A decision by Virgin Holdings boss John Borghetti to go after the high yielding corporate and government market helped lift the aviation group's full-year revenue and profit during one of the most challenging times for the aviation industry.
Borghetti, who joined Virgin two years ago, has systematically been rolling out a three year strategy designed to take market share from Qantas, particularly where it hurts: the corporate and government market and build its loyalty program by beefing up its frequent flier business.
In the latest annual results, which were within the company's own profit guidance, corporate and government revenue jumped 62 per cent. This segment now makes up 20 per cent of domestic revenue. In the past year Virgin has acquired 68 new corporate accounts and renewed 68 others. It has also appointed a new chief executive to its frequent flier program Velocity as part of a plan to move up the value chain and compete with Qantas domestically rather than low cost carrier Jetstar.
All up domestic earnings before interest and tax was $115 million compared with a loss of $36.4 million in the previous corresponding period. It is still the junior in terms of competing with Qantas, which generated underlying EBIT of $600 million in its domestic business. Virgin's International EBIT jumped to $35 million from $22 million, compared with more red ink for Qantas's international operations.
Targeting the corporate market was something Chris Corrigan had planned to do before Virgin was acquired by Toll Holdings as part of the takeover of Patrick Corporation. After spinning it out and appointing Borghetti as the new boss, Virgin is exploiting the challenges facing Qantas, including major industrial issues, massive rises in fuel costs, big redundancy costs, and a battering of its share price.
Borghetti recognised the importance of the increase in corporate and government customers, saying that it was a key driver of the company's return to profitability. "Importantly, reaching the 20 per cent target is a tipping point which we believe effectively creates a new competitive norm," he said in a company press release.
But from hereon the corporate client patch will become a battle ground after Qantas boss Alan Joyce warned last week he would not allow the group's domestic market share fall below 65 per cent and that he was starting to win back corporate clients from Virgin.
If Borghetti can pull it off, his plan is to become a global airline using the low cost option of tapping into a virtual international network mainly through code sharing and alliances, and lifting the service being offered domestically at a time when Qantas is perceived to be lowering its service to cut costs.
Shares fell just over 3 per cent, which was more a reflection that Borghetti didn't give an outlook statement or set of guidance figures, on the basis that the economic environment was "too uncertain".