One of Australia’s top aviation experts says Virgin Australia has made a critical error by not heading down the budget route in its grand comeback from the brink of collapse.
The public got its first glimpse yesterday of what a reborn Virgin Australia would look like under its new owner, Bain Capital.
In its long awaited announcement yesterday, the airline said it would keep its triple-cabin system – Economy, Economy X and Business – and bring back all but some of its lounges, but ditch free food in economy and put free in-flight entertainment and on-board Wi-Fi on notice.
There was little clarity around its domestic network, much less any hopes for an overseas return.
But new chief executive officer Jayne Hrdlicka made clear the new-look Virgin Australia would be a “mid-market” carrier – neither a budget airline like Jetstar, nor a full-service carrier like Qantas.
Strategic Aviation Solutions chairman Neil Hansford said that was a mistake.
“I think this model will not work, I don’t believe this mid-style airline is what business people want and that’s where you make your money,” Mr Hansford told news.com.au.
“The smart thing to do would be to chase Jetstar and provide an even lower-cost alternative. You could have called it Virgin Lite, it could have been a no-frills carrier where passengers paid for everything (they want).”
Mr Hansford said yesterday’s announcement specified nothing about the business class experience – Virgin Australia said that was still under review, and would relaunch in 2021 – and the shuttering of some business lounges made it appear a half-baked proposition for business travellers.
Families travelling on a budget would also be hard to woo, particularly with complimentary food in economy being replaced with a purchase-only menu.
“If it’s a family with three kids going to Cairns they’re going to have to get the kids something to eat and drink for the length of that flight, that’s all got to be bought, so that’s a hard proposition to sell,” Mr Hansford, former executive director of Ansett Air Freight, said.
“The fundamental question is, is there a market between Jetstar as a low-fares carrier and Qantas as a legacy and full-service airline?
“No one has proven anywhere in the world that there’s anywhere in the middle. The airlines that are booming are the ultra-low-cost carriers like Wizz in Europe and Frontier in the United States.”
He said Qantas had also been careful to push regional routes that didn’t have a business demand “into the Jetstar camp”.
“There is no established market between Jetstar and Qantas – there is nothing in the middle,” he said.
“Qantas can discount its premium product and fill that middle ground with a quality product at a good price. And you leave yourself very vulnerable if you’re not offering proper catering.”
Mr Hansford said he expected other shareholders would eventually be introduced and he believed Singapore Airlines could be among them if it sought an Australian rival to Qantas.
“Then it will change direction yet again, where there will be ultra-low cost activity and another premium activity, because the Singapore Airlines business and first class passenger is not going to be attracted to flying domestic sectors on Virgin,” he said.
Virgin’s domestic network was another area where there was little clarity in yesterday’s announcement.
New boss Jayne Hrdlicka told news.com.au the new-look airline would serve “all the places that are really important to our heartland”, including capital cities, important regional destinations and holiday destinations.
The company expects to retain the 30 per cent domestic market share it had before the pandemic.
But Mr Hansford believed Virgin Australia would be operating with a significantly smaller 737 fleet when the domestic network is brought back.
Today, the Australian Competition and Consumer Commission gave the green light to Virgin Australia to have its partner airline Alliance operate up to 41 regional routes on its behalf, a deal it believed would create more competition in regional areas.
It came as Rex announced it would launch domestic operations with a fleet of Boeing 737s formerly flown by Virgin Australia.
The only mention of regional and charter flying in Virgin Australia’s announcement yesterday was its plan to retain Virgin Australia Regional Airlines that flies from its base in Western Australia.
“What about intra-Queensland, which is significant, and Canberra, which isn’t even mentioned?” Mr Hansford said.
He said he felt the announcement was an “unfinished plan” for a “partly built business”.
“I would have thought with the time it’s taken, and they’ve been in the driving seat for a long while, they could have come out with a defined product and a defined network,” he said.
“It’s neither one thing nor the other. This is a potpourri of an airline that’s basically a work in progress.”
Virgin Australia’s update to the public yesterday coincided with the first day in the top job for Ms Hrdlicka, who formerly served as chief executive officer of Jetstar.
She said as the post-COVID travel environment continued to change, travellers and companies were seeking better value.
“They are hungry for flexibility and choice, a trusted brand that resonates with their values, and great prices, along with the premium features they value most,” she said yesterday.
“Today, we’ve announced a plan that will ultimately give our customers what they value without the big price tag: premium lounges, a new and fresh retail offering on-board, a choice of cabins, better digital technology and a more streamlined check-in experience. We will also continue to deliver our award-winning service, strong network of destinations, an award-winning frequent flyer program and a safe and reliable operation.”
Virgin Australia’s lounge in Brisbane has reopened and will soon be joined by those in Sydney, Melbourne, Adelaide, Perth T1 and the Gold Coast.
The Cairns, Darwin and Mackay lounges will be shut down for good, joining Alice Springs, Perth T2 and Wellington, whose closures have already been announced.
Ms Hrdlicka said the company was particularly excited about its new Adelaide lounge, whose April opening was delayed due to COVID-19, and will now open in early 2021 with an “experience and aesthetic more aligned to the Virgin brand”.
“It is a new look lounge for us and a prototype that will be the framework for other lounges as we go through the cycle of lounge upgrades,” Ms Hrdlicka told news.com.au.
“We’re really keen to begin to innovate now on what the future lounge food service will be, because now it’s a COVID experience and that’s pretty constrained, but there’s a lot of positive energy to continue to innovate and continue to deliver great guest experiences.”