First Phase of Virgin Blue Network Review: Overdue and Lacklustre

Pacific Blue B737
Pacific Blue’s B737-800s will re-deployed to trans-Tasman and Southeast Asian routes. Photos by AirSpace user FlyPHANUK

Two words summarise the first phase ofVirgin Blue’s network review: overdue and lacklustre.

Pacific Blue

After 21 months flying domestic New Zealand routes, Virgin Blue’sPacific Blue subsidiary will exit the domestic New Zealand market, citinglosses in the tens of millions. “The prospects of it turning a profit are notgood,” CEO John Borghetti said. 

It has been widely remarked the tinydomestic New Zealand market (the country only has 4.2 million people, about thesize of Sydney) was over-crowded with three carriers: Air New Zealand, Jetstar,Pacific Blue. To support its domestic New Zealand operation, Pacific Blue hadto base valuable B737-800s there rather than send them on more lucrative andlonger routes.

Instead Pacific Blue will add fivetrans-Tasman frequencies on existing routes, add three frequencies on existingroutes from Australia to Denpasar and Phuket, and replace V Australia’ssix-weekly service to Nadi.

The logic of Pacific Blue’s domesticpresence in New Zealand was questioned most recently in May when Virginannounced it was looking to start a trans-Tasman joint-venture with domesticrival Air New Zealand. Partners on the way to New Zealand, they would be rivalsonce there.

In May at the trans-Tasman JV announcement,then-CEO Brett Godfrey downplayed the impact of Pacific Blue’s domestic NewZealand flights. Commenting on the exclusion of domestic Australia and NewZealand flights from the JV, Godfrey said, “The reason these markets….have notbeen included in [the JV] is there’s little benefit for either side in terms ofcoding. Codeshares work in the arrangement we’re looking at here because we’rebasically melding the trans-Tasman markets. We’ve got our own strategies inplay with the domestic New Zealand market.”

Borghetti, however, said the domestic NewZealand withdrawal was not connected to the Air NZ JV: “This is an independentdecision. This is about growth for Pacific Blue.”

V Australia

Statements in the press release that VAustralia would “focus on long haul” are misleading and a farce. V Australiafrom day one was established as a long-haul carrier. Its lone short-haulflight, that six-weekly service to Nadi, was started only to increase fleetutilisation; a B777 spent 14 hours at Sydney incurring the airport’s infamousparking fees. (Sources also say the Nadi route was unpopular with V Australiacrews due to low pay allowances.)

The press release implies the networkreview and re-alignment of capacity is responsible for four extra V Australiafrequencies: one from Sydney to Los Angeles and one each from Melbourne toJo’burg, Los Angeles, and Phuket. The additional frequencies are really theresult of V Australia receiving its fifth and final B777-300ER in a few months,an occurrence that was entirely left out of the press release, as was the factthat the extra frequencies had been in Virgin’s schedule for months.

One positive, if overdue, item out of thisreview is that the Sydney-Los Angeles service would move from a night departureto a morning departure. Former CEO Brett Godfrey attributed the original nightdeparture as an advantage over Qantas, United, and Delta: All of their flightsto America left Australia around mid-day. A night departure, Godfrey reckoned,would enable business travellers to have a full day’s work in Sydney. But thedrawback was big.

Last year in its submission to the ACCC fora joint venture with Delta, Virgin Blue estimated 60% of passengers from Sydneyto Los Angeles travel beyond Los Angeles. Whereas Qantas, United, and Delta hadtheir flights arrive early in the morning in America, providing for ampleconnections, V Australia arrived in the evening, meaning passengers wanting toget to the East Coast were faced with a red-eye flight (on an Americancarrier). By moving its US service to give better connections, it seems Virginis finally following its own logic.

Where’s Virgin Blue?

Conspicuously absent was any news aboutVirgin Blue’s domestic operations. The group only pointed to previousannouncements as well as to say domestic capacity was up 490,000 seats, albeitwithout specifying since when or in comparison to when. The statement draws tomind last week’s announcement the Qantas Group will increase its overallcapacity by 9.6%, or approximately 4.5 million seats. (N.B. who has thedomestic versus international breakdown for the 9.6%? I can’t seem to dig itup.)

Why bother with this announcement?

One is left to wonder why Virgin chose toannounce all of this when its annual results are next Thursday. Is Virgintrying to gain the market’s confidence after its May profit downgrade was notreceived well and then analysts responded well to last week’s Qantas results?Is Virgin trying to draw attention to its pullout of the domestic New Zealandmarket and planned trans-Tasman increases to alleviate fears its proposed JVwith Air New Zealand is uncompetitive, as many are claiming? Does Virgin Blue want to put behind it Pacific Blue’s failure in domestic New Zealand so forthcoming announcements don’t carry baggage?

Perhaps the notable, if more prospective, routenetwork review–comprising medium-range, wide-body aircraft to expand VAustralia and better compete domestically with Qantas; the carrier’s newrumoured 3-class B737 service to increase corporate market share–will be made public at its annual results andgive more shape to the New Blue.

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