Now that Virgin Australia has posted its full year to June 30 results following the Qantas filing yesterday this David versus Goliath contest is moving into a bigger arena.

Looking at the full frame there are three things going for ‘David’.

In the last three months of the financial year Virgin Australia pulling dozens of managed travel accounts off Qantas, lifting its claimed share of the managed government and corporate accounts from 10% to 13%, with most of the wins coming after the rebranding of the carrier, the rolling out of new cabin products and lounges, and the start of wide body A330 services between Perth and Sydney.

It also turned a maiden profit from its international services flown by V Australia and Pacific Blue of $22.4 million before interest and tax, after paying for the cost of route restructuring that saw it drop South Africa in favor of flying to Etihad’s Abu Dhabi hub for European connections.

And, it secured a harmonious enterprise agreement with its pilots, giving it a full hand of engaged employees.

Virgin Australia CEO John Borghetti had already nominated these three elements as critical to the airline’s plans to take on ‘Goliath’ as a single branded domestic and international network aimed at consumers who want quality at any price point.

So far so good for the Virgins.  In the insecure airline game these three things have happened at Virgin Australia despite its making the predicted loss because of natural disasters in Queensland and the man made disaster in which its reservations system suffered a major melt down.

But Virgin Australia is up against a much larger Qantas group, and shows no interest in owning a part of the Asia-Pacific action as Qantas has set out to do with its Jetstar franchise in Asia, and  its apparently delayed plans to launch a narrow body premium carrier based, most likely, in Singapore.

Instead Virgin Australia has a new relationship with Singapore Airlines (subject to some final approvals) a trans Tasman alliance with minority Virgin Australia shareholder Air New Zealand, an alliance with Etihad which access its European, African and central Asia network over Abu Dhabi, and a potent joint venture across the Pacific with Delta Airlines, with Hawaiian Airlines on the side.

Virgin Australia is bringing or keeping jobs onshore. Qantas is cutting back on its international operations and makes no secret of its intentions through Jetstar and the unnamed premium carrier, of accessing not just new markets, but less costly labor that can, if it is permitted, be used on some services that Qantas until now had operated with Australian pilots.

In the results briefing this morning Borghetti said its US services, currently flown under the V Australia brand, were now profitable in their own right, and indicated that with sharp improvements to domestic yields that have been apparent since June 30, the guidance was that this financial year would be better than last year, unless nature intervenes, or the Qantas Goliath starts landing a few blows with a club.

With Tiger back in the hunt, and Qantas confusing consumers by undercutting Jetstar on routes where the two were never supposed to compete with each other, it sounds like Qantas risks being trapped in the middle in an increasingly chaotic contest on interstate routes with Tiger and Jetstar at the low end, and Virgin Australia at the quality end.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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