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Borghetti's progress: so far, so good

10 Jan 2013 THE AGE - MATT O'SULLIVAN


UNLIKE most of his corporate peers, John Borghetti stayed home in Sydney over the Christmas holidays.

Virgin Australia's chief executive prefers to be around to keep a close watch over the airline as it makes a major overhaul of its booking and check-in system this weekend.

As he does with his fleet of classic cars, he wants Australia's second-largest airline to be a well-oiled machine.

Almost three years into his tenure, the Italian-born Borghetti has hardly put a foot wrong as he reshapes Virgin as an upmarket competitor to Qantas.

Yet the question remains whether there is a chink in Teflon John's armour.

It is a question that must regularly exercise the minds of his counterparts at Qantas, including Alan Joyce, the Irishman who beat Borghetti to the top job at the Flying Kangaroo four years ago.

And as Virgin attempts to take control of Tiger Australia and West-Australian airline Skywest, does Borghetti risk overextending the airline he took the reins of almost three years ago?

For now, the biggest challenge facing Borghetti is winning over competition tsar Rod Sims. Sims has made clear that the Australian Competition and Consumer Commission will approach the deals from a competition viewpoint, rather than an aero-political one. The impact on consumers is likely to trump concerns about whether Australia can sustain a third airline player in an independent Tiger.

If the regulator knocks back the bid for a controlling stake, it will leave Virgin fighting both Tiger and Jetstar for bums on seats at the back of their planes. Although its focus is on snaring corporate travellers from Qantas, Virgin still relies heavily on leisure passengers.

Of course Borghetti, 57, has found ways around hurdles before. He managed to persuade regulators to ditch their opposition to Virgin's plans to form close alliances with Air New Zealand and US airline Delta.

In creating a Qantas Mini-Me, one of his biggest challenges will be putting Virgin's Velocity loyalty scheme on a par with Qantas' Frequent Flyer program, which remains its most potent weapon.

The quicker Virgin can improve its Velocity program in the eyes of the travelling public, the sooner it will be able to heap real pressure on Qantas for lucrative corporate customers.

Neil Thompson, the chief executive of Velocity, made clear this week that he will be upping the ante over the coming months by making additions to the loyalty program. The former Qantas executive's focus is for Velocity to become as "member-centric as we can but also to start to innovate".

It will involve widening the range of Velocity's partners, including online and bricks-and-mortar retailers.

For Borghetti, managing relationships has always been a priority. Virgin has four dominant shareholders on its register: Richard Branson's Virgin Group, Air New Zealand, Singapore Airlines and Etihad. And for now, they are content to share in the benefits of a rejuvenated airline. But one can only imagine the bunfight if Virgin fails to live up to its promises.

Managing their competing interests - especially those of Etihad and Singapore Airlines - will be a test of Borghetti's abilities.

A four-decade veteran of the aviation industry, he also knows that shocks such as natural disasters come out of left field - and on a regular basis.

Exercising the mind this year will be the confidence of the nation's consumers and their propensity to spend. After all, it's the economy, stupid. And that is the case for airlines, even more than for most sectors.

The hope for Borghetti will be that the economy grows at the rate on which he has based his business case. If it doesn't, the number of excess flights in the domestic market will rise, putting further pressure on yields - or returns from fares - for both Virgin and Qantas. But Virgin does not have the balance sheet strength of Qantas to withstand a protracted fare war.

Fortunately, the Australian economy is showing signs of resilience in the new year, helped by the soaring price of iron ore. Elsewhere, China's leaders seem intent on stoking their country's economy, the US has avoided falling off the fiscal cliff and Europe continues to kick the can.

As Borghetti takes Virgin upmarket, one of the biggest challenges will be to control costs as he spends on big-ticket items such as airport lounges. He will need to retain Virgin's significant cost advantage over Qantas.

This weekend marks another chapter in the realisation of his dream to create a multi-faceted challenger to Qantas and its budget arm Jetstar. The switch in the booking and check-in system from Navitaire to Sabre's global distribution system is no small matter.

So far, Borghetti's execution of his long-term strategy has been exquisite. He has a knack for surprises as he attempts to make Virgin hum like his Porsche 911.

But the airline game is a high-wire act where sudden shocks can test even the best - especially when one has so many balls in the air.

Next month investors will see the full extent of the pain Virgin has endured in the first half of this financial year from the duel in the skies with Qantas, Jetstar and Tiger. It won't be pretty for any of them.