When John Borghetti took the reigns at Virgin Blue last year and set about transforming the carrier, his wasn’t the only airline whose image began to shift in the eyes of the travelling public.
Virgin Atlantic, saddled for years with the low cost image of its Australian namesake – or at least part namesake – also found its stock rising.
As Virgin Blue morphed from a no frills domestic airline into a full service quality operation with a comprehensive international network, so too did Virgin Atlantic undergo an image evolution in the local market.
“The impact [of John Borghetti’s overhaul] has been a positive one,” Virgin Atlantic Australia general manager Luke Fisher told Travel Today during a wide ranging interview in a North Sydney pub. “There’s a halo effect that has come with the changes.
“We’ve had situations in Australia where people haven’t understood what Virgin Atlantic is all about. They have said ‘do I have to pay for meals if I go to London’?
“In most markets we have been able to take the high ground but down here not quite as much because Australians have experienced Virgin Blue and associate the brand with a low cost carrier.”
Virgin Atlantic didn’t have to wait long for the transition to take effect. In fact, at the launch of Virgin Australia, John Borghetti told gathered dignitaries that “Virgin Australia has become like Virgin Atlantic”.
“That’s where the evolution of Virgin Australia has helped us and shifted people’s perceptions,” Fisher said. “John has done a phenomenal amount of work within 12 months. It’s pretty awesome.”
With Borghetti’s strategic approach to take on Qantas and build an international network through alliances has come a closer partnership with Virgin Atlantic.
Virgin Blue enjoyed a long standing relationship with its long haul counterpart on domestic Australian routes but that was extended last month to include codesharing on the daily Sydney to Hong Kong sector operated by the UK carrier.
“We are not like Qantas and British Airways, we don’t have authorisation from the Australian Competition and Consumer Commission to engage in joint scheduling or pricing,” Fisher said. “But virtually everything we can do in a commercial sense that benefits us both has been done. We are codesharing, we’re a big part of the Velocity program and hope to get more involved as that develops and competes with the Qantas Frequent Flyer club.
“Virgin Australia is building Velocity into a very viable product.”
Fisher predicted the HK codehare would provide “incremental, not transformational” business for Virgin Atlantic – “may be a couple of extra passengers a day” – but for Virgin Australia it will enable them to add a key Asia hub to their network, he said.
Financial results
Virgin Atlantic is shortly expected to join the growing list of carriers to admit it has failed to return a profit in such trying conditions.
It will be one of only a handful of times the carrier has posted a loss in almost three decades, having clawed its way back into black the previous year.
As with all airlines, fuel has played a significant and unwelcome role in Virgin Atlantic’s fortunes, a fact likely to be illustrated in the 2011/12 financial results.
Yet despite the likely overall deficit, Virgin Atlantic’s only route with two sectors – London to Hong Kong and Hong Kong to Sydney – has generally held up well.
“Even when our company has made a loss we have been able to retain profitability. I think that’s the benefit of a good conglomerate of London to Hong Kong and HK to London business and vice versa,” Australia general manager Luke Fisher said. “We are lucky in that Hong Kong and London are two of the top destinations for Australian travellers for business and leisure. We have a good mix of business and so far we’ve started the year in profitable fashion.”
No route is immune from economic forces however. Yields have slipped as the fuel price has risen, replicating a situation all too familiar in boardrooms across the globe.
“Fuel has of course become a bigger part of our costs and the surcharge has become a bigger part of the overall selling price,” Fisher explained. “Like most airlines our surcharge has increased but it hasn’t been on top of the base selling price. As much as fuel has gone up, because we have 30 competitors to the UK and in order to keep selling, the actual fares have come down a bit. For that reason yields have fallen.”
Yet there is a faint glimmer of optimism in that fuel appears to have stabilised, giving way to hope that yields may slowly start to recover.
“We had two big surcharge increases last year because the fuel price climbed so much,” Fisher said. “But it seems to have stabilised. We don’t seem to be seeing the volatility we saw last year…so hopefully yields will come back.”
Traditionally, a third of Virgin Atlantic sales in Australia is London-bound business with two thirds for Hong Kong. But the struggling UK economy has altered the mix. It is now closer to an even split, Fisher said.
“It’s become a lot of more expensive to come to Australia and seats that might have been sold in the UK we seem to be picking up. We were artificially constrained before but we are now getting more inventory through to London. We’ve benefitted from the strength of the dollar and the UK is back in favour again. But we are still holding our share to Hong Kong.”
