Extreme Makeover: Virgin Blue Edition

Anyone been paying attention to things down under lately? Virgin Blue has a new boss, and he’s apparently bringing his

Lately, Virgin Blue has been under fire for having weak profits as demand softened and capacity continued to grow. (Attention US airlines: profit is what you get when you actually bring in more money than you spend. Yes, it’s possible.) New CEO John Borghetti has come in pledging to shake things up. In fact, it appears that his version of shaking things up is to move closer to Qantas, his former employer.

John had been with Qantas for ages, and he left after he lost in the race to replace the last Qantas CEO. What better way to say “I love you” than go to your company’s nemesis? Nice move.

So now at Virgin Blue, John is trying to bring some Qantas over and that’s something of a gamble. John confirmed that he will be bringing a business class product onboard instead of just a premium economy. New 737s that are on order will get the upgrade first, it seems. They will be focusing on the business traveler now, which is an extension of what had been cautiously started awhile ago.

Why are they doing this? Well, he thinks there’s money to be had. I thought it strange when he suggested, “we must reduce our reliance on [the leisure] segment if we are to reduce the earnings volatility that goes with it.” Throughout this recession, it has been business travel that has seen the greatest volatility. Maybe things are, um, upside down in Australia.

But he’s not ignoring the leisure market which has strong competition from Jetstar and a lot less strong competition from Tiger. It really does sound like he wants to be all things to all people. That’s a strategy that has rarely worked well.

We do know that he’s hoping to rally around the Virgin Blue name. Thanks to an agreement around the Virgin name, the airline isn’t allowed to use it outside of Australia. That’s why South Pacific and New Zealand flights fall under the Pacific Blue name while long haul flights are as V Australia. John seems to be hoping to find a way to use the one Virgin Blue brand and created a unified presence.

We also know that the airline is trying to cozy up with Air New Zealand for Trans-Tasman flying. This could be their effort to harmonize products between the two.

In the end, I find myself wondering how this strategy is going to work. I understand that with earnings suffering, you have to do something. (Take note, American.) I don’t know enough about the market to know if this is the right thing to do, but it is a big change and it does carry some risk that instead of serving one segment well, they’ll serve all segments poorly.


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Muscat,  Oman
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