Borghetti keeps close eye on expansion

Last updated 05:00 14/01/2013

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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.

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.

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, not 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.

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 will be a test of Borghetti's abilities.

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.

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. Fairfax Australia

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- BusinessDay.co.nz

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