Bain's vision for Virgin Australia 2.0: so what's a 'hybrid' airline?

Bain Capital will reposition Virgin as a mid-market player – here's what that means for Australian travellers.

By Chris C., June 26 2020
Bain's vision for Virgin Australia 2.0: so what's a 'hybrid' airline?

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.

Chris C.

Chris is a a former contributor to Executive Traveller.

Air New Zealand - Airpoints

21 Jan 2016

Total posts 196

Air NZ operates a 'LCC/FSC' hybrid business model and it work will for them. despite the moans of some flyers who want full FSC service at LCC fares.


11 Jul 2014

Total posts 928

I think John Thomas was pushing more Hybrid options when bring in Economy X at cost which was modelled on US carriers (Virgin America) with the cost getting reduced to zero after a back lash. Talking about Bain ringing valued Virgin flyers most of these people have access to Qantas lounges anyway.

Qantas - Qantas Frequent Flyer

02 Sep 2018

Total posts 155

Seems like a smarter strategy than trying to go head on with Qantas. As others mentioned, Air NZ do this on a lot of their short-haul and domestic flights with different fare types at different price points and they seem to be doing quite well with the model. The ultimate goal would be to price fares at exiting levels ( 20-30% below Qantas) but also offer less amenities to make profit whilst charging more than Qantas for full service. This is similar to how Air NZ does it. You see the 10-20% cheaper fares to Auckland compared to Qantas but then when you click into it, it doesn't include meals. Maintaining a 'full-service' brand whilst offering a cheaper and bare-bones version for cost conscious travellers could work well to provide a full-service experience with unnecessary extras stripped away.

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 681

Where did this trendy "hybrid" term come from? Bain, media or both?

When the market GFC market diversification occurred in 2008 and LCC's (excluding the original 1990's LCC's - Southwest, Ryanair and EasyJet) emerged as a major force, the market devolved to three (3) primary sectors. These were FSC (Full Service Carrier, LCC (Low Cost Carriers) and finally LFC (Low Fare Carriers).

Some FSC's had First, some did away with it. FSC's had Business and Economy, Some added Premium, some added a cheaper 'Comfort' or Economy Plus class.

True LCC's paid low wages (and still do), had one class (cattle), had luggage charges for all and BOB (buy onboard) for everything. They also often charged for carry-on luggage. No FF points or lounge access.

LFC became a mix of Low fare, sometimes on a dedicated frame (ie: SW, JBLU, JQ or BA's Go) or alternatively in the back of FSC frames (ie: NZ international Economy, where you bought / paid according to need).

Over the years, many of the original LCC's have moved to the LFC model, such as SouthWest and JetBlue where a basic Frequent Flyer program is available, or where a non Y class (ie: JetBlue Mint) is available/

It seems to me that these experts are confusing or equating 'hybrid' with the concept of Low Fare Carriers.

Surely it would be more appropriate to recognise that the market consists of hybrid FSC's, hybrid LCC's and LFC's .. since there are so many elements and variations to consider across the industry and each FSC / LCC / LFC sector has multiple variations within its grouping.

For instance. unlike @krisdude (above), I do not consider Air New Zealand as a FSC/LCC. It is actually all three (FSC for International First and Business and LFC in international Economy), for short haul regional it is identical and for domestic NZ a mix of just LFC and LCC.

  • QF on the other hand is FSC for international and business domestic, LFC for domestic economy and never LCC.
  • JQ - Jetstar is never LCC, it is LFC. Remember, a true LCC does not offer Star / Business class, nor FF points, nor Lounge Access.

Which brings us to a forgotten concept with a Virgin / Bain combination. The way that Bain has used the term "hybrid" is somewhat meaningless without a description of what will be offered. Lounges? Points? Luggage? Fares? Food & Beverage (F&B)? Class(es)?

I would remind ET that during Borghetti's reign there was a major criticism that QF/JQ had Virgin in a 'pincer' position. It would seem that we are about to revert to that position again. Whether it is 'hybrid' or not .. doesn't matter a jot. It will either be an LCC or a LFC - and will still have the 'pincer' position to contend with.

14 Oct 2016

Total posts 105

One of the thing this is confusing with this "were changing to a hybrid airline" is Virgin was kind of doing this already as they still only mostly gave a light refreshment, like Jetblue and they still offered a Buy on Board Menu, like most Hybrids. The only difference might be the revert back to no baggage on cheapest tickets.

Since it looks like Virgin won't hold a stake, I think a rename of the airline should be looked at as you could save $12 million a year. The may be some rebranding costs, but in the long run it will save money.

Just make VOz the JetBlue of Australia.

That will work perfectly fine. Better than Jetstar, not as corporate-focused as QF, and providing an humane flying experience.

It really is that simple and that easy.

Also, I'd like if they look into having an A220-based fleet but that's not very likely. Still, going for the JetBlue model seems to be the best choice. Not to mention it sort of matches Virgin Atlantic's market positioning in the UK.

Etihad - Etihad Guest

19 Mar 2018

Total posts 68

I heard...

Singapore AIrlines will kind of merge but not really with Jetstar SIN-Australia opss, replacing Scoot planes The Jetstar brand will allow SQ to launch flights via Indonesian, Malaysian and future Singaporean cities. THe part of Singapore Airlines that hooks up here, is called STARLUX x JETSTAR.

Qantas will feed passengers on Scoot Qantas *SQ* on 787s and 321neos only., on India, China. Qantas looks set to do well, with 787 on SIN to HND, and in future GMP and SHA because SQ cant.

SQ will become the regional airline of QF.

This was, what was explained, a "lock and key" solution based on "original plans for oneworld". The idea of a mix 2 airline combo: for eg. SQQF at TK IST ffor BAAF'; CAJL meeting AC4O via QR DOH, and lastly AA CZ at EK DXB.

SQ does't want its affiliate who's essentially DL, as well as UA to be absorbed. QR will probably merge into EY. Qatar can't survive as city-state so it's gifting the hub to VIstara. In the end, Doha will be IndiGo VIstara and Qantas Singapore.

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