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CAPA Live: Virgin Australia: Brand valuable in competitive market

Analysis

The loyalty battle is joined! Virgin Australia has doubled Qantas’ loyalty offer and is targeting those travellers who want lounges and a loyalty programme but also value great prices, said Virgin Australia’s newly appointed CEO Jayne Hrdlicka, speaking at the CAPALive on 9-Dec-2020

It’s going to be a competitive environment, but Virgin Australia was one of the most loved brands due to its relationship with guests and its authenticity, and the airline intends to hang on to its market share.

The airline was not in a healthy shape when it went into administration. Ms Hrdlicka agrees those problems need to be fixed.

Some key highlights from Ms Hrdlicka's interview with CAPA chairman emeritus, Peter Harbison, can be found below.

CAPA Live is presented globally every month on the second Wednesday. The next CAPA Live is on 13-Jan-2021. Sign up now.

We are rebuilding a market so have offered our customers a choice. We’ve not only matched Qantas’ loyalty offer but doubled it

“The whole industry is rebuilding traffic back into our aircraft. First thing is bringing choice and a very, very competitive dynamic to consumers. Australians are hungry to get back to visiting family and friends, getting back to business and exploring this amazing country. So, what we've done is make sure that all of our guests really understand how important they are to us and we're conscious of the fact they've got competitive choice. We've made sure that they understand that we really value them and we've not only matched Qantas' frequent flyer offer but we've doubled it."

“We've increased the benefits associated with gold status and platinum status, provided upgrades. We're lucky because we've got an amazing experience with three different seating choices. We've got Economy, Economy X with extra legroom, and Business Class. So, we've got the ability to play around with that a little bit and reward our most frequent travellers, and if there are Qantas frequent flyers who are currently planning holidays and they don't want to pay quite as much for a great trip and an amazing experience with Australia's most loved airline, well then they can come and join those benefits too, and earn the right to stay."

“I think most Australians are members of both programmes, so having the opportunity to have status on both is a great thing. It's Merry Christmas to Australians who love to travel and we're delighted to be able to participate in that.” 

Virgin Australia’s offer is to consumers, both business and leisure, who want a frequent flyer programme and want lounges, but who value great prices without the bells and whistles

“We are playing to the biggest part of the market, which is consumers, both business and leisure, who really value great prices, but they also want to have lounges, they want a frequent flyer programme. If they fly with us a lot, they want to be recognized as a VIP, but they don't want all the bells and whistles, and they don't want to pay a premium that is substantially above what they think is fair and reasonable. We have done a really good job of managing our costs down and we're hanging onto the elements of the experience we know from our guests, that they absolutely adore, and we're making sure that they can have their cake and eat it, too."

“There won't be as many lounges as Qantas who will have a much bigger lounge network that reaches into small regional airports. We will have seven lounges in the biggest ports, and they'll be big, gorgeous lounges with a lot of space, and there are good social distancing protocols in place now. It's a bit tricky with lounges with social distancing and food safety management, but we're all working our way through that and getting back into action."

“The thing that is most different from previously is that we've spent some time with our travellers and our most valued guests have told us what they really want, and where they want it, and we're doing exactly that.” 

Domestic is our first priority right now, but we are working to be ready to offer international once the time is right. Our strength is in our relationships with other airlines around the world

“It’s important to state that our first priority is domestic Australia, and that's job one. Job two is preparing for international. International will come back at some point in 2021, for sure. Whether it's New Zealand or other short haul opportunities in the region. We'll be ready for that when it comes and when it feels commercially right to do that. What do you have to do to prepare? Well, you have to maintain your rights and you work and you work and making sure that the organisation is ready to go when you roughly think you're going to be in a position to get started."

“I think the entire travel market is just starting to come out of a deep, deep freeze. I don't think the most important thing to a traveller today is what's your international network going to look like? Our frequent flyers have been really clear to us in what matters most to them, and that's not it. But of course, it will become really important to them. And we've got a great deep mix of partners, so we'll be able to augment what we're not doing ourselves in the short term with partners.

"The strength of our relationships with other airlines around the world is deep and it's longstanding. I've been really pleased with how warmly I've been welcomed into the Virgin Australia family, the broader Virgin Group family, and our mix of aviation partners."

“We’ve had a mix of different partners over the years. But Delta's a really important partner historically for us, to the US. That's a really strong relationship. Etihad has been a really strong relationship, Singapore Airlines has been a really strong relationship. Those are three really important anchors for the region. And then there's a mix of other partners that are also important, but probably less top of mind at the moment.”

Everybody’s hungry, not only for competition but for Virgin Australia to be back. It was the most loved airline in the country because of the relationship our people have with guests

“Everybody has their war stories to share, but I think our aviation shareholders are probably the most disappointed of all. Because it was a sad day when Virgin Australia went into administration."

