Introduction
Two aircraft, 200 personnel, and one route: this description perfectly fits Virgin Blue Australia in 2000, when it first took to the skies. Now, more than 2 decades later, the Virgin airline has grown immensely. It has also undergone a transformation. From a low-cost, no-frills carrier it turned into a completely different, dynamic, contemporary world-class airline—one of the best in the world. It has dropped the Blue from Virgin and now dons the Virgin Australia label. Even after the transformation, Virgin Australia retained its mission and the company values always associated with Virgin Blue. The authentic friendly service, can-do attitude, and competitive pricing still remain the hallmark of Virgin flights (Thomas, 2011).
Virgin Blue’s arrival into the Australian airline industry caused ripples across the industry. Its two main rivals were Ansett and Qantas. After Ansett was liquidated, Qantas introduced Jetstar to compete with Virgin Blue directly on price. Other low-cost competitors such as Tiger airlines were to later make their entry into the market. Competition in the industry has intensified. As a result, Virgin Australia strategy had to be modified to remain competitive. Major changes have been seen in Virgin Australia business strategy and its marketing. These have included; rebranding, the introduction of new services, offers, and partnerships with other airlines.
Should Virgin Airline continue to position itself as a low-cost carrier and put greater investment into differentiating from Jetstar and Tiger on a brand-usage basis?
After operating profitably as a low-cost carrier, Virgin Blue/Australia has faced stiff competition from other players. Jetstar and Tiger Airways have been the greatest threats to its supremacy. The two carriers offer similar services to Virgin. Competition is mainly on whom can offer the cheapest deal (Cain, 2005). If price alone is considered, Tiger Airways carries the day. This is because the carrier undercuts its competitors’ prices significantly. So then, how does Virgin remain at the top?
Marketing services is a tricky business. This is because of the intangible nature of services. Bogomolova (2011) opines that selling services aggressively to consumers is not enough to keep them hooked. This is especially so in a fiercely competitive market such as the airline industry. The competitor markets a similar service, and one has to stand out to impress the consumer (Knibb, 2007). Virgin has adopted an array of strategies to differentiate itself from its low-cost competitors. These strategies are aimed at both differentiating Virgin as a brand and acquiring a larger market share.
Virgin has diversified its services to target both the leisure and business traveler (Travel Weekly Australia 2007). The airline initially concentrated on the leisure market. This is also the focus of every low-cost carrier in the industry. This market is shared by Jetstar, Tiger Airways, Air New Zealand, Cathay Airways, Air Asia, and a host of other low-cost fliers (Critheroe, 2008). However, its main rivals in the domestic market remain Jetstar, Tiger Airways, and Air New Zealand. Economic changes the world over adversely affected leisure travellers. Shrinking levels of disposable income meant that fewer people travelled for leisure. The volatile nature of the leisure market forced Virgin to target other travellers. The airline decided to pursue the business traveller.
Business travellers traditionally shun low cost-no frills carriers (Park, Robertson & Wu, 2009). The main reason is the perception that these carriers offer low-value services (Oyewole & Choudhury, 2006). Virgin offers additional services to its customers at an extra cost. This strategy is also used by Jetstar and other competitors. Jetstar offers two classes on its A330-200 international services (Graham & Vowles, 2006).
It claims that its business-class extras are offered at a full economy fare price charged by its competitors. Tiger Airways does not show interest in business travellers. However, Virgin’s service comes with a difference. Initially, the airline did not offer newspapers, food, and other “luxuries” onboard. The practice today is different.
The airline now offers these onboard, and more (Virgin Australia 2012). Business travellers aboard its Airbus A330 are offered complimentary newspapers after boarding. Beverages and food are also available, the signature “mocktail” inclusive. The airline boasts of luxuriously comfortable leather seats and comfort packages. The comfort pack for business travellers includes stylish amenities, a pillow, and a blanket. Special coat bags are provided to keep passengers’ coats safe, and the customer keeps the bag.
