A veteran pilot for Virgin

There is something ironic, but also revealing, about the choices of chief executive the two major domestic carriers have made.

Qantas chose Alan Joyce, then running its Jetstar discount brands, over the vastly experienced John Borghetti, to run a group whose flagship brand is a full-service airline. Virgin Blue has chosen to replace its cofounder, Brett Godfrey, with Borghetti rather than import an executive with low-cost carrier experience.

Those choices say a lot about the strategies the two groups are pursuing. Qantas, facing competition from Virgin Blue and Tiger in its core domestic market, is accelerating an already aggressive cost-cutting program.

Internationally, faced with a dire aviation market, increasing competition from Middle Eastern and Asian airlines, and the emergence of international low cost carriers, including Virgin Blue's V Australia, Qantas is shifting capacity to Jetstar and stripping the first class seats from all but its core routes (Turbulent times for Qantas, February 18).

Virgin Blue, on the other hand, is continuing to drift up-market, seeking to make inroads into the traditional stranglehold Qantas has had over business and government accounts and the premium yields that traffic generates.

Borghetti is a near-perfect choice to accelerate the 'New World Carrier' strategy Godfrey developed in response to the collapse of Ansett, which enabled Virgin Blue to shift from its original conventional low-cost carrier positioning into a low-cost version of a full-service network carrier and attack the bottom end of Qantas' premium market.

He was executive general manager of Qantas for the six years before he resigned from the group last year after Joyce's appointment, with responsibility for the Qantas-branded full-service airlines. Borghetti oversaw the overhaul of the Qantas product and customer service models and the massive upgrading of its terminals. Geoff Dixon was the master strategist and marketer; Borghetti the master implementer.

His challenge will be to build on the platform Godfrey has created and maintain and exploit Virgin Blue's low-cost base to drive yield premium as the market recovers from the mauling it experienced during the financial crisis. It's a complicated challenge because Virgin Blue needs to be able to compete with Jetstar and Tiger at one end of the market and Qantas at the other.

Last year's capital raising, Virgin Blue's surprisingly strong first half profitability, the recovery market and the alliance between V Australia and Delta Airlines on the trans-Pacific route, mean that when Borghetti takes up his new post in May he will have a very sound platform to build from (Virgin Blue's Pacific solution, December 11, 2009; Virgin blue at cruising altitude, July 27, 2009).

The other aspect of the legacy Godfrey will leave after a decade of running the group will be a very strong brand and a distinctive culture. Borghetti would be as aware as anyone of the continuing weight, despite the rise and rise of Jetstar and the diminishing role of the Qantas brands, of the legacy issues that encumber Qantas.

Godfrey, who had a key role in the choice of his successor, had made it clear that cultural compatibility was as important as any other qualification in the CV of the new chief executive. Borghetti himself identified the culture of Virgin Blue as one of the attributes of the group that excited him.

Virgin Blue conducted a global search for the position and looked closely at executives with low-cost carrier experience but ultimately opted for someone who understood its key domestic market, understood its key competitor intimately, understood the business and government markets and had the experience V Australia will need as it expands its route network internationally.

From Qantas' perspective, Borghetti is a known quantity and Virgin Blue's aspirations are now even clearer. It won't be unhappy to see the back of the unpredictable and innovative Godfrey gone but will be conscious that the choice of Borghetti reflects Virgin Blue's confidence in its position and strategy and signals an even more focused attempt to carve into its core.