Flighty Virgin caught in a pincer movement (Gottliebsen)
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Flighty Virgin caught in a pincer movement (Gottliebsen)
Fri "The Australian"
ROBERT GOTTLIEBSEN
Flighty Virgin caught in a pincer movement
August 06, 2004
WHEN you are challenging a marketplace giant, Virgin's Brett Godfrey and Optus's Chris Anderson and Paul O'Sullivan provide graphic illustrations of the dos and don'ts.
The first "do" is to make sure your costs are lower than your opponent and your product offering (in the segment of the market where you are competing) is seen as better.
The main "don't" is not to goad the giant into drastic remedial action.
That was the mistake Virgin made and it contributed to this week's sharp profit downgrade.
When Virgin took over the Ansett mantel it had lower costs than Qantas and with 30percent of the market it floated as a potential profit gold mine. But Godfrey believed that if he stopped at 30 to 35 per cent market share he would not be fulfilling Virgin's potential.
So, earlier this year, Godfrey made it clear he believed he had Qantas chief Geoff Dixon cornered and that Dixon had bungled the Jetstar launch.
Godfrey boasted that his costs per available seat per kilometre (ASK) were 7.73c, but Qantas costs were more than 10c and even Jetstar was higher than Virgin Blue.
Accordingly, Godfrey aimed to make Virgin Blue Australia's biggest domestic airline and if that happened, Qantas would be devastated.
Godfrey gave the giant no choice but to fight with every weapon available.
And right now Dixon is enjoying putting Godfrey into his pincer, using his better oil price hedging policies, and the combination of Jetstar at the bottom and Qantas at the top to squeeze Virgin profits.
The veteran Chris Corrigan, who is Virgin chairman, faced a similar situation against P&O after the waterfront dispute six years ago and chose to take the profits rather than pulverise his opposition.
Of course, losing this fight does not mean Godfrey loses the war, but he may have learned the short-term dangers of goading the giant.
For whatever reason, Godfrey has been remarkably restrained about Qantas's thrust to convince ACCC chief Graeme Samuel to allow Air New Zealand to work in collaboration with Qantas.
Godfrey merely points out the prices on the New Zealand route would have to rise anyway. And Godfrey would say that in time Virgin's lower costs will win the battle.
Robert Gottliebsen writes for The Australian and hosts Business Daily on ABC Asia Pacific TV.
==========================================
ROBERT GOTTLIEBSEN
Flighty Virgin caught in a pincer movement
August 06, 2004
WHEN you are challenging a marketplace giant, Virgin's Brett Godfrey and Optus's Chris Anderson and Paul O'Sullivan provide graphic illustrations of the dos and don'ts.
The first "do" is to make sure your costs are lower than your opponent and your product offering (in the segment of the market where you are competing) is seen as better.
The main "don't" is not to goad the giant into drastic remedial action.
That was the mistake Virgin made and it contributed to this week's sharp profit downgrade.
When Virgin took over the Ansett mantel it had lower costs than Qantas and with 30percent of the market it floated as a potential profit gold mine. But Godfrey believed that if he stopped at 30 to 35 per cent market share he would not be fulfilling Virgin's potential.
So, earlier this year, Godfrey made it clear he believed he had Qantas chief Geoff Dixon cornered and that Dixon had bungled the Jetstar launch.
Godfrey boasted that his costs per available seat per kilometre (ASK) were 7.73c, but Qantas costs were more than 10c and even Jetstar was higher than Virgin Blue.
Accordingly, Godfrey aimed to make Virgin Blue Australia's biggest domestic airline and if that happened, Qantas would be devastated.
Godfrey gave the giant no choice but to fight with every weapon available.
And right now Dixon is enjoying putting Godfrey into his pincer, using his better oil price hedging policies, and the combination of Jetstar at the bottom and Qantas at the top to squeeze Virgin profits.
The veteran Chris Corrigan, who is Virgin chairman, faced a similar situation against P&O after the waterfront dispute six years ago and chose to take the profits rather than pulverise his opposition.
Of course, losing this fight does not mean Godfrey loses the war, but he may have learned the short-term dangers of goading the giant.
For whatever reason, Godfrey has been remarkably restrained about Qantas's thrust to convince ACCC chief Graeme Samuel to allow Air New Zealand to work in collaboration with Qantas.
Godfrey merely points out the prices on the New Zealand route would have to rise anyway. And Godfrey would say that in time Virgin's lower costs will win the battle.
Robert Gottliebsen writes for The Australian and hosts Business Daily on ABC Asia Pacific TV.
==========================================