Virgin’s pursuit of business class passengers is legendary. The airline provides lounges at airports for this class of travelers. These lounges are available in Brisbane, Canberra, Sydney, Perth, Mackay, Adelaide, and Melbourne airports. They are luxurious and offer passengers privacy before departure. Those departing from Sydney enjoy the privilege of private reception desks, valet parking that is optional, and direct kerbside lounge access. Other services offered to customers by Virgin include priority check-in, priority baggage delivery, and increased baggage allowance.
Virgin’s business model promises the traveller flexibility that is unrivaled in the industry. This is through its all-inclusive and flexi fares. It innovatively lures the business class through flexible flight schedules, velocity benefits for frequent fliers, self-check-in systems, stylish lounges, and frequent flights in important business routes. The airline strives to give the customer a flying experience different from its competitors.
Virgin flights leave within 15 minutes of the scheduled departure time. This strategy markets it as an airline that is conscious of its customers’ value for their time. The following chart is an illustration of Virgin’s on-time performance between April 2011 and March 2012.
Virgin Australia has entered into partnerships with other airlines to give its customers better travel experiences. Codeshare agreements between Virgin and its partners give its customers increased velocity rewards, increased access to destinations across the world, access to partner airline lounges at airports, and seamless connectivity. These partners include; Air New Zealand, Etihad Airways, Delta Airlines, and a host of other international airlines. These partnerships have impacted positively on Virgin’s business. After its partnership with Air New Zealand was announced, its share price shot up by 5%. It has also managed to increase its share of the business class market.
Virgin’s efforts to differentiate itself from its competitors have paid off immensely. The airline has pursued a differentiation strategy coupled with low-cost services. Virgin offers premium services at the lowest price possible without compromising quality. This sets it apart as a low-cost carrier with a world-class touch. The airline’s alliances and other re invention strategies have improved the quality of services offered to its customers. They now have access to more routes and save significant amounts of money and time through seamless connectivity.
Should Virgin increase its product offering to match Qantas and include food and beverage and use a positioning strategy to market the airline as an affordable, all-inclusive leisure carrier?
Virgin has successfully repositioned itself in the market through an array of changes. The initial changes implemented in its repositioning affected its routes. The airline shed its low performing and non profitable routes. Domestic routes that have strong revenue potential have been emphasized. Those that register low demand have been trimmed. The effect of this on Virgin has been improved interaction between its domestic and international schedule, aircraft utilization has increased and yields have shot up.
Central to its “game change” repositioning strategy was the shift from the traditional leisure market. Virgin’s new focus became the corporate market dominated by Qantas. The most outstanding and visible change was a rebranding. The new name, look, uniforms, new interior designs, products, and airbuses marked a new beginning. Changes in Virgin’s interior look included; leather seats that incline generously, mood lights, coat bags, and entertainment systems. The carpet came in ink black and the sidewalls in ice white and luxurious headrests. The lounges were upgraded and the new look was an instant hit with customers. Many could not recognize Virgin’s airbuses and often apologized for boarding “the wrong plane”.
By changing its looks and name alone, Virgin gained considerable ground in the market. Sales and revenues shot up, but it was still far from its dream of acquiring a 30% market share up from 20%. The repositioning of Virgin is not only in its market target. The airline re invented itself as a leisure and business carrier. It also repositioned itself as a provider of premium services at a low cost.
Clients often need simple alternatives and superior value (Perth, 2010). That is exactly what Virgin delivers. “Polynesian Blue, Pacific Blue and Virgin Australia implemented the supple fare as Premium, Blue Saver and Flexible. The fares are implemented in products covering short-lug economy and business class. However, as a result of alliances with Ethiad and Delta Airlines Virgin cannot introduce these fare options. The seat and light luggage are included in the Saver option. In this option, there is a pay per use option. A passenger can buy baggage, food and beverages and in-flight entertainment. There is limited flexibility in booking; a customer may change or cancel a flight within 24 hours before departure.