“We've been doing quite a lot of research as you might imagine, and we're very confident that the long term brand value's very high. Both with our guests and our people, everybody's really hungry for not only competition but for Virgin Australia specifically to be back in the air. Let's just recognise that Virgin Australia was the most loved airline in this country, because of the relationship our people have with our guests."

“That's been the case since the start of Virgin Blue, and that doesn't go away easily. It's two decades of investment in relationship building that's been masterfully done by our frontline teams. There are gorgeous stories every single day that come my way, that really bring a tear to the eye, with how far our team goes in really making a difference.” 

"Our first preference is always to keep people in our teams as opposed to outsourcing"

“We’ve had really difficult negotiations with the unions. There are a lot of things we agreed on, there are a lot of things we didn't agree on, but ultimately we worked together in a very constructive and collaborative way, and we've come to a really good landing spot with everyone except for the Pilots Union, and our people are prepared to make pretty big concessions. The agreements are yet to be voted on, but everyone's holding hands for this process and recognising that Virgin Australia wasn't in great shape pre-COVID. There's a reason that we went into administration, so we've got to fix those problems."

“We're not like Qantas. We weren't in healthy shape, and so our people recognise that. They saw a lot of bad decisions being made, they know the business wasn't in great shape, and they want to help be part of making sure that if Virgin Australia is strong and successful in the future, and they want to be part of the solution. We've worked through with the unions, a mechanism to ensure that our people stay in their jobs.

"Our first preference is always to keep people in our teams as opposed to outsourcing, and we've guaranteed them that we will always come to them first before deciding that we need to do something different, and we'll work together to find the most cost effective way to get things done, so that we can continue to compete effectively in the marketplace.” 

The most obvious part of the Virgin brand is its authenticity. Just letting our guests know how much they love their jobs, and how much they love serving, puts a smile on our guests’ face

“To me, the most obvious part to the Virgin brand is its authenticity. That authenticity is demonstrated every day by our people with them being authentic and coming to work and demonstrating all that they have to offer, and being themselves.

"When I arrived in the airport this morning, one of the ground services team was dressed up as a Christmas tree, and she had her mask on her nose as a reindeer. Everybody's expressing themselves through the holiday season, just letting our guests know how much they love their jobs and how much they love serving, and putting a smile on our guest's face."

“They go the extra mile every single day. So, they're not only genuine and authentic and themselves every day, but they really feel empowered to make a difference every day. That's a hard thing to do, starting from scratch. It's just an embedded part of our culture, and it's been there from our very, very early days."

“This has been a really tough year for everyone and we've all got our own stories about what's worked and what hasn't worked, and when Australia's in a position where we've got no community transmission and the borders are all open, and people are starting to get back to new normal, and it takes a little while to shed off the anxiety of having been living under rocks and hiding out in our houses, but as you start to get back out, it feels great.”

It is going to be super competitive because we are all rebuilding a market, but we all are going to hang on to our market share, which is fantastic for Australians

“I think none of us knows exactly how travel's going to settle down in the new normal. But I guess I'd say two things. One is I think Rex is a good business and they've built strong regional connections into major capital cities, and this feels to them like a logical thing to do. But I think they should expect it's going to be super competitive because we're all rebuilding a market. Prior to COVID hitting, if you pulled Tiger out of the market, Qantas was 43% market share. Virgin Australia was 34%, and Jetstar was a balance at roughly 23."

“We fully intend to hang on to roughly a third of the market, 33-34%. I'm sure Qantas fully intend to hang on to their market share, so it's going to be very competitive, which is fantastic for Australians. It will never have been cheaper to travel in this country, right? And that's great, because it gets everybody back and flying, and who knows? We might grow the total market. That's probably a big ambition given where we've been in 2020, but prices will be very sharp for a long time, to ensure that everybody resettles in the marketplace in the way they intend.” 

Competition is a good thing, but we have to be clear about the market share we intend to achieve

“From our standpoint it's pretty important (to maintain market share) because we're making investment decisions on infrastructure that requires scale. So, you plan your business based on the scale that you expect to be able to achieve, and then you work really hard to make sure that you can do that. So, is anybody obsessed with a particular number? Well, not irrationally so, but very rationally so. I think competition's a good thing but I think being very clear about your position in the marketplace and what you intend to achieve, and being very strategic about that, and fighting to compete to deliver that. That's good business."

“It's a challenging outlook from the standpoint of the profit pool on the triangle for a long period of time. Because Virgin Australia has no intent of backing off that market share either, because we're well funded, we've got the strongest balance sheet of anybody in the marketplace right now, and this is a long game. Nobody's trying to make a lot of money in the first 18 months or the first two years. We're trying to build the business for the long term. So, of course we [are] very mindful of making good, prudent financial decisions, but this is very strategic."

“We saw what happened when Tiger came into the market. It was very difficult for Tiger to get oxygen to survive, because they couldn't get the scale. Couldn't get the revenue position that justified continued investment in very expensive equipment. Rex are adding quite a lot of complexity to their business, and they've clearly got a game plan themselves, which is fantastic. We wish them all the best.” 

