Virgin Australia is gearing up to re-engage Qantas in a battle for business travellers, but this time the challenger will do so on its own terms.
Gone is the approach which critics – and there were many – termed ‘Qantas Lite’.
Instead, the new Virgin will seek to define itself not against the yardstick of its foe but on what airline itself stands for: and that, says CEO Paul Scurrah, will centre on ‘value’.
It’s a welcome message for those who feared that Virgin Australia 2.0 would turn out to be more like Virgin Blue 2.0, with a relentless focus on price to appeal to the bottom-half of the market.
Instead, and ironically, Virgin Australia 2.0 seems to be more like Virgin Australia 1.x: a bug-fix with added features, if you will, rather than an all-new version.
“We’ll make some minor adjustments, but that’s based on customer feedback about what they did and didn’t value,” Scurrah said during a media briefing following this week’s effective relaunch of the collapsed airline with the backing of presumptive owner Bain Capital.
“One thing Bain are exceptionally good at is data analysis, and it’s come out supporting this business approach. When you look through the data about the profitable opportunities, that’s where they came up.”
Rebuilding a better-value business class
For Scurrah, and for Virgin’s high flyers, this means the essentials will remain in place. “We will have a strong corporate offering, a two-class cabin, a network of lounges and the tiering and perks that come with tier status will continue and be enhanced.”
“Our problems weren’t about the investment that we’ve made in that part of the business,” he reflects.
“The problem was about onerous contracts and a complicated fleet – and when you look through the data about where the profitable opportunities were, that’s exactly where they showed up.”
Simplifying that fleet to the workhorse Boeing 737 – even if it means giving up on the Airbus A330’s superb business class and handing Qantas a massive advantage in the east-west market – is the lead-in to a lower cost base, which will, along with other cut-backs, provide Virgin with more flexibility in sharpening its overall business class package.
“We had the opportunity to reset some of the onerous costs we had on us, which gives gives us the opportunity to significantly lower that cost base without bringing the product down-market,” Scurrah says.
“We’re not doing that – we’re going to have a very low cost base, with a very strong high-quality value offering to corporates – a very good value but good-quality product."
It’s that price-versus-product ratio where Scurrah wants to find the sweet spot, although inevitably it means undercutting Qantas, which in turn brings the risk of sparking price war if Qantas – always dominant in the business and corporate travel space – chooses to defend its own line in the sand.
It also means there’ll be some changes in the Virgin Australia business class experience, too.
"We will be making some changes to the product that we have own board,” admits Danielle Keighery, Virgin Australia's Chief Experience Officer, “but we will be focussed on things that people really care about… we think some of them will be changes for the better for customers.”
Why Virgin needs the business traveller
Business travellers won’t lose out on lounges, business class cabins or the frequency of flights on all-important and highly-profitable Brisbane-Sydney-Melbourne triangle, and it's not just because, as Scurrah put it, "we were not about to create a business airline monopoly" by giving Qantas sole access to that segment of the market.
As it turns out, Scurrah will need business travellers, because – as was argued by his predecessor John Borghetti, when he rebooted the leisure-focussed Virgin Blue as the full-service Virgin Australia – the leisure market alone is not enough.
“Having a base load of business traffic where you’re covering capital cities at a high frequency is very important… it’s high yielding and it’s more reliable (than leisure traffic).“
"If you look at where it made money, it was in the domestic network, particularly driven by corporate travellers."
But on the long slow road back to normal – or whatever the new normal will look like – those business and corprorate travellers will be more driven by price, and hence 'value', than before.
"In the post-Covid world we know the economy is going to take a while to recover, particularly business travel budgets will be impacted, and people will be looking more than ever for value in their business travel as well," Scurrah predicts.
"So our lower cost base and a stronger balance sheet gives us the opportunity to provide the best-value business option in the country."
“We all know coming out of COVID every single business is going to be looking at value, where they can ensure costs remain low and we’re going to be the best value airline," Keighery echoes. "That’s the positioning we’re taking, being the best value.”