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
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Ultimately, the more satisfied a customer is, the less likely they are to switch companies. A Roy Morgan poll in 2011 showed that Qantas and Virgin passengers were amongst the most satisfied air travellers (see figure 2), thus they would be more unlikely to switch airlines compared to Jetstar or Tiger customers.

Business travellers whom have the choice as to who they fly with, will often stay with one partner due to reward points. Velocity rewards was introduced in 2005 with status levels introduced in 2007 aiming to attract business customers and to compete with Qantas’ frequent flyer program. Rewards obtained by the two programs are now very similar, with memberships for both programs being able to be obtained free of charge.

Business travellers are more likely to have a large number of points, which they wish to build upon, and thus are more unlikely to switch to another carrier. Leisure travellers may also be signed up to a rewards program, but more likely to switch if they do not have many points accumulated.

Figure 2. Customer satisfaction with domestic airlines used from December 2009 – July 2011.

With the introduction of its business class in 2012, Virgin offered all Velocity Frequent Flyer members flying business class double velocity points and status credits. Another recent promotion was the introduction of a Virgin Flyer credit card, which when coupled with a Velocity

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