Having made such an impact with Virgin Blue inside Australia, Sir Richard Branson hopes to extend his low-cost model abroad under a Pacific Blue brand, KEVIN SINCLAIR reports.

Qantas Airways executives were apt to scoff when Virgin Blue’s first flight lifted off from Brisbane Airport on August 31, 2000. Others in the travel industry likewise looked askance; after all, the mighty Flying Kangaroo had seen main domestic rival Ansett Australia hit the ropes and it had a vast advantage serving its home nation.

But Virgin’s canny Sir Richard Branson and his marketing team had done their homework. They believed there was scope in the blue Australian skies for an airline that offered reliable service at a reasonable price.

“Australia had a reputation for having outrageously expensive domestic air fares due to the Qantas-Ansett duopoly,” Virgin Blue head of communication and strategy, Mr David Huttner, said. “The market was crying out for a low-fare airline to bring fares to a more affordable level for the average Australian.”

That proved a shrewd assessment.

Starting with two Boeing 737-400s, Virgin Blue swiftly gained customers. Expansion has been so startling that it now flies 37 aircraft, all B737s next generation, a mixture of 700 and 800s.

It is looking to expand not only in terms of new routes but boosting frequencies on key business routes such as Sydney-Melbourne.

And then it will be casting its eyes abroad. New Zealand and Hong Kong are likely first stops. This growth will probably be under the Pacific Blue brand (see box). But the first phase of any international expansion will be aimed at South Pacific destinations.

Sir Richard has never been known as a businessman who ducks a fight. He took on British Airways; he now sees Qantas as a doughty target.

Confronting the big boy on the block posed many challenges, so many that Virgin Blue veterans find it hard to pinpoint the biggest ones.

“Starting an airline from scratch involved everything from sourcing aircraft, producing manuals, gaining AOC (Air Operator’s Certificate), recruiting staff and setting up systems,” Mr Huttner said.

Just getting airport access was tough; existing carriers were not too keen on sharing facilities. Virgin staffers chuckle as they recall having to build a “tent” by the side of the tarmac in Adelaide and a glorified tin shed in Sydney.

The Australian character loves a “battler” – an underdog who takes on the mighty and prevails. They saw Sir Richard as a people’s champion who was giving them service at a good price.

“Australians are now used to the concept of a low-fare airline where you pay for your onboard meals and other frills but get great value fares,” Mr Huttner said.

“They have spoken loudly and clearly that they will no longer be held ransom by traditional carriers.”

And that is not only mum and dad and the kids. Virgin Blue is also appealing to cost-conscious firms whose accountants realise they do not have to pay top dollar to send staff around the huge country.

Business traffic is becoming a major emphasis for Virgin Blue, especially as the airline boosts frequencies on business routes.

“It’s fair to say we won’t get the top-end corporates flying on Virgin Blue,” Mr Huttner said. “But the majority of small to medium companies, as well as some high-flying organisations, have switched to Virgin Blue as they appreciate the difference it makes to their bottomline.”

Recently introduced Blue Rooms (corporate lounges) at two key airports appeal to the travelling executives and self-employed. More are on the way.

There is also a Blue Zone, where extra legroom seats in the aircraft are available for A$30 (US$21) on top of the fare, catering to growing number of business travellers.

Passengers do not starve. The “A La Carte” meals include gourmet wraps like tandoori chicken and salad, sandwiches and breakfast packs. Thirsty Aussies can buy beer, wine, pre-mixed spirits and soft drinks.

Without disclosing exact percentages of segments, a Virgin Blue spokesman said the airline had three major markets – visiting friends and relatives, leisure and business.

Mr Huttner stressed that relations with travel management companies (TMCs) and corporate travel clients were important to Virgin Blue. “We’ve made tremendous progress with the TMCs as they have realised that their corporate customers expect to be given all choices that are available in the market,” he explained.

“Virgin Blue has significantly grown its corporate client base and now has accounts with more than half of Australia’s top 50 corporations. Certainly corporate travel managers who have adapted to the Virgin Blue approach have done well by this relationship.”

The big boss is also happy with progress. Responding to questions from BTN Asia-Pacific, Sir Richard said many of the best ideas came from staff and not management.

“The trick is to create an environment where those ideas can rise to the surface,” Sir Richard said.

“Low fares usually get people to try us, but we have been able to retain their loyalty because we offer outstanding service, brand new aircraft and a world standard on time performance.

“These are the key drivers for the frequent flyer,” Sir Richard said.