Opinion By any reasonable test, the tenancy of the current management and board at Virgin Australia ought to end as soon as possible.
This isn’t said lightly. But no matter what the excuses offered for the latest disappointing financial result, a loss of $69 million in its third quarter underscores the high degree of probability that for all the rhetoric, and indeed hard work that the team under CEO John Borghetti has put in, it will not produce anything like the anticipated returns for the shrunken band of private investors nor its major external airline partners, Singapore Airlines, Etihad and China’s HNA Group.
Not ever. The situation is intolerable in comparison to the progress made by Qantas since early 2014, when this writer understands its group CEO Alan Joyce, took on board some very serious advice from several quarters.
Virgin is in a vice like grip from the competing interests (or maybe disinterests) of the major shareholders. The very fact that its board has always insisted that protocols neutralise those influences on its decision making means they are insisting on the ownership of mistakes or failures that they may not really be entirely capable of resisting.
They can’t win if they pursue that logic, since it appears to have left them powerless to actually do anything to break the current downward spiral for too long.
It’s almost a year since John Thomas, the group executive of Virgin Australia (inflight and ground experience) was wheeled into prominence as the likely successor to former senior Qantas executive John Borghetti.
Mr Thomas’s forte up until arriving at Virgin was to unleash the bonanza of ancillary fee raising on US full service carriers, which in the Australian context, would remove for most intents and purposes the marketing difference between the likes of Qantas and Jetstar or Virgin Australia and its pale imitation of the Qantas low cost brand in its wholly owned Tigerair Australia franchise.
Which underlines the problem of the Borghetti remaking of Virgin Australia as a small but superlative alternative to Qantas in domestic mainline flying and notably, across the Pacific to the US, in what by any objective test is probably one of the best outfitted yet tiniest fleets of Boeing 777-300ERs in service.
Mr Borghetti chased, and scored some notable captures within, the high level high premium managed corporate travel account market. But it happened in a decade in which a secular and seemingly unstoppable erosion of the size and appetite of that market was becoming apparent at home and abroad.
Pursuing a disappearing market is a perverse activity. And so is the result for consumers if it means that we all end up stuffed into incredibly tiny seats, fed rubbish overpriced optional snacks, and find ourselves as parents or carers, or just as ‘large’ Australians, unable to perform or supervise essential hygienic actions in a paucity of toilets.
What might the answer be? It could well be something like Virgin Blue had turned into in the middle of the previous decade under its then CEO Brett Godfrey, when that airline, despite the rise of Jetstar and Jetstar’s erosion of the Qantas brand, was making profit margins that resembled those of EU low cost giant Ryanair, or REX in its very good years serving rural cities.
With hindsight, the biggest sales plus for Virgin Blue was in its making customers feel like they had scored a very good value for money seat without being treated like ‘sh*t’ by Jetstar.
It stood astride a middle ground of quality value for money that competed very profitably with Qantas as that was a more costly carrier with a business class, or as a modestly more costly alternative to Jetstar. It was ferociously criticised by analysts, reporters and even major owners like Chris Corrigan, for its temerity, but it worked.
Virgin Blue offered upgraded two by two seating in its 737s that were comfortable and sold somewhat better it seems than the much fancier but few ‘full’ business class seats now found in those same aircraft.
Can Virgin Blue be re-invented to revive the fortunes of Virgin Australia? We may soon find out, because what Virgin Australia is doing today isn’t working, and apparently won’t ever work in a manner likely to be acceptable by investor standards.
Qantas radically changed its fortunes without changing its CEO almost four years ago, if one wants to hold forth on that topic and dissect the various things that happened after a series of brain fades including the Asia One and Red Q moments.
Virgin Australia is making commendable efforts to impress on the level of operational and financial metrics, none of which translate into an impulse to ‘buy me’ at the consumer level, which is where the airline will be destroyed by its current trajectory. “Wow, I must fly on the airline with the best ROI” isn’t ever going to be driving clicks on the internet booking engines.
It all seems maddeningly meaningless given that the only interests Virgin’s efforts will effect are in no particular order Richard Branson, Singapore Airlines, Etihad and two China investors. There is no evidence that Branson is going to do anything positive in terms of money to gain management clout, and the carriers based in Abu Dhabi and Singapore appear a little distracted by other events at the moment.
Virgin Australia isn’t going to succeed by becoming a super-Qantas product. It isn’t going to succeed by becoming a ‘me too’ Qantas product. And it will go to hell in a trolley with wonky wheels if its tries to become anything like Jetstar.
Nor is it going to succeed by pretending to have a functional and visionary board room.
Daring and original ideas are needed, with owners prepared to back them. Time is running out.