Flexi implemented a maximum of 23 kilograms of baggage, added free food and drinks, fully favourable fares and check-in points for clients. They do not charge customers for changing the booking to a different date unlike Saver. Premium provides all perks provided by Saver and Flexi except that they provide unlimited food and beverage, 69 kg baggage and access to virgin Australia lounges. Virgin should continue using flexible fares and pay as you use on food and beverage, baggage and in-flight entertainment to compete favourably with carriers such as Air New Zealand.
When Virgin Blue came into the market, it offered low cost, no-frills services mainly to leisure travellers. Its customers did not get newspapers, food or beverages onboard. Extra services were, however, provided at an extra cost (Frei, Farrar, & Hajim, 2001). With increased competition and having grown in bounds, the airline realized that it could not grow anymore. Its profits were shrinking, while competitors like Qantas raked in billions from the corporate client.
Going after the corporate clients meant that Virgin had to up its game. Virgin did not plunge fully into the corporate market. It maintained a strong presence in the leisure market. Business travel does not provide traffic on weekends, which leisure travel does. The game plan was to maintain the airline’s load factor even when traffic was affected by business and leisure cycles.
Its new customers-the business class love to have a little luxury and extras on board. Virgin has set out to provide these and more. The airline introduced meals and beverages onboard for business travellers. It boasts of gourmet meals, three course dinners and hearty breakfast. The modern business executives are health conscious and watch what they eat (Quester, Neil, Pettigrew & Hawkins, 2011). Healthy choices at meal time boost an airline’s image. In response to this need, Virgin offers different healthy meals to choose from. At lunch and dinner, customers can choose from an array of fruit and scrumptious salads, nuts, fresh juices and coffee.
Virgin intended to enter a segment of the market where Qantas was king. Qantas enjoyed a near-monopoly over business travellers after the exit of Ansett from the market. If it was to be successful in luring Qantas’ loyal customers, it had to match or surpass Qantas in service delivery. There are many factors that determine customer loyalty to a brand. Martin, Molina & Esteban (2007) list some of these to include; ticket prices, quality of service and unforgettable experiences. Bogomolova adds that customer satisfaction is a significant influence in one’s attachment to a brand.
Virgin Australia’s strategy was to offer superior services at a considerably lower cost than Qantas and other competitors. Offering low cost services to business travellers meant that it had to have a high load factor (O’Brien, 2004). Getting high numbers of travellers to choose Virgin was not easy. They had to be lured through various strategies. Virgin used frequent flier rewards, onboard entertainment, personalized service, food and rebranding among others.
The airline industry has become very volatile. It is faced by many challenges. Rising operational costs is the major problem. This is worsened by the high fuel costs and demands for payment increments by personnel due to the rising cost of living. As disposable incomes shrink, travellers are opting for other means of transport and choosing not to fly (Ryans, 2010). This particularly affects leisure travellers whose travel is hinged on their spending power. As businesses struggle to keep costs low, they are increasingly cutting down on business travel. This is slowly shrinking the corporate market.
Airlines are fighting to keep afloat amidst these challenges. Each airline is struggling to acquire and keep a strong hold over a part of this shrinking market (Ionides, 2009). This is a herculean task even for those who pride themselves as market leaders. Virgin seems to have found a formula for keeping corporate executives in the air. The airline offers discounted fare rates for corporations based on their annual expenditure on airfares. The promise of saving some money has created a loyal customer base for Virgin among corporations.
In an industry as volatile as the airline business, it is only those who respond to change that survive (Stafford, Reilley, Grove & Carlson 2011). Virgin realized that it had to offer more services to lure new classes of customers. It did this and the results were positive. The airline has become a force to reckon with. Keeping a balance between superior services and affordable air fares has been its main challenge. Its customers are, however, satisfied and willing to return. Enjoying quality services for fairly low prices keeps them hooked to Virgin.
