent owner of Virgin Atlantic, which had previously prevented any use of the Virgin name internationally. Consolidation of the brand into one was a pivotal point in the airline’s Game Change programme, as was approval for the Virgin-Delta alliance, Borghetti says.

Virgin and Delta have been working towards the partnership for almost two years, with the companies’ first proposal knocked back by the DOT. Under the approved joint venture, Virgin and Delta will collaborate on route, schedule and product planning, code-sharing on each others’ networks and providing frequent flyer programme benefits and lounge access to customers of both carriers.

[Subhead:] Expanded network

The partners aim to provide passengers with an expanded network of destinations, seamless connections, a more convenient flight schedule, more opportunities to earn frequent flyer points and access to more lounge. V Australia passengers will benefit from connections to more than 200 destinations served by Delta in North America, while Delta passengers arriving in Sydney will have access to Virgin’s network throughout Australia and the South Pacific.

The airlines have been code-sharing on certain services since January 2010 and recently expanded this agreement to additional routes within Australia and New Zealand, and in the US.

“The Delta alliance is a key plank in Virgin Australia’s strategy to build an international network of airline partners that offers global coverage,” says Borghetti.

That network of partners already includes Abu Dhabi-based Etihad. The commercial partnership with Etihad, which was launched last August, allows Virgin to access Etihad’s hub at Abu Dhabi and its network of 65 destinations in North America, Europe, Asia and the Middle East, while Etihad has access to Virgin’s 45 destinations in Australia, New Zealand and the Pacific.

In February, V Australia launched three-times weekly services between Sydney and Abu Dhabi, with flights from Brisbane to be added by February 2012 and plans by the partners to eventually offer 27 weekly services between Australia and the Arab Emirate.

“This is a real game changer and positions us as a truly global player,” Borghetti proclaimed at the announcement of the Etihad alliance.

Virgin Blue also has an alliance with Air New Zealand, which culminated in the acquisition earlier this year of 14.9 percent of the Australian company by its New Zealand partner.

[Subhead:] Important relationship

“This investment cements the important relationship between our two airlines and demonstrates the confidence we have in Virgin Blue and its management to grow their business, both within the Tasman alliance and beyond the scope of the alliance,” Air New Zealand Chief Executive Officer Rob Fyfe said in late January.

The Air New Zealand-Virgin Australia alliance, which was approved by Australian and New Zealand competition authorities on the second attempt, involves: a broad, free-sale code-share arrangement on all trans-Tasman flights and domestic services; a revenue-allocation agreement supported by a joint trans-Tasman network planning and revenue management team; and a reciprocal frequent-flyer and lounge-access agreement.

The Air New Zealand, Delta and Etihad partnerships are designed to provide Virgin with “a comprehensive, virtual global network” without large capital expenditure. The airline is unlikely to stop there, with Asia being the missing piece in the virtual network puzzle. The airline says Asia is going to be an important part of its strategy to establish an international network of airline partners.

“We’ve made no secret of the fact that we are looking at options in the Asia region, however, that’s all we can say at this stage,” comments the airline.

The airline has also formed partnerships to strengthen its domestic base, in the form of a ten-year strategic alliance with Perth-based Skywest. Under that deal, the partners will operate 18 new ATR 72 turboprops in Virgin Australia colours to existing and new domestic destinations.

The alliance provides Virgin with access to the booming Western Australia market and particularly the state’s fly-in, fly-out resources sector.

Meanwhile, Virgin has shed underperforming routes, halting Pacific Blue’s domestic New Zealand routes and pulling V Australia out of the loss-making South African and Phuket markets. Domestically, capacity has been added to routes with strong revenue potential, while lower-demand routes have been trimmed.

“These changes will maximise yields, increase aircraft utilisation and also provide a more attractive schedule for the business market, including better integration of our international and domestic schedule,” says Borghetti. Appealing to the business market is key to all of the changes implemented by the chief executive, who is aiming to reduce the airline’s reliance on its traditional leisure market and instead take on Qantas in the high-yield business and corporate sector.

[Subhead:] Targeting business

Borghetti says he is aiming to grow the carrier’s share of the business travel market from 10 percent to 15-20 percent over the next two years. “Our strategy is simple and logical – we need to “hedge” our revenue base. We have to continue to attract the leisure and SME market and use our cost advantage in pursuing the corporate sector,” he says.

While Borghetti and the new management team that he has put in place have been working hard on alliances and diluting reliance on the leisure sector, the most obvious aspect of the airline’s transformation to the public is the new name, brand and product that was revealed in May. New uniforms had already been launched in February, along with a new business-class product for the airline’s four new Airbus A330-200s, which will serve Western Australia.

In early May, aircraft featuring the carrier’s new name, livery and in-flight product, developed by the airline’s creative director Hans Hulsbosch, took to the skies for the first time. A new Boeing 737-800 and an A330-200 were the first to show off the new economy- and business-class products, featuring luxury leather seating, contemporary interior design, high-quality in-flight products and a gourmet menu.

The new business and economy class interiors will be rolled out across the domestic fleet by the end of the year, with business class already available on the A330-200 and being introduced on the 737-800 in the last quarter of this year. Two A330-200s will operate three-times daily between Sydney and Perth from June, while another two will join the fleet in early 2012.

The A330 cabin features 27 leather business-class seats, offering a generous recline and 62-inch pitch; multi-channel, seat-back in-flight entertainment; high-quality food options prepared onboard and designed by Australian chef and restaurateur Luke Mangan; 251 high-comfort, leather, economy-class seats; international style amenities, including high-quality designer toiletries, push blankets, pillows and noise-cancelling headsets for business-class passengers; and barista-style coffee.

The new 737-800s, meanwhile, feature Boeing’s Sky Interior with larger overhead lockers, mood lighting and sculpted sidewalls, as well as eight business-class seats with generous recline in a separate premium cabin; 168 next-generation economy seats; a custom-made hard divider to separate the classes; and a ‘privacy enhancer’ in front of the first row, separating the seats from the galley and entrance.

“Virgin Australia will provide a new standard of airline travel in Australia, Our new business and economy class has been designed from the ground by experts in their fields. We have listened to what today’s traveller wants from an airline and we are incorporating that into every feature and every part of our service, while maintaining competitive pricing,” says Borghetti.

[Subhead:] More changes

Further changes are on the cards, with “architecturally-designed luxury airport lounges” shortly to be launched in Melbourne and Brisbane, as well as a new look and feel for Virgin Australia airport terminals. The airline also plans to relaunch its frequent flyer programme, Velocity Rewards, later this year to offer members more options, more personalised service and more rewards. An Asian airline alliance is expected before the year is out.

“The new brand, livery, product and service offering will help to transform Virgin Australia into a contemporary, dynamic airline with a product to compete with the best worldwide,” says Sir Richard Branson, who launched the new product with Borghetti. “In repositioning the airline we have kept all the great attributes for which Virgin Blue is renowned – the can-do attitude, the competitive pricing and the genuine, friendly service – and we have elevated it to a new level,” he adds.

All of this is a far cry from the low-cost carrier which started out in 2000 with one route, two aircraft and 200 personnel. As Borghetti points out: “Ten years ago Virgin Blue changed the game in the Australian aviation industry. Now, through our Game Change programme, Virgin Australia will transform the Australian airline industry as we know it and provide Australians with more choice and a superior travel experience.”



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