Branson Sheds Virgin Blue Name in Qantas Premium Challenge
May 04, 2011, 4:16 AM EDTBy Robert Fenner
(Updates with closing share price in eighth paragraph.)
May 4 (Bloomberg) -- Virgin Blue Holdings Ltd., the Australian carrier backed by Richard Branson, unveiled a new name, livery and cabins as it challenges Qantas Airways Ltd.’s 90 percent share of the nation’s business-travel market.
The carrier will fly as Virgin Australia on domestic routes from today and roll out the brand on international services by the end of the year, it said in a statement. The Brisbane-based company is also replacing its old red livery with a largely white one and introducing a new logo.
The name change highlights how Chief Executive Officer John Borghetti has shifted the carrier from its traditional budget market to instead challenge his former employer Qantas for more lucrative business flyers. Virgin Australia will offer onboard leather seats, a revamped inflight menu, new lounges and an overhauled frequent flyer program to win corporate travelers.
“John still has more work to do, but they are getting closer to being able to break that grip,” said Peter Harbison, managing director at Sydney-based industry consultant Centre for Asia Pacific Aviation. “The next step will be in trying to win some of the big contracts that have helped Qantas keep a stranglehold on the market.”
Overseas Expansion
The new name may also help Borghetti win customers from overseas, Harbison said. Virgin Australia is working on growing its international network through tie-ups with Delta Air Lines Inc., Abu Dhabi-based Etihad Airways and Air New Zealand.
Virgin Australia has abandoned much of the low-cost model used when Virgin Blue began flying in 2000 because of rising domestic competition for budget travelers. The growth of Qantas’s Jetstar unit and Singapore Airlines Ltd.-backed Tiger Airways Holdings Ltd. helped push discounted domestic economy ticket prices to a record low in January, according to Department of Infrastructure data.
That competition, along with natural disasters and rising fuel prices, caused Virgin Blue to forecast a loss of as much as A$80 million ($86 million) for the year ending June 30, its second unprofitable year in three.
The airline closed unchanged at 28.5 Australian cents in Sydney trading. It’s dropped 46 percent in the past year, more than double the rate of decline for Sydney-based Qantas. Branson owns 26 percent of the carrier, while Air New Zealand Ltd. holds 15 percent.
Singapore Air Deal
The carrier will fly as Virgin Australia both domestically and internationally after reaching an agreement with Singapore Airlines Ltd., which owns 49 percent of Virgin Atlantic, Branson said in an interview. The airline had previously only been able to fly domestically as Virgin Blue, while using the Pacific Blue brand for New Zealand services and V Australia for long-haul flights to North America.
“Both sides felt it made sense and I don’t think it was that difficult for John and Singapore Airlines to reach agreement,” Branson said. “There is a royalty arrangement which they will benefit from so they get something out of it,” he said, declining to elaborate.
Polynesian Blue, a single jet venture with the government of Samoa, won’t change its name at this stage, he said.
Branson also said that discussions about the future of Virgin Atlantic were still ongoing, declining to comment further. The billionaire has previously said that Virgin Atlantic has received offers as it seeks a partner to help compete with British Airways.
Qantas Revamp
Qantas last year began a revamp of its business-class services, including lounges, cabins and food to help fend off competition. It’s also adding Airbus SAS A380 planes and boosting an alliance with American Airlines to help win international flyers.
The ‘Virgin Blue’ name was chosen after a radio competition, with the winner getting two return trips each year for life. With its planes painted red the Blue was a reference to an Australian tradition of calling redheads “Bluey.”
“The only reason they would want to move away from the playful, joyful image of Virgin Blue is if the business market doesn’t like it,” said Stephen Holden, associate professor of marketing at Bond University in Queensland.
Other suggestions in the competition held in 2000 included Rooted Airlines and Virgin Down Under, according to a press release. The carrier began flying the same year with a fleet of two planes and A$10 million of seed capital.
--Editors: Neil Denslow, Garry Smith
To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net