We would be happy to model ourselves on JetBlue, because everyone’s going to be more price conscious

“I think one of the great examples is JetBlue. We've looked a lot at airlines around the world and who do we want to look like? There's nobody specifically that we say, 'That's exactly it' but it's more like a JetBlue than not. We think post-COVID, everybody's going to be a bit more price conscious than they've been before. The value proposition is key, but the value delivered is important. Particularly so for business. I also think elitist behaviour, that we all kind of gravitated to after a decade of really strong economy behind us, I think that's going to be a bit on the nose, too."

“I think executives will be much more conscious of their leadership shadows, wanting to be more grounded and connected with the broader workforce, and I think the world will be a bit different. I don't think we should be expecting that we're all just hopping back straight onto the business we hopped off. It's a different business.” 

It's a good market for aircraft right now, but we won’t be needing widebodies for 18-24 months. The MAX 10 will do a great job for us transcontinental and short haul international

“It's a good market for aircraft generally right now. Narrowbodies, widebodies. I don't think fleet will be a constraint. We won't go straight back to widebody flying in the next 18-24 months."

“You can't look to the MAX 10 to fill out your international network. It will do a great job for us transcontinental, it will do a great job for us in more traditional short haul international routes."

“We’re maintaining flexibility with the Tokyo slots, because we've got flexibility in aircraft. I might give you my projection on how long I think it's going to take, could be less, could be longer, and we've got flexibility. The extraordinary thing about this moment in time is all airlines have flexibility that we would have dreamed of a couple of years ago. Flexibility in how quickly you can't get aircraft in. There are standard protocols and timeframes that you can't compress but having access to aircraft is much easier than it's been probably in two decades. The price for aircraft now is incredibly attractive.”

Every airline has its own unique culture and history, but there are lessons learned from Jetstar on importance of safety, operational efficiency and effectiveness

“I think every airline's got its own unique culture and history and position in the marketplace and you have to be adaptable to that environment. Virgin Australia's very different, so all the things I learned in terms of the importance of safety, operational efficiency and effectiveness, all those things were the same across most airlines. But the commercial side of the business and the culture and the people and the customer experience and strategy, that's entirely different."

“There's some things that will just be structurally different. People will probably not pick up and move between two cities for one meeting. Unless they're selling something or it's a new relationship, whatever. I think some trips come out of the market, particularly with very big businesses where there was a lot of intrastate travel, intrastate travel between branches, or between different big offices. Particularly Sydney and Melbourne."

“I'm sure some of that comes down and I'm also sure that travel budgets will be significantly constrained. I mean, all businesses have enjoyed the fact that they haven't had to spend on all the travel and entertainment lines that would traditionally be the case. Everybody's enjoyed the benefits of that, at a tricky time in the world. I think a combination of things. I think there's be less (business) trips in the traditional sense. There will be a lot of pressure for good value because everybody's much more cost conscious. We've all stared into the reality of uncertainty, and therefore what you spend and how you spend it's ever more important, because the one thing you can't control is your costs. And then I think underneath that is desire for real competition.

We're not trying to compete head-to-head. We're not trying to beat Qantas

To your question about how do we sit relative to Qantas? Well, we'll compete very differently than we have in the past, because we're not trying to compete head-to-head. We're not trying to beat Qantas. We're Virgin Australia, we're Australia's most loved airline. There's an emotional connection to our business which is unlike any other, and that's us."

“So, we're playing to our strengths, we're not going to try to be anybody else. But we think naturally there'll be quite a lot of interest in competition between the two of us for business travel, that's fine. I don't think structurally there's probably much change in terms of our relative share. How we go about generating that share might be quite a lot different. I think leisure, visiting friends and family, because we've all realized how important it is to take advantage of the moment and not plan the trip six months away, but to take that trip now because you might not be able to take it tomorrow. I think the leisure side of it goes a bit crazy, you know?"

“Experiences are everything. We've all been denied experiences for a big part of this year. We want them back, so I think that will be more prevalent, and I also think more small businesses will get into the marketplace because they're hungry to rebuild, new business formats are developing, and so there will be evolution. It'll be a bit different how it ultimately settles. I wish I had a crystal ball, but I do think structurally there'll be some different dynamics in what drives revenue 2021 and beyond. 

Regional is a critical part of our proposition to Australia. There’s a lot of business traffic on those routes and we’re all exploring this country in a way we never had before

“Regional business as previous, yes, but probably a bit more strategic. Because we're not going to fly a lot of the thinner routes that don't support flying a 737. So Alliance becomes probably more important to us in that relationship, and because we believe regional's a critical part of our proposition to Australia."

“We have a lot of business traffic on those routes, and a lot of great leisure. I mean, we're all exploring this country in ways we never had the opportunity to, or took the opportunity to do before.” 

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