Virgin Blue and Air New Zealand Alliance

• Tweet
  
  
• 
  
  
• 
  
  

• Tweet

After days of speculation, Virgin Blue and Air New Zealand have announced that they intend to seek regulatory approval for an alliance on the Trans Tasman (route between Australia and New Zealand). The proposed alliance will allow the airlines to collaborate on route structures, product planning, advertising, ground handling, code sharing and frequent flyer programs. Both Virgin Blue and Air NZ will today submit necessary paperwork to the Australian Competition and Consumer Commission and the New Zealand Ministry or Transport. 

The alliance will only apply on connecting international regional airports and does not include domestic travel within either country. 

Brett Godfrey, Virgin Blue CEO, said that “this market stimulation is likely to allow Air New Zealand and Virgin Blue to harness the alliance benefits to start new routes or additional frequencies. We believe we are well matched and the timing is good and incoming Chief Executive, John Borghetti, thoroughly supports this strategy”. 

Mr Godfrey and Air NZ chief Rob Fyfe said the alliance would deliver cheaper airfares to trans-Tasman travellers, as well as increased frequency, better connections, loyalty-scheme reciprocity and expanded access to airport lounges. 

It was just a few years ago that regulators put an end to a similar agreement between Qantas and Air New Zealand, but that union would have seen the duo consume about 70 or 80 percent of the market. A partnership between Pacific Blue and AirNZ would mean that they represent about 50% of the Tasman market – so they will be far more likely to escape the scrutiny of regulators. There are currently 8 airlines flying the international sector. 

8 Airlines fly the Tasman

Revenue generated across all Tasman sectors currently operated by either airline, or that which is developed under the agreement, will be shared between the two carriers. 

Will airfares go down as a result of the alliance? Who knows. Despite the assurances from both sides of the pond, it’s hard to say with any degree of certainty how the relationship will ultimately affect airfares, when airfares will go down… and for how long. Shared resources will most certainly drive down operating costs, and the sleeping arrangement will likely attract more passengers – but will those savings be passed onto the public when fares are seemingly as low as anybody could realistically expect – especially when Air New Zealand are (and have been) operating at a loss in the market for a number of years. 

Components of the Agreement 

As per the attached release to the Australian Stock Exchange, Virgin Blue have outlined four key components to the alliance: 

1.  A broad free-sale code share arrangement covering: 

• All Tasman sectors currently operated by either airline
• Domestic Australian sectors as part of a connecting Tasman journey
• Domestic new Zealand sectors as part of a connecting Tasman journey

(Note: A broad free-sale code share arrangement involves both airlines selling tickets for each other’s flights under its own airline code.) 

2.  A revenue allocation agreement under which: 

• Revenue generated across all Tasman sectors currently operated by either airline, or which may be developed under the agreement, will be allocated between the two carriers, and;
• A joint trans-Tasman Network Planning & Revenue Management Team representing both airlines will oversee the Tasman operation

3.  A frequent flyer co-operation agreement that will provide reciprocal loyalty scheme benefits to members of Air New Zealand’s Airpoints loyalty programme and Virgin Blue’s Velocity Rewards programme. 

4.  A lounge co-operation agreement that will ensure lounge access to qualifying guests of either airline. 

Rob Fyfe Signing Agreement as posted to Twitpic.com

Product Offering 

Air New Zealand regularly rates well in consumer surveys for their exceptional service – despite their bloated legacy brand. Pacific Blue – despite having an exceptional product offering – is not a full service airline. There’s no in-flight meal (unless it’s purchased), there’s no integrated in-flight entertainment (PB is the only Virgin Blue airline without integrated IFE), and if you want a drink you’ll have to pay for it. There’s a clear distinction between the category of service and it seems to have ruffled the feathers of our highly brand-protective Kiwi brethren. Unless the product offerings are synchronised there’s a chance we’ll end up with the situation that repeats itself on the ‘mainland’ with disgruntled Qantas passengers buying a full fare Qantas ticket and then boarding a budget Jetstar flight. 

Brett Godfrey himself states in the attached press release that “a great alliance should deliver great value and consistent product and service standards and that is where we will make new inroads”. 

Airline of the Future 

An area of the press release that has remain somewhat unreported is Brett Godfrey’s comment, “Virgin Blue is close to unveiling our ‘Airline of the Future’ concepts which in our 10th year will reveal the fresh direction of the ‘new blue’”. 

Air New Zealand CEO, Rob Fyfe, has said that “[Virgin Blue] haven’t announced the detail yet but they’ve announced they’re going to roll out an Airline of the Future product and we know that that is going to be very, very similar to what our product offering is… our belief, and what our alliance agreement requires, is that Virgin’s product offering and our product offering are aligned”. Mr Fyfe goes on to say that “if you don’t have product alignment it’s really hard to make these sorts of alliances work.” 

So, what’s the Airline of the Future, and what does it mean for the group? We can only assume that Virgin is moving away from (or building upon) the New World Carrier concept that it has defined, and plans on expanding the concept to include additional services that are not normally aligned with any lower cost model. 

The Centre for Asia Pacific Aviation has said Virgin needs to consolidate its corporate position and expand international relationships and its network to compete effectively. 

Perhaps this agreement is part of a broader concept that Virgin Blue can replicate with other like-operated international carriers? There are a number of rumours that support the belief that Virgin is already actively engaging in an effort to further consolidate their corporate position.  There are whispers that the recent order of Boeing 737′s will be delivered in a true three-class configuration. In addition, it’s rumoured that incoming CEO, John Borghetti, is anxious to consolidate the Virgin group of airlines into one identifiable brand. Perhaps the new concept will be unveiled as Borghetti introduces himself to the airline, public and shareholders. 

Air New Zealand shares traded flat at $0.9898 after the announcement, while Virgin Blue dropped 3.4 percent to $0.5319 before recovering slightly to be down 2.5 percent at $0.5365 by early afternoon. 

Regulators expect to take 6-months to examine the proposal.

1. Air New Zealand TV commercial: “Nothing to Hide”
2. Virgin Blue Unveils its New Look
3. New Virgin Blue TV campaign: Where Great Ideas Fly’
4. Welcome Virgin Australia – Pictures
5. Will Virgin Blue re-brand as Virgin Australia?
6. Virgin Atlantic’s Charity Event at The Ivy, Sydney
7. Virgin Blue ‘NextGen’ Board Game