Low-cost carrier Virgin Blue transforms itself into a full-service airline, with lower costs

In a bid to become a more potent, direct competitor to Qantas, Australia’s Virgin Blue is planning to transform from a cheap and cheerful low-cost carrier to a serious business and leisure airline that has low costs. With the remake Virgin Blue wants to double its share of Australia’s domestic corporate travel market from 10 percent, cut its reliance on leisure travel in the process and limit investments in its network by creating international alliances. The carrier is targeting business flyers as competition from low-cost airlines Jetstar (part of Qantas) and Tiger (50% owned by Singapore Airlines) is driving down leisure fares. The catalyst for the changes at Virgin Blue has been the appointment in May 2010 of John Borghetti, formerly Qantas’ executive general manager.

Consolidating brands
The Virgin Blue Group has a number of substantial issues to resolve. The first one is consolidating its four disparate brands: Domestic carrier Virgin Blue, short-haul international airlines Pacific Blue and Polynesian Blue and long-haul carrier V Australia. Virgin just hired Hans Hulsbosch, who designed the Qantas flying Kangaroo logo, as creative director for the airline. While it is unlikely the Virgin Blue brand will be abandoned, it is possible a number of the sub-brands such as V-Australia and Polynesian Blue will be scrapped. An agreement between Virgin Atlantic and its 49% stakeholder Singapore Airlines however prevents the Virgin name from being used outside Australia. 

Business travelers
The second challenge is to position Virgin Blue for a head-to-head battle with Qantas for a significant stake in the Australian business passenger market. As of May 2011, Virgin Blue will introduce A330s on domestic trans-continental trunk routes such as Sydney to Melbourne, Brisbane and Perth. The A330s will have a separate business class cabin (details have yet to be announced), which may also bring a bit of V Australia’s ‘boutique experience’ to Virgin Blue. To compete with Qantas’ Business class cabin, Virgin Blue launched Premium Economy seating in 2007. It was not successful, however, because there was no clear distinction with the rest of the cabin, and it left Virgin Blue somewhat stuck in the middle.

Network focus
Third is a thorough review of Virgin Blue’s network which has lost its focus. In April 2010, Virgin Blue unveiled an alliance with Air New Zealand on the Tasman route between Australia and New Zealand, aimed at giving both carriers some much needed respite from the aggressive competition. The airlines will standardise all parts of their service including fare names, check-in procedures, lounges, onboard in-flight entertainment and cabin crew announcements. This month Virgin Blue announced its Pacific Blue subsidiary would leave the New Zealand domestic market all together and instead rely on its alliance with Air New Zealand. Pacific Blue will expand its Southeast Asia/Pacific network instead. 

Etihad, Delta
An even bigger development is Virgin Blue’s new partnership with Gulf carrier Etihad. The deal involves code sharing on routes to Europe and the Middle East, linking the airlines’ frequent flyer programs and pitching together to win corporate accounts. By February 2011, V Australia will withdraw its Johannesburg, Phuket and Fiji routes and instead will focus on only two international destinations—Abu Dhabi and Los Angeles. According to Virgin Blue CEO Borghetti V Australia only has a small fleet so it makes sense to focus on two key destinations where it gets passenger feed from airline partners. 

In Abu Dhabi, passengers will be able to connect to 37 Etihad destinations within two hours of arriving, while Virgin Blue will also gain from Etihad feeding passengers into its domestic network. Together, Etihad and V Australia plan to grow the partnership to a total of 27 weekly services between Australia and Abu Dhabi. The Centre for Asia Pacific Aviation noted that “It is likely that the two will seek a similar arrangement to Qantas-British Airways’s joint services agreement, which effectively allows the airlines to operate as one on the ‘kangaroo route’ to London.” V Australia already serves Los Angeles and in December 2009 announced a similar agreement with Delta for trans-pacific flights from Los Angeles. However, the US Transportation Department has denied the bid sofar. V Australia also has a tie up with sister airline Virgin America from LA. 

Related articles:
Air New Zealand goes single class on short-haul routes and radically rebundles fares
Qantas unveils ‘next generation’ check-in for its frequent flyers
Asia-Pacific long-haul low-cost airlines getting ready for further expansion

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