After Years of Making Life Difficult, Virgin Australia Simplifies

Virgin Australia, Virgin Blue

Twenty years ago when Virgin Blue launched, it had a simple mission. The airline was built to bring low fares to a continent where few were to be found. Since that time, the airline — which is now known as Virgin Australia — has done nothing but add complexity to nearly every facet of its operation. Having now gone through the bankruptcy spa, Virgin Australia is trying to simplify once again. We’ll see how long this lasts.

A Short and Confusing History

On August 31, 2000, Virgin Blue first took the skies from Brisbane to Sydney. The marketing was heavy on the “low fare” promise, but that’s not what made the airline a success. What really made this work was — as is often the case for Virgin airlines — dumb luck. Just over a year later on September 13, 2001, Ansett Australia shut down. Ansett was the long-lived second operator in the market with Qantas (after the latter acquired Australian Airlines). With Ansett gone, it was hard for Virgin Blue NOT to succeed. And so, it flourished.

But what began as an all-737, all-economy, low-fare operator quickly went off the rails. In 2005, the Velocity frequent flier program was introduced. By 2007, Virgin Blue decided it wanted to fly to smaller markets, so it ordered Embraer 170/190 aircraft to supplement the 737 fleet. It also started increasingly partnering with other airlines. By 2008 it had launched a second class, premium economy, It also started V Australia to fly 777s on long-haul flights to the US and Asia. If that sounds frenetic, just wait.

By 2010, John Borghetti was tapped to run the airline. John came from Qantas where he was spurned for the top role in favor of Alan Joyce. When John went to Virgin Australia, he was ready to exact revenge. Really, he just wanted to take business away from Qantas and he worked on building a second full-service airline to serve the sparsely-populated country.

That meant consolidating all the random little airlines — anyone remember Pacific Blue? — into one Virgin Australia brand. He introduced a domestic-style First Class on the domestic fleet, added A330s for domestic trunk routes, and updated the long-haul fleet. Lounges were introduced, and Aussie-regional Skywest was tapped to fly regional props around Australia to feed the network. Then the acquisitions started.

In 2012, Virgin Australia picked up Tigerair’s Australian division. The main Tigerair in Singapore was folded into Scoot and took on that airline’s brand. Instead of just eliminating a low-cost competitor, Virgin Australia tried to revive the brand’s lackluster reputation and run it as a separate airline. Oddly, Virgin Australia kept the airline’s A320 fleet and let it fly, often in competition with the parent company.

Soon after, Virgin Australia bought its regional partner Skywest and renamed it Virgin Australia Regional. This was brought on to fly ATR props, but it also has Fokker 100s and even A320s for regional and charter operations.

Over those years, the airline burned through a whole lot of cash. To keep the airline going, it continued to sell bits and pieces of itself to just about anyone who showed interest. At one point, Air New Zealand was a large shareholder, but it walked away and took its commercial partnership too. It now works with Qantas. Etihad brought Virgin Australia in as a member of the Etihad Airways Partners group. Hainan’s parent HNA owned a chunk as did Singapore Airlines. Another Chinese group, Nanshan, bought Air New Zealand’s old stake. The airline had too many masters to serve, and it was buckling under its own weight as losses continued.

Borghetti left in 2019 and the new CEO tried to right the ship, but COVID-19 was the final straw. The airline went bankrupt, and now Bain Capital is trying to bring it back to life.

The New Plan

The plan now appears to be one that goes back toward a simpler time, but it’s not focusing on just being a low-fare carrier. No, instead, it wants to be a tweener, a “value” carrier that brings a good product at low fares. There aren’t a whole lot of success stories in that category, but well, Virgin Australia is going to give it a shot.

The exact plan isn’t entirely clear. For example, it is getting rid of its widebody aircraft, but it says “long-haul international flying important part of plan but suspended until global travel market recovers.” Uh, with what aircraft? I suppose it will just pick up something new when the time comes.

We do know is that Tigerair is toast and the A320s are being returned… but they will keep the operating certificate alive so they can start another ULCC whenever they think they need it. This plan is clear as mud. (Side note: That leaves Tigerair Taiwan as the only airline still flying the Tiger brand.)

We also know that mainline Virgin Australia will go down to only operating 737s. That means the A330s and 777s go away, as do the ATRs in the regional fleet. The only non-737s flying will be either Fokker 100s or A320s (or both?) flying regional and charter work.

The airline will focus on domestic and short-haul international. Presumably that includes Trans-Tasman along with some Pacific island flying like Fiji or the Cook Islands. And that’s really about all we know.

The press release reads like something that a consulting firm put together, but in short, it’s all about simplifying, providing value, and cutting costs. In other words, it’s what most companies do when they overextend and screw things up.

