There’s very good reason why the rest of the low-cost airline industry isn’t copying what John Borghetti is doing to Virgin Australia.
When the former high-flying Qantas executive took the helm at the former Virgin Blue nearly four years ago in 2010, he had a detailed plan to add costs and complexity to his operation so that it could begin the task of stealing Qantas’s customers.
This is in spite of the mantra of the low-cost carrier (LCC) model Virgin had been operating in Australia until then: keeping it simple – one class only, one aircraft type – is the route to profitability that full-service carriers can only dream about.
In fact, his predecessor and Virgin Blue founder Brett Godfrey had already begun adding frills, such was the depth of the black hole that the disappearance of full-service carrier Ansett had left in the competitive landscape.
Live in-flight TV, valet parking and a frequent flyer scheme, not to mention the addition of Embraer regional jets, were bolted onto the little budget carrier as it rolled out a network of lounges to comfort business travellers before they were squeezed into their little economy seats.
I doubt whether Borghetti will ever achieve the profitability of the Malaysian juggernaut AirAsia. The Qantified Virgin Australia costs much more to run than the old Virgin Blue and is subject to the whims of the business cycle.
On top of that add an irrational capacity war as Borghetti uses the lower costs he inherited from Godfrey’s operation to force Qantas to defend its 65 per cent “line in the sand” market share.
Consumers have been taking the resultant fares war to the bank for the past two years, especially if you’re travelling up the front of the plane. Domestic business class travel has never been so cheap.
Meanwhile, the need to pay for all those added frills hasn’t gone away. Virgin announced last week it is opening its airport lounges to all travellers, even those sitting in the cheapest economy seats for a fee.
For those who don’t already have a pass, entrance to the Virgin lounges will cost $65 at the door, or 10,000 Velocity Frequent Flyer points to buy a lounge pass online for up to six months.
Business class travellers, and Platinum and Gold members of Virgin's Velocity frequent flyer scheme already enjoy free entry to the airline's lounges.
“The pay-to-enter concept is bound to be appealing to infrequent flyers, especially if they've got a loose 10,000 points rattling around, but it's no bargain,” says Australian Business Traveller.
“For example, if you've booked a Flexi fare you can upgrade to business class on short routes such as Sydney-Melbourne or Sydney-Brisbane for a mere 4800 points and get lounge access into the bargain.
“And you can forget about turning up in the morning for an evening flight and using the lounge as an all-day office – paid entry is valid only two hours ahead of your flight's departure time.”
OK, so it’s great as a treat for infrequent travellers, but what are Virgin’s existing corporates going to think of turning their oasis of quiet into a busier, potentially noisier experience?
Virgin Australia previously sold single-entry lounge passes for the same price but discontinued the scheme about two years ago.
Qantas understands that business flyers value the sanctity of the service they are paying for, whether as a work space or as an escape from the pressures of the road.
AusBT reports it sold passes to its Qantas Club lounges as a limited promotion in December 2012, offering four single-use passes for $197, but “has ruled out the possibility of Qantas Club access ever being offered on a walk-up, pay-at-the-door basis”.
Both Virgin and Qantas are losing money and look like they will continue to do so for the foreseeable future while they conduct their market share war.
That’s ironic when Virgin volunteered for the higher costs that have guaranteed that more is going on than coming in.
Will you use one of Virgin’s paid lounge passes? What do you think of the idea if you are already paying for lounge access as a Virgin business traveller? Is Virgin’s transition from backpacker airline to business airline the correct strategy?