Should Virgin continue to offer business-focused augmented product options such as business lounges and flexible fare types on a pay-per-use basis, and communicate this to both the business and leisure market?
There are marketing strategies that have seemed to work for Virgin, and these should be continued. The airline offers its business travellers access to its luxurious lounges in major Australian airports. They also have access to its partners’ lounges across their global network. Access to lounges offers the traveller some privacy and a pleasant experience when in transit. Selected business class travellers are allowed a guest into the lounge. These are some of the services that make Virgin so popular.
Travellers who fly frequently with the airline earn points through the velocity reward programme. The customers still earn these points when they fly with Virgin’s partner airlines like Air New Zealand. Virgin’s code sharing partnerships with other airlines give its customers a chance to continue earning rewards when they fly across the globe. This is in addition to easy connectivity to various destinations. Self check-in systems at its lounges save turnaround time between flights. This has earned Virgin a reputation of being time conscious. Its impressive on-time performance endears it to business travellers who value time keeping.
Through partnerships with retail outlets and supermarkets, the airline allows its customers to redeem their points through these outlets. Such agreements exist between Virgin and Bi Lo Supermarkets, Coles, K-Mart Variety stores among others. Virgin’s frequent fliers can also earn points for spending money at the participating FlyBuy outlets. Under the agreements, FlyBuy card holders are allowed to redeem points on their cards by flying with Virgin. With 10 million members on Cole’s FlyBuy scheme and 2.4 million on Virgin’s velocity scheme, the deal is a great marketing tool for Virgin. Offering double velocity points to its frequent travellers is another strategy used by Virgin to market its services. This is an enticement to keep flying with the airline to earn more points.
Virgin markets its brand and services vigorously. Its marketing and advertising campaigns portray it as a fun loving and lively airline. When advertising most of its routes, the airline points out what one is set to enjoy after arrival. These include sports events, natural sceneries or even musical events. The airline appeals to the leisure traveller’s search for fun and a good time. The business traveller’s need for relaxation during a business trip is also aroused.
Most of Virgin’s media advertisements feature colourful pictures and enticing sceneries. “Darwin just got closer” is the caption that heads Virgin’s advertisement for its direct route to Darwin. The picture below the caption shows people on a boat, obviously on holiday having fun feeding a crocodile. The advertisement portrays Darwin as a wild city. The advertisement appeals to the adventurer in the reader who wants to experience the wild.
In another advertisement, Virgin uses music to popularize its Brisbane route. The Jersey boys are used in the advertisement. The Perth events, beach activities, car racing, basketball among other fun events are used in its advertisements. Mystery is also employed to capture the imagination of the audience. In one advertisement, the reader is asked where his/her mystery break will take him/her. This particular advert seems to draw the audience into a mystery world which virgin only Virgin knows. The picture below is used in Virgin’s mystery advertisement and does not advertise any particular route.
Some of Virgin’s advertisements portray it as caring and genuine. A TV commercial in 2011 to launch its new identity featured Virgin’s own staff. The 60-second commercial shows the cooperation among Virgin’s staff to meet customer expectations. By using its own staff, Virgin showed its commitment to its personnel and how much it values them. This emotional advertisement was intended to show the genuineness of Virgin’s personal services. This was a nationwide campaign that firmly entrenched Virgin’s new image in the audience’s mind. It captured the elements Virgin’s new look and identity. Virgin Australia has a superior service, hostesses have hot new uniforms and its clients enjoy a memorable experience aboard.
To market its services more effectively, Virgin has entered into arrangements with Tourism NT. The agreements are set to boost Virgin’s popularity and give its routes more visibility. Tourism operators such as ‘Lonely planet’ play the part of enticing travellers to these destinations. For example, the “Darwin just got closer” campaign involved tour operators and other tourism stakeholders significantly. Virgin’s customers could make drive bookings to these destinations directly from its website. Tour firms also advertise these locations to entice interested travellers to take Virgin flights.
