Virgin Blue attempts re-positioning

Low Cost Carrier (LCC) Virgin Blue has attempted to re-define its position in the marketplace with the release yesterday of a statement outlining the development of the next phase of airline, the New World Carrier (NWC).

The analysis is taken from the keynote address delivered yesterday to Virgin Blue’s Senior Management Conference detailing the airline’s expanded strategic direction, including its “Corporate Traveller Strategy”.

“Until recently, the competition between LCCs has largely been a form of land grab in short haul markets, and the profits of the legacy carriers have been almost incidental victims. Now the ground has largely been staked out, and it’s time for LCCs to start working their claims. As the limits to profits to be wrung out of the low end of the market become apparent, they have the yields of legacy carriers in their sights”, said Virgin Blue.

Virgin Blue says that NWCs have the potential to benefit from the “best of both worlds”, with an LCC cost base and legacy carrier yields.

The carrier also says that the “baby LCC” strategy (carriers set up by legacy airlines, read Jetstar) face many problems and none have yet made an adequate return on capital.  The main challenge confronting existing low cost carriers is the situation where they directly take on legacy carriers in core trunk markets where the latter have a yield premium to cushion their cost disadvantage. This situation “increasingly will be the case”, according to Virgin Blue and low cost alone is not enough to compete effectively.

Interestingly, this comes at a time when Virgin Blue is clearly attempting to rebuild its business model to differentiate itself in a confused consumers mind. Is it a competitor to Qantas or Jetstar? Is it a no frills airline or just low cost? Is it a business class airline or a holiday carrier?

Clearly they have the business traveller firmly in their sights with the recent launch of Velocity and the pending upgrades to the Blue Room. The issue is how long will Qantas wait before launching a counter offensive? Qantas can match and beat them on price if and when they choose as Ansett , Compass and Impulse all found to their demise.

Domestic market share is a precious thing for Qantas. It rears its head in sales meetings all over the country both internally and with key agency partners. No doubt there is a figure already firmly planted in every key executives mind that competitors must not achieve. 

Reacent suggestions that Qantas has its mind elsewhere should be taken with a  grain of salt. The Mole expects that both Virgin Blue and OzJet should prepare for a battle in the trenches.

The Mole