How a rejuvenated Virgin will fit in Australia’s air travel sector

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The two companies fighting to buy Virgin Australia want to transform the airline into a cheaper alternative to Qantas. US private equity firms Bain Capital and Cyrus Capital were quick to swoop after coronavirus lockdowns forced the struggling airline into administration. And although both businesses remain tightlipped on the specifics of their offers, each has promised the new and improved Virgin will look to attract a ‘mid-market’ customer base. In essence, it will eschew the high-end luxuries offered by Qantas in favour of more affordable fares, without becoming a budget airline like Jetstar.

Tim Harcourt, a UNSW economics professor known as the ‘airport economist’, told The New Daily that would be a step in the right direction for a business that has previously tried to be all things to all customers. “One minute they were trying to be like Jetstar – a budget, backpacker airline putting the fun back into flying,” Professor Harcourt said. “The next minute they were trying to be Qantas premium.” That strategy led to the business’s collapse, as Virgin was unable to compete at both ends of the market. But the middle ground between these two offerings is ripe for the picking, Professor Harcourt said, as many Australians want a bit more comfort than that offered by budget carriers without the hefty price tag attached to a Qantas ticket.

What to expect from Virgin

When Virgin relaunches, Mr Harcourt said it will most likely try to keep flying the same domestic routes – including regional routes. But the new owners will probably have “quite a conservative view” in the early days given the coronavirus has eroded public confidence in flying. Those brave enough to venture back into Australia’s skies aboard a Virgin plane can expect to receive a few more creature comforts than they received on budget flights. “It won’t be premium business traveller stuff, and it won’t be super budget, low-cost carriers that have been all the rage in recent years,” Mr Harcourt said. “It’ll be more like an economy flight you would have taken with TAA (Trans Australia Airlines) or Ansett in the old days.” Although neither of those brands have survived, Mr Harcourt dismissed the idea that Virgin would vanish from our skies. TAA became part of Qantas, he noted, and Ansett’s demise was mainly down to a failed push into international markets. “I think there’s always room in Australia for two major airlines domestically,” he said. “It’s not like Virgin will have automatic market share, but it will have as close to that as you can get without legislation.” Flights between Brisbane, Sydney, and Melbourne are particularly lucrative, and taking a slice of these ticket sales will be a major profit driver.

Southwest of the Great Southern Land

To get a better sense of how Virgin’s new owners should operate the business, Monash Business School professor Greg Bamber said travellers should look to the other side of the world. Specifically, to Southwest Airlines based in Dallas, Texas. Founded in 1967, Southwest has since grown to become the world’s largest low-cost carrier. And according to Professor Bamber, it provides the perfect template for a new and improved Virgin. “[Southwest has] been extremely successful. It’s been profitable throughout its life, and it hasn’t gone in for bankruptcy unlike all its competitors in the US,” he said. “And it charges fair prices for its flights and treats its workforce and customers well.”

Picture: Virgin Australia will look different once it returns to the skies. Photo: Getty