Is there really room for this kind of airline in the market? This leaves Virgin Australia competing with Qantas and the higher end and Qantas’s wholly-owned subsidiary Jetstar on the lower end. When demand comes back, there’s nothing stopping another airline from coming in and trying to do what Virgin Australia does better. That’s why the tweener airlines don’t usually work well. They try to serve different markets without hitting any of them on the head.

At this point, it’s just a waiting game. Will traffic return enough so that Virgin Australia can survive? If so, then just how long will it be before the airline decides to get cute and add complexity again?

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21 comments on “After Years of Making Life Difficult, Virgin Australia Simplifies

  1. “Borghetti left in 2019 and the new CEO tried to right the ship, but COVID-19 was the final straw. The airline went bankrupt, and now Bain Capital is trying to bring it back to life.”

    Bain Capital like other hedge funds has one job – make money for it’s investors. Quite often the companies invested in are but not always weak financially to begin with, but are loaded up with debt as the value is sucked out of them like blood to a vampire. The end result is often bankruptcy. Examples include: Toys R Us,, Sears & California Pizza Kitchen.

    Vergin Australia is the live action version of the mythical Blue Star airlines from the film “Wall Street.”

  2. It hasn’t ever been shown that Australia can support two full service global carriers esp. since the country has an abundance of foreign carrier service. Virgin Australia battled to try to find a place at Qantas’ table.
    And it is an advantage for carriers in countries with very strict quarantine procedures or high disease counts to be in bankruptcy to ride out the crisis; Qantas will be the one at a disadvantage in its inability to cut costs while international travel to/from Australia will be greatly reduced for months into the future.
    Let’s see what Virgin Australia comes up with for a route system but they probably will be able to serve the largest markets that will be all that have any chance of being profitable for years to come.
    Its joint ventures including with Delta will have to be modified since Virgin Australia doesn’t intend to fly longhaul international routes; it will be able to connect passengers within Australia and will rely on Delta for a presence in the N. American market. Delta and United are currently offering passenger service mainly on the strength of the cargo market.
    Virgin Australia tried to do too much, didn’t succeed, and like other carriers paid the price when covid hit. They do have a valid business plan for the medium term given the depressed demand environment and have a good chance of succeeding by focusing on what they can profitably do

  3. Good  Morning!

    This is Fabulous!

    “Having now gone through the bankruptcy spa, Virgin Australia is trying to simplify once again. We’ll see how long this lasts.”

    Great summary….Love the details too…

  4. Re “tweener” airlines: back in North America, aren’t Southwest, jetBlue, WestJet, and even Alaska Airlines all essentially “tweener” airlines, all of which are pretty successful (WS and B6 perhaps less than WN and AS)? They all maintain lower costs than the major network carriers with pretty good products (premium classes on B6 and AS and no change or bag fees on Southwest, the opposite of a ULCC), and though they in general don’t discount flights enormously when there’s competition, their low costs allow them to profitably serve routes that the network carriers can’t sustain.

    It doesn’t seem to me like an impossible niche to fill, especially in the Australian domestic market where VA retains the position of being the only real alternative to Qantas.

    1. And of course WestJet is in a similar position to Virgin Australia as the only mostly-national alternative to the de facto flag carrier (and its subsidiaries).

    2. Alex – I think JetBlue and WestJet are great examples, and neither is overly successful these days. But JetBlue’s advantage is that it got a windfall of slots at JFK that prevented others from coming in. It has that structural barrier which allowed it to build up and not have to fight competition as much, especially on the lower end. WestJet, well, yeah, just look at WestJet trying to struggle with what it wants to be when it grows up.

      Alaska and Southwest I see differently. Alaska is a true full service, legacy carrier that just happens to be smaller than the rest. Hawaiian probably fits into that category as well, adapted for the needs of its home market. And Southwest isn’t a tweener either in that it has stayed true to its more basic product. It isn’t trying to offer full service or copy what the other guys are doing. It does its own thing and it successful with that strategy.

  5. I’m trying to understand what this “Economy X” class is, that I see on SeatGuru.

    There’s just NO WAY you’d have 3 versions of Economy on a plane…

    1. Economy X is basically United Economy Plus, the same economy class seat spaced further apart for more legroom and dedicated overhead bin space. Premium Economy is a wider seat and even more legroom.

  6. I watched an ABC (Australia) news show about Virgin Australia basically asking for a bailout. Opinions on that aside I kept thinking about how Oz is less than Texas in population with a footprint nearly equal to the continental USA. It just doesn’t make sense that you can have TWO full service airlines serving that. If one is a LCC that’s fine but some of those long thin routes probably are best not served. Just didn’t make sense what they had become and downsizing to a niche is probably the correct play in good or bad times.

    1. I’ve often heard Australia compared to Canada, in terms of size, population, and extremes of population density (most population clustered in a few corners / edges of the country, few people in the interior of the country).

