Jilted Virgin wondering why
There won’t be any love lost when Aussie-Air NZ alliance ends
The Air New ZealandVirgin Australia breakup has proven that any relationship that starts out hot and heavy can quickly turn bad. The two airlines got together seven years ago for mutually beneficial reasons, but this week the Kiwi carrier surprised its partner when two executives turned up at Virgin’s Brisbane headquarters and announced it was moving on.
A renewal of the deep alliance deal from October will not be sought by Air New Zealand, which is wellestablished in Australia and has the flexibility to increase transtasman flights.
It’s also bailing out to ensure what it politely refers to as a “more consistent customer experience” aboard its own planes rather than Virgin’s.
While Air New Zealand may have vainly hoped this would be a civil “conscious uncoupling”, the Virgin response suggests otherwise.
Virgin is scratching its head over the move and a clearly miffed airline boss John Borghetti has promised to compete hard when the gloves formally come off on October 28 and the two airlines stop carrying passengers on each other’s planes.
He says he thought he had a “good alliance partner” but now he doesn’t.
“Our willingness and strength is to be as competitive as possible on any route, whether it be on the Tasman or anywhere else,” he warned.
That could mean flying aircraft from its low cost Tigerair unit across the Tasman, and — while it’s far less likely — on New Zealand domestic routes.
The first scenario would introduce a new competitive element in what is already a cutthroat market serving more than 7 million passengers a year. It’s predominantly a leisure market and well suited to low cost carriers.
Virgin already has a significant foothold across the Tasman, with 13 per cent of passengers, but its challenge will be to continue to attract the same number of bookings that came through the Kiwi carrier. Air NZ operates 70 per cent of the seat capacity on the pair’s alliance routes, yet sells 80 per cent of them out of this country and Australia.
If Virgin steps up now with more services, that would be welcomed by bargain hunters. Lower fares are a possibility if capacity is retained, although taxes and charges mean they can only fall so far.
Air New Zealand’s l oyal transtasman fliers will appreciate knowing exactly whose plane they’re flying on. Air NZ says that contributed to the hard-headed commercial move and it will fight hard to protect its crucial 40 per cent share on the Tasman.
That leaves the two airlines at loggerheads after it all began so sweetly.
How did it come to this? Air New Zealand gradually built up what was to become a 26 per cent stake in Virgin. That stake was seen as a way of exerting greater control over the airline, regarded as important in regaining a presence in the Australian domestic market after Air NZ’s disastrous Ansett foray.
Helping Virgin was also a way of hurting Qantas, especially in what was to become a mutually destructive domestic capacity battle in Australia.
Qantas recovered much more quickly, though, and Virgin was left having to repeatedly tap its shareholders for financial support, including an increasingly frustrated Air New Zealand. After investing more than $400 million, it cut its losses in 2016 and sold out.
Virgin has been struggling for years, and this year posted a sixmonth profit of A$102.5m ($107m), its best underlying result in a decade.
Last year, when the airline suffered a A$186m net loss, Borghetti’s remuneration totalled A$6.5m, raising eyebrows at Air New Zealand.
The chemistry at the top has not been great, though Borghetti and Air NZ chief executive Christopher Luxon play that down.
Luxon, for his part, has invoked transtasman rugby clashes in saying Kiwis don’t lose to Aussies at home.
While t hat was previously directed at Qantas — possibly a winner from this latest bust-up — from later this year, another target will be Virgin.