Virgin’s alliance with Singapore and brand transformation go hand in hand

SIA and Virgin Aus agreement-1.jpgSingapore Airlines chief executive Goh Choon Phong and Virgin Australia chief executive John Borghetti ink their long-planned agreement in Singapore. Photos: Ghim-Lay Yeo/Flightglobal

The prospect a few years ago of a motley of airlines including Air New Zealand, Delta, Etihad, Singapore Airlines, and Virgin Blue working together would have seemed odd if not farfetched, but we now understand it to be an enemy’s enemies working against it. Or as Air New Zealand general manage Australia Cam Wallace told sister publication Travel Today: there is “a pool of airlines working in a cooperative manner to create a powerful competitor to Qantas”.

Singapore Airlines joined that pool today when the carrier and Virgin Australia announced at the IATA AGM their intention to form an alliance that will allow the carriers to coordinate schedules between Singapore and Australia and beyond (expect next February’s Brisbane-Abu Dhabi route to be served on an A330 and routed through Singapore, as Etihad currently does). The two will also codeshare on each other’s international and domestic flights but not V Australia’s trans-Pacific services. Reciprocal frequent flyer programme benefits and lounge access, engagement in joint sales, marketing and distribution activities are also planned.

The partnership has large implications for the corporate market balance.
By combining a new business-oriented premium domestic class with a venerable international partner with a wide reach, Virgin Australia creates a viable alternative to companies who currently use Qantas for all travel. That is critical as Virgin Australia looks to double its corporate market share to 20% as it chases higher yields.

But Singapore Airlines benefits too.
Virgin Australia will put on Singapore Airlines flights its corporate, and thus high-yield, passengers wooed from Qantas. This will enlarge Singapore’s already sizable corporate base.

Singapore Airlines has a far larger network in Asia than Qantas–although not non-stop from Australia (but expect Virgin Australia to serve key Asian cities with its A330s)–and Virgin Australia’s lower cost base will enable it to offer a premium seat for less than what Qantas charges, a selling point for companies looking to reduce cost.

Partnering with Singapore Airlines would fill the Asian void in Virgin Australia’s network and give it access to every major market from Australia,
creating a virtual network in the continent that will see the largest air growth anywhere in the world over the coming years. As Virgin Australia chief executive John Borghetti told us in Singapore, the deal is especially important for access to, and to grow market share to, China and India:

“If we look at the link between China, Australia and the mining industry, it makes a lot of sense. China is deeply involved in the Australian mining industry, and many mining companies have their offices in Singapore. Flying to China or India yourself is always going to be difficult, but this gives us a great link.”

This hugely beneficial deal had been in the works for some time and goes hand in hand with Virgin Blue’s transformation to Virgin Australia. It is understood Borghetti early on favoured an alliance with Singapore Airlines as well as the rights to use the “Virgin” name internationally. But Singapore Airlines, sources say, was hesitant to be directly associated with a low-cost and rambunctious, if you will, carrier.

Although that seems ironic now that Singapore Air will start a low-cost carrier, Singapore made that move under its new chief executive
Goh Choon Phong, who took up the post on 1 January this year and made the LCC his first major strategic move. Last year Borghetti would have been in discussions with then-CEO Chew Choon Seng.

Borghetti wiped Singapore’s concerns away with his plan to move Virgin upscale and introduce a business class: a low-service carrier no more. That led, sources say, to Singapore granting Virgin the right to use “Virgin Australia” across its entire network, which Virgin will do so by the end of the year, and also included a mutual understanding for the two to develop their relationship.

The partnership announcement’s press release has a telling quote attributed to Borghetti, who says his carrier and Singapore are suited to be partners “with the recent re-positioning of our brand and the launch of our product enhancements, including domestic business class.”

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