Five years ago and from half a world away, Sir Richard Branson watched as the battle between Qantas and Virgin Australia – then newly rebranded from Virgin Blue – reached epic and arguably out-sized proportions.
Yet it held clear echoes of an older and more familiar home-ground fight between British Airways and Virgin Atlantic, another tale of ‘incumbent versus challenger’.
“They were very very similar,” Branson told Australian Business Traveller at the launch of Virgin Australia’s Melbourne-Hong Kong route, which sees his local franchise square up against Qantas and its Oneworld frenemy Cathay Pacific.
Too high a price for competition?
Branson was struck most “by the way Qantas behaved a couple of years ago, pouring hundreds of millions of dollars” into a domestic capacity war and then asking the federal government for financial support.
Branson, whose Virgin Group retains a 10% stake in Virgin Australia, sledged Qantas for petitioning Canberra with a "begging bowl” in 2014.
“It showed just how desperate they'd got in trying to drive us out of the market place.”
“They had to go cap in hand to the government (who) quite rightly told them that it’s up to them to compete on a fair, level-playing field.”
“But the very fact that the government even considered their request worried the living daylights out of me,” Branson confessed.
“I sat up late at night in the UK helping to draft advertisements and writing letters to ministers and the Prime Minister, because some of the words that were coming out of the government were truly worrying.”
“Thank God the government didn't give them any money… if they had, I don't know whether Virgin Australia would have survived, when you’d suddenly have an airline that has become a state-sponsored company getting billions of dollars, and the smaller competitor isn’t getting that.”
The cost of the 'capacity war'
Branson says Qantas’ request for a multi-billion dollar bail-out was the airline’s own fault, after it sparked an unsustainable capacity war in rostering more flights and larger aircraft on routes which couldn't support the sudden increase in seats without ticket prices and revenue taking a dive.
The then-CEO of Qantas’ domestic arm pledged that “if a competitor puts one (plane) in, we'll put two in as a group” – and the airline went to extremes such as scheduling a Boeing 747 jumbo jet onto the Sydney-Perth route.
“It only cost them a lot of money, and it obviously cost us a lot of money,” Branson reflected.
“Finally sense prevailed and Qantas then started competing in a more normal way, on quality and on price. And that sort of competition is completely fair."
“Qantas is now making good money, which proved they did not need those billions they were asking the government for, and Virgin Australia should soon start making good money as well."
"Two great airlines is better than one"
Virgin Australia CEO John Borghetti – a 30+ year veteran of Qantas who rose from the mailroom to the executive suite before taking the helm at the airline’s arch rival – describes those days as “the capacity war we had to have.”
“I’m not taking anything away from Qantas, they're a great airline, but it’s better to have two great airlines instead of just one,” Borghetti reasons.
“And when you think back, when did Australia really have a second international carrier? Ansett was only there for a little while."
“Now we have flights from Sydney, Melbourne and Brisbane to Los Angeles, and Hong Kong is our spearhead into Asia,” Borghetti explains.
“I don’t see a situation where in three years we are not operating to Hong Kong, to two places in China and another place in Asia. I just can’t see that not happening.”
The airline has come a long way from the Virgin Blue era, “and this is a long game” Borghetti reflects. “It’s involved a lot of hard work by everyone here, but the hard work of transforming the airline has largely been done.”
“We’ve invested significantly in the transformation, and growing the company has been effectively done on debt. Our focus now is to reduce our debt and improve our gearing, and we are well on track for that.”
David Flynn travelled to Hong Kong as a guest of Virgin Australia