Who could be Virgin Blue’s Asian suitors?

Asian Suitors.jpgAnyone in the Asia Pacific region has heard this line: the Asia Pacific region will become the world’s largest aviation market. Yet Asia is relatively absent on the globetrotting footprint Virgin Blue has created in the past two years.

Its service to Los Angeles and codeshare (perhaps soon JV) with Delta plants the carrier in North America while its JV and Abu Dhabi flights will primarily give Virgin Blue reach into Europe and the Middle East.

But Virgin Blue isn’t ignorant.

Prospects of corporate Asian services (as opposed to the carrier’s existing leisure destinations of Bali and Phuket) ratcheted up with Virgin Blue’s intention to lease A330 aircraft, although the carrier says the A330s will be used domestically–for now.

Last week chief executive John Borghetti commented on his carrier’s Asian intentions, telling the Business Spectator:

We fly to obviously Phuket; we fly to Denpasar, Bali….[they're] important [destinations], but we need a lot more. We need the Hong Kongs, the Singapores, the Chinas, the Indias, and for that matter, the Orient – Japan and Korea and so on. And all I can really say is it is a very important market.

So what will Borghetti do? “We are going to be active in that market,” he says, “but it will take us a little while to put that plan into effect.” What plan might that be?

Quote Borghetti:

We can cover Asia by doing it ourselves in part, by doing it with a partner or partners. I’m not really going to comment on which path we’re taking or how many of those paths we’re taking.

In short, Virgin Blue is looking to replicate its JV with Etihad: Virgin Blue will fly to some ports and work with local carriers from there. For other ports it may rely entirely on codeshares for a virtual network.

That strategy gives Virgin Blue a larger reach without, as Borghetti said at the carrier’s annual results, “buying squadrons of aircraft” and the associated costs, which Virgin Blue would be pressed to pay given its order for 50 737s.

A larger reach is critical as Virgin Blue’s objective is to increase its corporate market share and boost its domestic network in general. A 1% increase in corporate market share, Borghetti says, equates to a 1% increase in yields.

But Virgin Blue cannot win corporate travelers on domestic services alone. It needs international services for their own sake and, to a lesser extent, for its frequent flyer program so corporate travelers can burn points for personal international travel, where Qantas has an advantage. And so Virgin Blue is on the prowl for international partners. Case in point: V Australia codesharing with Etihad for 800 seats a week to Athens. (Yes, Greece could use accounting help, but not 800 seats’ worth.)

So who could Virgin Blue’s Asian suitors be? Here are some possibilities, and I stress the word possibilities. I now assume the position of an armchair CEO, albeit, hopefully, informed.


Oneworld, as it will despairingly tell you, lacks a Chinese partner. Qantas codeshares with China Eastern, who will join SkyTeam, complicating its future with Qantas. For a codeshare with a major carrier, Virgin Blue is likely left with AIr China, China Southern, or Hainan Airlines.

Virgin Blue operating its own flights to China seems inevitable. Although Qantas has scaled back its direct flights to China, chief executive Alan Joyce is upbeat about Australia’s largest trading partner, saying in July at the Australia Pacific Aviation Outlook Summit, “We think China is a very exciting market for us…We see opportunity for Australia to China with both Qantas and Jetstar. The 787 in particular opens up [a] range of routes that we wouldn’t see to be economical today.”

Virgin Blue operating its own routes and enlisting a partner would require it to carefully dance around its objectives as well as those of its partner. Air China operates to Melbourne and Sydney; China Southern to Brisbane, Melbourne, and Sydney; and Hainan Airlines only operates ad-hoc Australian services, perhaps giving it a bigger incentive to partner with Virgin Blue.


Cathay Pacific is part of the oneworld alliance, so cross them off. Virgin Atlantic presently has daily Hong Kong-Sydney flights and V Australia has applied for Hong Kong slots. But with a limited number of aircraft, one wonders if Virgin Blue sending its own metal to Hong Kong and launching a sales and marketing campaign is the best use of resources when Virgin Blue could continue to piggyback on Virgin Atlantic’s codeshare. Then again Virgin Atlantic’s experience and associations could make an easy sell for Virgin Blue at a time Virgin Blue is taking risk with new services.

If Virgin Blue launched its own flights to Hong Kong, the only local carriers not affiliated with oneworld are Hong Kong Airlines and sister carrier Hong Kong Express Airways. They provide service around the region, and notably to mainland China. Hainan Airlines–which lacks regular Australian flights (see above)–is the parent company to both carriers. Hong Kong Airlines has flagged its intention to start services to Australia.


Direct Virgin Blue flights could be ripe. At present only Qantas has direct flights to India while Air India is trying to establish a Melbourne service. Even if Air India does realise Melbourne flights, the carrier does not hold a high reputation for service.

Qantas charges dearly on its Mumbai service, sending many passengers on disliked connecting flights. Virgin Blue does plan to codeshare to India with Etihad, but backtracking 2400 miles through Abu Dhabi, making the journey 40% longer, won’t be popular. (In comparison, connecting through Kuala Lumpur makes the journey 1% longer in distance, and through Hong Kong 19% longer.)

For an Indian partner for onwards connections, Kingfisher is out due to its plan to join oneworld and Jet Airways is out due to its codeshare with Qantas. (Even if Qantas switches its codeshare to Kingfisher once the carrier joins oneworld, Kingfisher and Jet have their own strategic alliance. You can bet Qantas would pressure Kingfisher to pressure Jet not to align with Virgin.)

