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Virgin: If fare war comes, we will win

written by australianaviation.com.au | July 25, 2012

Virgin says it can cut costs faster and further than Qantas if the rivalry between the two airlines devolved into an all-out fare war. (John Absolon)

On the eve of a battle they insist they don’t want, Virgin Australia’s top officials appear keen to make a blunt and simple point: If war with Qantas comes, Virgin is going to win.

The latest bit of pre-war posturing came from Virgin chief operating officer Sean Donohue, who told Fairfax that Virgin would be able to cut costs faster and further than Qantas in the event of a fare war.

“We are not interested in fare wars or capacity wars [but] if it does get to that state, we have a significantly lower cost base than Qantas,” Mr Donohue said. “We think we have the opportunities to even widen that gap further.”

Mr Donohue’s comments came days after Virgin CEO John Borghetti embraced a business class “price war” with Qantas, revealing in an interview with the ABC that business fares had fallen 25 per cent since Virgin’s aggressive assault on the corporate market began last year. Mr Borghetti, however, deflected questions about whether Virgin’s business class offerings were profitable at those prices.

That, of course, points to the reality that an airline war is likely to be a battle of attrition in which both sides take considerable damaged. Mr Donohue told Fairfax that he was keenly aware of that fact, and said Virgin’s top priority remained profitability rather than market share.

“Having worked in the US industry for 24 years, I have seen what a singular focus on market share can do to airlines – it can put a lot of airlines in bankruptcy,” he said.

But Mr Donohue was also quick to point out Virgin’s claimed advantages. In addition to its lower cost base, he said, Virgin could also turn around its aircraft faster — in just 35 minutes at Sydney and Melbourne airports, compared to 55 minutes for Qantas. Qantas, for its part, disputed both claims, claiming that it could turn around its 737 aircraft in 35 minutes and its 767s in 40 minutes and arguing that Virgin’s costs had risen significantly since its days as a budget carrier.


At any rate, time will tell, and with Qantas this month beginning a massive capacity dump into the country’s busiest east coast routes in a move squarely aimed at squeezing Virgin, it may begin telling sooner rather than later.






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