      I’m not sure how common it is in Australia for people to take long-distance road trips or how good the highways are, so I’m not sure if people consider driving as an alternative to flying… Specifically, I’m thinking of how many people in the US will drive from the Northeast to Florida if they can’t afford to fly their big family, or how a trip of > 600 miles / > 1000 kms by road can be driven easily in a single day, and isn’t considered that big of a deal.

      1. The triangle routes, Brisbane-Sydney-Melbourne are amongst some of the busiest domestic routes in the world. Wheres there’s no or little air service we’re happy to drive, but with Jetstar & Tiger throwing out $20 fares we’ll fly. If that continues after covid and the state borders are open is another thing.

      2. I know people in Australia and can say it’s extremely rare for someone to drive from say Sydney to Perth. It’s a massive distance and the roads through the outback are not exactly US Interstate Highway standard. Canada is a little better with some population centers in the middle, but again, most Canadians doing long road trips like that drop down to the US for better highways and cheaper gas.

        My point was Quantas flies the routes. Not sure there is population to support a second full service carrier flying thin routes. Maybe some more people will travel but the likely outcome is fares are reduced to where neither player can operate profitably. A LCC to just major population centers and vacation spots makes more sense. Why fight Quantas domestically for such a tiny market??

    2. @A

      I see your point. But there are actually a few other countries with populations similar-to-or-small-than Australia that have two full service carriers. Taiwan is a good example at 24 million, and maybe we could stretch this example to include South Korea at 51 million. If anything, having a larger domestic foot print (and no meaningful train or road network as others have noted) is further reason to have more airlines (not necessarily full service ones, but they could be.

      If we were to suggest that Taiwan and S. Korea’s carriers’ networks rely on an intl footprint, that’s a good point. Australia is even more geographically isolated than those two, and would rely on air travel at least as much.

      I’d be curious what the wealth and travel patterns of each of these three countries are, because that matters too.

  7. This is a wonderful overview of Virgin Australia. Enjoyed this, well done CF! I’ve never flown Virgin Australia and now I regret not having done so. I have family in Sydney and rather than flying QF, wish I had flown Virgin Australia instead. It seems that passengers have commented that Virgin’s cabin service was better than QF. Hope that Virgin Australia in the months and years ahead can regroup and become a worthy competitor to Qantas.

    1. I lived in Australia from 2011-2014 with multiple yearly trips back to the US, so just as they finished the rebranding to Virgin Australia and had the US service and Delta joint venture established. Of the four airlines operating SYD-USA at the time, my experience (exclusively in coach) was Qantas was by far the best, Delta and VA quite different but still perfectly good products, and United the worst (though United by reputation from all my coworkers; I followed their “friends don’t let friends fly United advice”). Virgin was just fine, especially by the standards of US airlines, but not fundamentally different; I don’t think you missed much.

      The main nice thing about Virgin was access to their quite nice lounges on domestic flights as a Delta elite (Gold or higher). That is of course equivalent to Qantas flying as an AA elite.

      I think Qantas having a worthy competitor is absolutely essential. They very much do on the long haul front from all the foreign airlines that aren’t going away; it’s a domestic competitor that’s most concerning.

  8. I think it’s important for Australia to have a competitor for Qantas. Australia has five cities with at least a million people and they are all at least an eight hour drive from one another. It’s not like Canada where its two largest cities are an easy drive or train ride away from each other. So, there is a lot of potential customers because of these distances.

    I flew VA last year and really liked the lounge at SYD (with its own security), but the onboard service was lacking. They charged for soda on a two hour flight to ADL.

  9. Virgin Australia will probably need to do more in terms of simplifying the business if it wants to remain competitive with Qantas / Jetstar.

    I don’t understand the value proposition of having a full business class with business lounges if Qantas has the advantage of a loyal frequent flyer base, corporate contracts, and OW partnership. And even if Virgin Australia does promise to provide a “budget friendlier” business class, Qantas can easily price match those fares. The current products on both the VA as QF J classes are almost the same. The current 8 seater business class + added high cost of maintaining the lounges put VA at a cost disadvantage. Very few of the routes VA flies domestically + trans-Tasman don’t support the demand for a business class product. (Even Air New Zealand doesn’t have a separate J class on its A321neos for trans-Tasman flights). This is just adding unnecessary complexity.

    In my opinion, it could have gotten rid of the 8 seat business class and added more rows of Economy X – minimizing complexity while offering more upgrade opportunities for elites and things they actually value from such a product (i.e. extra legroom, priority check-in and boarding).

    In addition, why is there a need for a regional arm? “The only non-737s flying will be either Fokker 100s or A320s (or both?) flying regional and charter work.” The A320 pretty much competes with the 737 and its just adding more complexity with regards to training crews and maintenance costs. The Fokker 100 is an old aircraft model, and as the fleet ages – so do the need for more heavier and expensive maintenance checks. Wouldnt it be better to serve the Fokker markets with just the 737 as it would have a lesser CASM?

