Borghetti is also confident the airline’s links with its new Chinese investors leaves Virgin well placed to capitalise on that growth.
Speaking to AirlineRatings.com after the US launch of the Australian carrier’s new international business suite, Borghetti said Virgin had grown to about 36 per cent of the market in Australia and while it could probably continue to grow, the cost of adding each percentage point in market share was high.
There was also a massive capital requirement for starting flights to destinations such as London on the traditionally “kangaroo route’’ between Australia and the UK, he said.
Borghetti dismissed domestic and international outbound traffic as the growth story in Australia and instead firmly focused on inbound travel.
“It’s coming from China and it’s coming from America. We have a presence in America, we don’t have presence in China. We’ve had a really good arrangement with Singapore Airlines (on China) — we’ll keep that and it’s terrific over Singapore —but being able to tap directly is also a benefit and it’s significant. “
Borghetti said 1.2m Chinese visited Australia last year and a growth rate topping 20 per cent was showing no signs for slowing down.
“We’re a quality carrier with a good partner up there so why wouldn’t we capitalise on the opportunity of that massive inbound market which, coincidentally, when you tap it, will then flow on to your domestic network?’’ he said.
Chinese businesses HNA Aviation and Nanshan Group have separately bought into Virgin and are expected to between them control about 40 per cent of its shares.
Nanshan, which bought its 19.8 per cent stake from Air New Zealand when the Kiwi carrier sold down its shareholding in the wake of an unsuccessful attempt to oust Borghetti, has been looking for tourism opportunities in Australia. The private conglomerate owns a small Chinese carrier, Quingdao Airlines, a private jet business as well as interests in areas such as aluminium, property and agriculture.
HNA is China’s biggest private aircraft operator and bought a 13 per cent stake in Virgin in May with plans to increase to 19.9 per cent over time. It owns Hainan, China’s fourth biggest airline, as well as several budget carriers and one of the world’s largest leasing companies.
Both groups are expected to get board representation.
“I think people haven’t quite got their heads around the enormity of the HNA alliance,’’ Borghetti said. “You’re actually talking about someone who owns nine or 10 airlines in China but someone who’s got the world’s largest aviation leasing companies, catering companies and ground handling companies.
“This is a huge conglomerate, it really is, and the touch points between our business and businesses they own are multiple.’’
Virgin has said it would look at a range of destinations in China but it has already applied for capacity to Hong Kong and Beijing. Routes to the two cities are highly competitive and would likely require different aircraft.
The consistency of the new business class seats across Virgin’s domestic and international fleet – there are only minor differences– means the airline has the opportunity to switch between its Airbus A330-200s, and its Boeing 777s according to demand. The impressive business suites, which Borghetti expects will allow Virgin to command a premium on the routes they fly, are among the best currently available.
Borghetti declined to confirm that either of the cities would be Virgin’s first destinations but conceded there was a lot of work being done on planning for both.
“As you know with these things, there are lot of things you have to work out. There’s everything from slots, to terminal space through to aircraft.’’
“And that’s why we’re saying at this stage we’ll commence services somewhere in China in the second half of next year.’’
Virgin is in the throes of an $852m capital raising due to close on July 2. The capital raising and a fleet restructuring are designed to help Virgin fix its balance sheet after a period of rapid and expensive transformation.
The restructure aims to achieve $300m in annualised savings will see it dispose of its Embraer E190 jets, reduce its fleet of 14 ATR regional turboprops by four to six and replace Tigerair Australia’s Airbus A320s with Boeing 737s.
Borghetti agrees the airline went into its massive transformation with a weak balance sheet but argues Virgin would have “withered on the vine’’ without the change.
He also doesn’t believe it would have worked to address the balance sheet prior to the transformation, noting it had a hard enough to get people to believe what was happening without asking them to put in money.
On the question of job losses, he said jobs were being cut at Virgin now.
“What we don’t have is massive redundancy program of 1000, 2000, 3000,’’ he said. “We haven’t plucked a figure and said that’s the people we have got to get rid of. The types of jobs that you’re seeing exit the business at the moment are what we said, which revolved around streamlining management structure, layers and numbers. So yes there is an absolute plan to reduce the number of management and we’re actively doing it on a day-to day basis.’’
The arrival of John Thomas, a 25-year aviation veteran who has played a big role in the introduction of ancillary revenues and headed global consultancy LEK’s aviation and travel practice, will give Borghetti more time to look at the bigger picture. Thomas will look after the day-to-day running of Virgin’s domestic and international operations.
There has been speculation Thomas is being groomed as Virgin’s next CEO, but Borghetti says he has “no plans of going anywhere” at this stage.
”We’re setting up the business now for the next phase, ‘’ he said. “It’s good to have someone on my right hand who can take of the Virgin-branded business on a day-to-day basis and I don’t have to worry about that. Really, it’s about planning for the future and the next decade.’’
Steve Creedy travelled to Los Angeles courtesy of Virgin Australia.