Virgin Australia’s marketing strategies seem to work in its favour. They appeal to both the leisure and business traveller. The airline carries out national advertising campaigns that combine emotional and humorous appeal (Knibb, 2011). Virgin’s advertisements arouse emotional attachment to the airline. This is through its portrayal as a caring and genuine service provider. The humour in its advertisement put the airline across as fun loving and lively. These are attributes that Richard Branson and his executives have cultivated into the airline’s culture.
Conclusion
From a two-plane airline, Jet Blue has risen to become a leading brand in the airline industry (Virgin Australia, 2012). It enjoyed a near-monopoly status in the low cost airline industry until Jetstar set in (Knibb, 2011). Years later, competition has only become stiffer and Virgin Blue has had to undergo transformation in order to survive. A change in name and game plan served it well. The expansion of its services and market target has ensured Virgin’s continued existence. From no-frills service to a full service carrier, Virgin has come a long way. Its transformation, however, did not rob Virgin of its traditional attributes. It has managed to maintain its friendly, personalized and genuine service.
References
Bogomolova, S 2011, “Service Quality Perceptions of Solely Loyal Customers”, International Journal of Market Research, Vol. 53, No. 6, pp. 793-810.
Cain, A 2005, “Hard Luck”, Airfinance Journal, Issue 282, pp. 25-26.
Critheroe, P 2008, “Flying Jetstar or Virgin Blue?” Money, Issue 99, pp. 28-29.
Frei, F, Farrar, H & Hajim C 2001, ‘Virgin Group: Filling in the value gap’, Harvard Business Review. Web.
Graham, B & Vowles, T 2006, ‘Carriers within carriers: A strategic response to low‐cost airline competition’, International Journal of Service Industry Management, Vol. 26, no.1, pp. 54-62.
Ionides, N 2009, “Feeling the Heat Down Under”, Airline Business, Vol. 25, no. 4, p. 26.
Knibb, D 2007, “Re Invention Time in Australia”, Airline Business, Vol. 23, no. 12, pp. 28.
Knibb, D 2011, “Moving on Up”, Airline Business, Vol. 27, no. 8, pp. 20-24.
Martin, D, Molina A & Esteban, A 2007, “An Integrated Model of Price, Satisfaction and Loyalty: an Empirical Analysis in the Service Sector”, Journal of Product & Brand Management, Vol.16, no. 7, pp. 54-71.
O’Brien, A 2004, “Airfare Wars”, Money, Vol. 4, no. 1, p. 54.
Oyewole, P & Choudhury, P 2006, “Purchase Situations and the Level of Importance that Consumers Attach to Services in the Airline Industry”, Services Marketing Quarterly, Vol. 28, no. 1, pp. 19-34.
Park, J, Robertson, R & Wu, C 2009, “Differences in air Passengers’ Buying Behaviour: Findings from Korean and Australian International Passengers” Transportation, Planning and Technology, Vol. 32, no. 5, pp. 441-460.
Perth, G 2010, Survival of the Fittest? Web.
Quester, P, Neil, C; Pettigrew, S & Hawkins, D 2011, Consumer behaviour, implications for marketing strategy, McGraw Hill, South Melbourne..
Ryans, A 2010, ‘The high stakes of low-cost competition’, Harvard Business Review. Web.
Stafford, M, Reilley, T, Grove, S & Carlson S 2011, “The Evolution of Services Advertising in a Services-Driven National Economy: An Analysis of Progress and Missed Opportunities”, Journal of Advertising Research, Vol. 51, no. 1, pp. 136-152.
Thomas, G 2011, From Blue to New. Web.
Travel Weekly Australia 2007, Low Cost Does Not Mean Low Value. Web.
Virgin Australia 2011, Virgin Australia History. Web.
Virgin Australia 2012, Experience. Web.