    And why the need to keep Tiger’s operators certificate? I think VA could compete better without having to invest in a whole different brand and the capital associated with building up an ULCC if it just added a basic economy product.

    Part of what makes tweeners in the US more successful is that they have build their products to what their customers value the most. (JetBlue for example added MINT to only high-yielding transcon routes, and with a product that is competitive against the legacy carriers, even eithout building lounges. As a result, its transcon markets between JFK/BOS-SFO/LAX are some of its most profitable routes.) VA’s revised is trying to just be in the middle.

    1. I think the thing is that Qantas has never chosen to match Virgin fares on those east coast routes. Virgin has been a value carrier on those east coast/737 routes. Qantas has traditionally relied on its loyalty programme which is pervasive through society (I earn 5 qantas points a night just for sleeping), corporate contracts (partly because execs are into the loyalty programme as well, and partly because Qantas goes more places with better frequency and no Aussie wants to fly delta across the pacific if they an possibly avoid it) and even a certain snobbishness about flying Virgin.

      International has never been great for virgin and they need to keep the 8 business seats up front on the 737s and the lounges so they can be an effective connector for every international airline that doesn’t want to partner with Qantas. Its why Etihad and Singapore kept it going for so long, they needed a way to fill their a380s with passengers without paying Qantas to do it, and will continue to do so. Those 8 business class seats will generate revenue from codeshares and interlining even if they don’t from domestic first passengers.

      I hope Virgin Australia never makes the mistake of trying international again it works much better being the connector for Singapore, ANA, Etihad, Delta etc. There might be a faint reason to fly to Singapore or Hong Kong to pick up some interline traffic from European or Chinese Airlines…. <- and this right here is where the madness starts.

      1. Understandable on Qantas relying on the loyalty side from price matching on Virgins business class. Virgin being the only competitor and a smaller one than Qantas, it may not need to due to the loyal customers and contracts it has as you mentioned. However one thing that changes is that in a post-COVID environment, many corporate contracts might see less flying as they will be trying to cut expenditures wherever they can; and in the age of Zoom meetings, it challenges the need for the regular business traveler to go to the actual location for meetings and travel back the same day or next day as it is a time saver and huge cut on travel costs.Once demand recovers, more travelers are going to be price sensitive as a result of the economic strain COVID lockdowns have caused. Qantas for the first few months at the very least will need to lower fares to stimulate demand.

        You also mentioned the need for the 8 business class seats is from the codeshares Virgin has with Singapore, Etihad, ANA, Delta, etc. However that is entirely dependent on whether either side (Virgin or the partner airline) wants to continue the partnership. With Virgin being a smaller airline, it may not be beneficial for the international airlines to rely on Virgin for feed. Delta might stick around due to Qantas having a JV with AA, and ANA as well due to being in Star Alliance – however in the short term, Virgin is going to be on its own due to the low demand in international travel and border restrictions. While being a feeder for international airlines helps bring revenue, it can’t be a sustainable business model relying on just feed. This is especially true when you’re just relying on 8 customers connecting onto Etihad, Delta, etc. to fill those seats.

        As for the lounges, while they may prove some business case for the high yielding interline traveler, remember that Virgin is pretty much starting fresh and in this economic environment, it does not make sense to pay expensive leases as well as staffing and maintenance for those lounges. In fact, Skyteam, Etihad, and Singapore have their own lounges either in Perth, Sydney, Brisbane, Melbourne, Adelaide or even all of them.

        In addition, many other airlines with a single class product are profitable and are relied upon for feed. Take JetBlue’s partnership with Emirates, Etihad, and Qatar for their BOS and JFK flights; GOLs partnership with Aeromexico, AF/KLM, etc.; Azuls partnership with United / TAP / Turkish Airlines; and even EasyJet with the Worldwide program to a lesser extent.

        My best guess is that Bain is only keeping the current interiors is due to the expense and logistical complexity to reconfigure those aircraft.

        1. Virgin doesn’t have international lounges only domestic ones. It relies on the carriers you mention for lounge service. Definitely be interesting to see if they maintain domestic lounges as part of the offering. I know a lot of people that maintain gold to keep the lounge access but I’m also fairly sure that they’d settle for a seat in the terminal, paying for their own coffee rather than paying more on Qantas.

  10. It’s going to be interesting how it works squeezed by Qantas at the top end and Jetstar at the bottom. Big fan of the old Virgin, especially their business class which I thought was the best out of all the offerings, the link up with Singapore Airlines was also fantastic.

    Will depend on how much money Bain wants to make over the next few years, spruce the airline up and sell it onto one of the ‘failed’ bidders from the auction process? The hope is it does succeed, without a good competitor tourism operators are going to feel it when prices creep up.

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