Virgin Australia Case Study

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What have competitors done that has resulted in Virgin Australia’s introduction of different classes of travel?

Originally a one-class service, with the introduction of Jetstar in 2004 and Tiger Airways Australia in 2007, Virgin Blue was forced to re-think its original market offering of cheap, no-frills air travel, aimed predominantly at the leisure market. Tiger and Jetstar were undercutting their prices and making a large dent in the leisure market,. As a result, Virgin Blue introduced a premium economy cabin class in March 2008. This aimed to appeal to the business end of the travel market, thus emerging as a market challenger (with Qantas being the business travel market leader). Instead of purely focusing on getting the customer from A to B for a cheap price, they aimed to increase the customer experience of those choosing to fly premium economy by: * Making the customer feel important with priority check in and boarding, in flight entertainment and red leather seating in the front 3 rows of the plane. * Increasing customer comfort with more leg room and only 2 seats per row, with an additional refreshments table for extra space. * Giving customer peace of mind with increased baggage allowance and fully flexible and refundable fares. * Making the customer feel “classy” with free lounge access. * Appealing to the customer’s basic needs of being fed and hydrated with the introduction of on board food and beverages.

In May 2011 Virgin Blue became Virgin Australia, aiming to appeal more to the higher end market, with the subsequent introduction of business class in January 2012 (see figure 1).

Figure 1. Virgin Australia business class advertisement, January 2012.

Do you think that Virgin Australia’s introduction of classes of travel has adversely affected its share of the leisure traveller market? If so who and who have / will their passengers default to?

Leisure travellers generally want to travel, but do not demand to travel. They would weigh up the following factors in making their decision of which carrier to fly with: * cost (monetary, customer cost)

* time / date of available flights (product, customer benefit) * in-flight and airport services (services and image, customer benefit) * loyalty program - whether they would obtain frequent flyer points and if they are already with a frequent flyer program, which level they are at and which benefits they receive from it (product, customer benefit) * reliability (psychic, customer cost and product, customer benefit) * safety (personal customer benefit)

* environmental (personal / image, customer benefit)
settling with the carrier who delivers the best customer delivered value.

As a result of the economic downturn, for a large share of the leisure market, monetary customer cost would be the predominating factor – if the fare is cheap enough this would outweigh the lack of services. As Tiger, Jetstar and Virgin offer low fares but generally for a limited time and for a limited travel window4, leisure travellers would choose the cheapest fare within the timeframe they wish to fly. Virgin is renowned for its reliability whereas the other low-cost carriers are not, thus if the fare was at a comparable price, travellers would choose to fly with Virgin; actually reaching your destination would be high on the list of demands to most travellers.

Explain which types of travellers may be inclined to switch to an alternative airline and which types will not – Clearly explain why they would shift or why they would stay.

What types of business travellers that may traditionally select legacy / full service airlines such as Qantas do you think would have switched to travelling with Virgin Australia – What would be the reason for the shifts in loyalty?

For business travellers, monetary cost is generally not a deciding factor as the need to arrive at the destination (on time) greatly outweighs the burden of the costs...
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