Unless Virgin Blue could sway Jet Airways, Air India is the only potential full-service partner. On the low-cost front there’s SpiceJet and IndiGo, but how willing is Virgin to partner with LCCs, even if on short-ish flights, when Virgin itself is moving upmarket?


The options are JAL and ANA. JAL, with Qantas, is part of oneworld, so cross them off. Even without discounting JAL, ANA is an interesting option in its own right. There is anecdotal evidence a growing number of Australian corporate travelers fly with Qantas domestically but use Star Alliance carriers internationally, due to Star’s larger Asian reach and perceived declining standards over at the flying ‘roo.

If Virgin Blue operated on its own metal to Japan, a partnership with ANA could be advantageous for ANA and Star. ANA, and by extension Star, does not have direct flights from Australia to Japan, thus requiring flyers to take Qantas/Jetstar, JAL, or a circuitous route through Asia, adding at least six hours of travel time.

ANA could get reach into Australia at the time some Japanese travelers are shifting their preferred carrier from JAL to ANA because of JAL’s bankruptcy (anecdotally that’s less to do with a fear JAL will close shop and more with JAL’s reduced services and face-conscious Japanese not wanting to be associated with a bankrupt carrier). If Virgin Blue operated the flight ANA would presumably codeshare on it, giving Star flyers a direct flight from Australia to Japan. In turn ANA could help Virgin Blue with Japanese distribution, which Jetstar initially fumbled with.

If Virgin Blue could give those Qantas-for-domestic, Star-for-international corporate travelers a taste for its service on international flights, Virgin Blue could win them for domestic travel.


Like with Japan, there are two options: Asiana, which serves Sydney, and Korean Air, which serves Brisbane, Melbourne, and Sydney. At present traffic to Korea is significantly less than traffic to Japan. Looking at December 2009 BITRE data there were 28,060 outbound passengers traveling direct to Korea and 45,769 to Japan.

It’s hard at present to see demand for more Korean flights, although that could change once Virgin Blue starts its Asian operations; Korea is making a renewed tourism push.

If Virgin Blue was looking to codeshare, Asiana codeshares with Qantas, making Asiana unlikely, although we have seen Virgin Blue usurp a Qantas partner (Etihad, but it’s not clear what Virgin could entice Asiana with). Korean Air is logical with more flights and could be willing to partner with Virgin Blue to (1) work against the Asiana-Qantas partnership and (2) because Virgin partners with Delta, who like Korean Air is part of the SkyTeam alliance.


Prepare for a dog fight if Virgin Blue operates its own services. Majors plying the route are Singapore Airlines, Qantas/British Airways, Emirates, Etihad, and Jetstar. Plus Malaysia Airlines frequently undercuts direct carriers’ price with a connecting service through Kuala Lumpur.

Virgin Blue plans to codeshare with Etihad on its thrice-weekly Brisbane-Singapore service, but anything less than a daily departure (or a codeshare through a connecting city like KL) is not ideal for corporate travelers. Prospects with Emirates, who fly from Singapore to Brisbane and Sydney, are dim given Virgin Blue’s JV with Eithad. Virgin Blue could use a partnership with Singapore Airlines, but Singapore has almost no incentive (except to be a stronger competitor against Qantas), and still bears a grudge about not being able to fly from Australia to America due to V Australia entering.


Borghetti did not name Taiwan as a focus, but Taiwan is one of the Asian Tigers. Taiwan is similar to Korea in that there are two carriers (China Airlines and EVA Air) one of whom (EVA) already codeshares with Qantas. That makes China Airlines likely. For reference, EVA only serves Brisbane while China Airlines serves Brisbane and Sydney.

Well my armchair CEO derrière is being firmly planted in my seat, so it’s time to get up and conclude my reckoning. What’s your take?

9 Responses to Who could be Virgin Blue’s Asian suitors?

  1. Marcus November 6, 2010 at 11:05 am #


    You seemed to leave out the most obvious candidate for an enhanced relationship. Malaysia airlines – unaligned, they have a central hub well located for Australian connections to much of Asia, good frequencies to many Australian cities and are under pressure to increase their yield out of Australia from Air Asia.

    A few hints point in this direction. One is that there are already a few reciprocal relations – VA uses Malaysia’s lounges. Recently, and quietly, Velocity changed the T&Cs so that Malaysia flights earn status credits and not just points. Surely it’s a matter of time before some sort of deeper integration – including mutual status recognition for high end FFs – add Malaysias destinations to VA’s virtual network.

    That probably doesn’t rule out some or all of the above but it strikes me as an obvious next step.

  2. Grant McHerron (aka Falcon124) November 7, 2010 at 2:50 am #

    Very interesting situation, but what if Virgin decides to drop V Australia all together and just rely solely on partner airlines for long haul? If the Delta-V & Etihad alliances work well, why not get a few other Asian airlines to do the carrying.

    Also, don’t discount an airline ‘cos they’re already linked into Qantas. After-all, Etihad was already with Qantas before they changed over to Virgin Blue.

    Admittedly, being in OneWorld would be more of a barrier to change, but you never know :)

    Good assessment all round – definitely food for thought here.



  3. Will Horton January 27, 2011 at 2:16 pm #

    I think it’s fair to say V Australia is sticking around.

  4. Will Horton January 27, 2011 at 2:21 pm #

    Good point, Marcus. Borghetti did not identify Malaysia as a country of interest, but V Aus could still codeshare with it. MAS does not always have the best connections and that, coupled with a country not high on Borghetti’s list, may make MAS less favourable. It would all really depend on what onward traffic V sees out of KL compared to other options. MAS has since announced a JV with KLM, which you could see as them ready to take to another level by partnering with V, or a sign that they’re tied-up for now.

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