Virgin Australia 2.0 is taking shape, with likely new owner Bain Capital having previously talked up its vision of the rebooted challenger being a 'hybrid' airline sitting between the full-service and low-cost models.
This would see Virgin stake out the broad middle of the market, rather than directly taking on Qantas or Jetstar. Executive Traveller spoke with several aviation experts to find out what that could mean for the flying public.
So what is a hybrid airline?
Traditionally, ‘hybrid’ airlines rank between full service and low-cost carriers, offering a better-than-basic experience but without necessarily offering all the bells and whistles.
But some also see hybrid airlines as being those that don’t have the shrewd cost-cutting mentality of true low-cost carriers, as well as those that charge for features and amenities that may have been complimentary in the years gone by.
“Almost all airlines are now hybrids: at least, in competitive markets,” CAPA Executive Chairman Peter Harbison observes.
“In the ‘olden days’ there were full service airlines, which provided just that – full service, catering to discretionary travellers, business travellers and cargo transportation … then along came low-cost carriers, whose fundamental premise is to kill costs and provide a product that is priced slightly higher than their costs.”
Hybrid airlines live between those two extremes, covering everything from a typical low-cost carrier with a few extra frills, to an otherwise-full-service airline with some passenger drawbacks.
“There's quite a bit of difference within the hybrid category,” affirms Brendan Sobie, analyst at Sobie Aviation.
“With low-cost carriers adopting some hybrid or full-service of characteristics over the years … and some full-service airlines adopting more low-cost or hybrid characteristics,” the lines between them are easily blurred.
How did hybrid airlines come about?
As the aviation industry began to grow, airlines on the low-cost side began to recognise the business benefits of investing a little more in service, which in turn helps them to justify charging somewhat higher fare prices – and ideally, boosting the profit earned per passenger.
“There is a formula that, in very simple terms, shows that adding cost to provide higher service delivers more in terms of higher yield than they lose in costs,” Harbison continues.
Similarly, airlines that had been ‘full service’ in the traditional sense began to recognise the revenue opportunities in charging passengers fees for certain services, such as for seat selection, checked baggage or inflight meals.
“Notably, almost all of the massive profits the US majors made in the late 20-teens were directly attributable to baggage charges and flight change charges,” says Harbison.
Drawing the lines of difference
With many airlines belonging to the ‘hybrid’ camp, it’s difficult to pinpoint exactly where ‘low-cost’ ends and ‘hybrid’ begins – and the same can be said for the difference between higher-end hybrid and full-service.
“It's hard to bucket low-cost/hybrid/full-service airlines,” Forbes aviation columnist Will Horton explains to Executive Traveller. “You end up making a matrix with what perks are and aren't offered,” but the difference can still be blurry between airlines, or even quite significant from one flight to the next.
For example, “Air New Zealand is low-cost or à la carte on short-haul, and full-service on long-haul. For that matter, perhaps Virgin, even with (former CEO John) Borghetti's transformation, was not quite full-service.”
Sobie sees things differently, highlighting that even those working in the industry don’t always see the same airlines in the same ways.
“I'd say Virgin moved from low-cost carrier to hybrid,” during Borghetti’s transition of the airline from Virgin Blue to Virgin Australia, “and then from hybrid to full-service: but perhaps, it (began) on the hybrid side of low-cost carrier to begin with.”
Decisions the airline makes right across its operations over the coming months will paint a better picture of its future and set clearer customer expectations, beyond the most visible aspects like “whether coffee and tea are free or chargeable,” Horton quips.
The battle between Virgin Australia and its rivals
Competition from the Qantas Group – which operates both Qantas and Jetstar, courting passengers attuned to both full-service and low-cost flying – will no doubt prove a continuing challenge for Virgin Australia.
“Even if an airline makes a declaration that they are following a certain model, one has to look closely at what they do in the subsequent months to get a better idea of where they fall in the spectrum,” suggests Sobie. “Whether Virgin is a hybrid more on the low-cost side of the spectrum or more on the full-service side will be unclear for some time.”
CAPA's Harbison says it will be hard "for a new Virgin to find its appropriate niche."
“Qantas-Jetstar has both ends of the domestic market covered very effectively and overall, (the Group) is relatively low cost. Virgin Mk2 will have to be lower cost (to become profitable), but it will also have to fish for higher yielding passengers.”
Additional reporting by David Flynn.