Virgin Australia CEO John Borghetti told the ABC’s Inside Business show this morning that there would be ‘no talk of a line in the sand being drawn here.’
Referring to the sharp increase in capacity that his airline, and his former airline, Qantas, have been adding to the domestic market, Borghetti said his view was that capacity should be a consequence of strategy, not a strategy.
Which by inference, is a distinction that is being ignored by Qantas.
Borghetti also emphasised the distinction between alliance partner Etihad Airways gaining approval to lift its stake in Virgin Australia Holdings to 10% from a current 4.9% , and the beneficial effects of its traffic feed on the Australian airline’s business as a whole.
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He said those benefits were already in place, and significant, and were not related to how much Etihad owned.
Borghetti said that there was ‘a lot of misinformation’ and ‘punching at shadows’ in the market and that some people should take a cold shower. (But some people where? In the media? In Etihad, In Qantas? In all of those places?)
While he demurred at disclosing commercial in confidence specifics, he did indicate that the alliances Virgin has with Air New Zealand, Delta, Singapore Airlines, and Etihad, as well as better relationship with Virgin Atlantic and Virgin America, had come close to trebling the benefit connecting traffic from international carriers was bringing to its operations.
(Borghetti did not spell out each linkage in the interview broadcast this morning, and the longer interview and this morning’s complete edition will be posted online by the ABC later.)
Asked by Alan Kohler about the domestic business class fare contest that had broken out with Qantas, Borghetti said the airline was undercutting Qantas on price by around 25% and was prepared to go deeper, and that it was a return to competition at that level that ended with the collapse of Ansett in 2001.
But was it contributing to profits? Borghetti said it was important to look at the broader picture, and the halo effect the top level of product had for the airline as a whole, an answer which the subsequent panel discussion unanimously interpreted as being that it was making a loss on business class.
What was missed in the discussion was that airlines today do not make most of their profits from business class, but from business travel, and that most business travel on domestic routes is in economy class, where the full service offerings of both brands are locked in a determined conflict.
In the longer version of the interview Borghetti doesn’t answer a question about the imminent launch of The Club its answer to the Qantas Chairman’s Lounge but Kohler noted that the smile was confirmation, which was incidentally reported here last week.